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International
Transportation
and Trade
P5 Land Transportation, Air Freight and
Ocean Freight
Course
Material
Referenc
e
Important Dates
▶ Assignment 4/11/2024
▶ Midterm 4/19/2024
▶ Final 4/26/2024
This Photo by Unknown Author is licensed under CC BY-SA-NC
Land Transportation in
International Trade: Connecting
the Global Supply Chain
In the dynamic world of international
trade, efficient and reliable
transportation is essential to the
movement of goods across borders.
Land transportation plays a pivotal
role in connecting various modes of
transportation, bridging the gaps
between sea and air transport, and
making the last-mile delivery to its
destination. This essay explores the
significance of land transportation in
international trade, highlighting its key
components, challenges, and the
evolving landscape of this crucial link
in the global supply chain.
The Role of
Land
Transportation
in International
Trade
Connecting Modes of Transportation: Land transportation acts as a
bridge between different modes of transportation, facilitating the smooth
flow of goods. For example, it links seaports and airports to inland
distribution centers and manufacturing hubs. This connectivity is
essential for creating a seamless supply chain, reducing transit times,
and ensuring the timely delivery of goods.
Last-Mile Delivery: In international trade, the journey of goods doesn't
end at the port or airport. Land transportation is responsible for the "last
mile" delivery, bringing products from distribution centers to their final
destinations, which can be warehouses, retail stores, or even directly to
consumers. The effectiveness of last-mile delivery significantly impacts
customer satisfaction and the competitiveness of businesses.
Regional Distribution: Land transportation is crucial for efficient
regional distribution, allowing goods to reach specific markets,
manufacturing facilities, and storage locations. This is particularly
important for industries with extensive regional supply networks.
Customs Clearance and Border Crossings:Land transportation
facilitates the movement of goods across borders and through customs
checkpoints. Trucks and trains transport cargo to and from border areas,
streamlining the customs clearance process and reducing delays.
Components of
Land
Transportation in
International
Trade
1. Road Transport: Road transport, primarily through trucks and
trailers, is a dominant mode of land transportation for international
trade. It offers flexibility, accessibility, and the ability to reach remote
or underserved areas. Trucking is particularly important for just-in-
time inventory systems and the transportation of perishable or high-
value goods.
2. Rail Transport: Rail transportation is a cost-effective and
environmentally friendly option for long-distance cargo transport. It's
often used to move bulk cargo, such as minerals, energy resources,
and large quantities of goods, between regions and countries. Rail
networks are vital for connecting seaports to inland areas.
3. Intermodal Transportation: Intermodal transportation combines
different modes of land transportation, such as trucking and rail, with
sea and air transportation. Containers are often used to facilitate the
easy transfer of goods between different modes, enhancing
efficiency and reducing handling.
4. Infrastructure and Logistics: Infrastructure development, including
roads, railways, and logistics hubs, is a significant driver of efficient
land transportation. Well-designed transportation networks and
logistics facilities help reduce congestion, enhance connectivity, and
improve the overall efficiency of international trade.
Challenges
and Issues in
Land
Transportation
1. Border Crossings and Customs Procedures: Complex customs procedures,
varying regulations, and differing standards at international borders can
result in delays and increased administrative burdens.
2. Traffic Congestion: Urban congestion and traffic delays can disrupt delivery
schedules and increase transportation costs. Managing urban logistics is an
ongoing challenge for businesses.
3. Infrastructure Gaps: Inadequate or outdated transportation infrastructure
can lead to inefficiencies in land transportation. Governments and the
private sector must invest in infrastructure development to maintain
competitiveness.
4. Environmental Impact: The environmental impact of land transportation,
especially road transport, is a growing concern. Emissions, fuel
consumption, and their contribution to climate change require sustainable
solutions.
5. Security and Safety: Ensuring the safety and security of goods in transit is
crucial. Land transportation is vulnerable to theft, accidents, and other
risks that can disrupt the supply chain.
The Evolving
Landscape of Land
Transportation
1. Digitalization: Digital technologies are transforming land
transportation. Tracking and tracing systems, route
optimization, and real-time data are enhancing visibility
and efficiency.
2. Sustainability: The emphasis on sustainability is driving
the adoption of alternative fuels, electric vehicles, and
green logistics practices in land transportation.
3. Automation and Autonomous Vehicles: Automation,
including the use of autonomous trucks, is poised to
revolutionize the industry, offering the potential for safer,
more efficient, and cost-effective transportation.
4. Global Supply Chain Integration: The increasing
integration of global supply chains demands greater
efficiency in land transportation, which is further
facilitated by advanced technologies and improved
logistics coordination.
5. Challenges and Opportunities of E-commerce: The
growth of e-commerce is impacting land transportation,
demanding faster, more flexible, and customer-centric
last-mile delivery solutions.
Conclusion
Land transportation is an indispensable link
in the global supply chain, connecting
modes of transportation, facilitating the
last-mile delivery, and ensuring the efficient
movement of goods in international trade.
As the landscape of international trade
evolves, land transportation must adapt to
meet new challenges and opportunities.
Advancements in digitalization,
sustainability, automation, and supply
chain integration are reshaping the
industry, offering the potential for greater
efficiency and sustainability in the
transportation of goods across borders. As
international trade continues to grow and
diversify, the role of land transportation
remains vital to the world's interconnected
economy.
The Sky's the Limit: Air
Freight in International
Transportation and Trade
The field of international
transportation and trade is continually
evolving, and one mode of
transportation that has played a
pivotal role in this dynamic
environment is air freight. The
concept of swiftly moving goods
across borders through the air is a
game-changer for global commerce.
This essay explores the significance
of air freight in international trade,
delving into its history, key
components, challenges, and the
evolving landscape of this vital aspect
of global logistics.
The Role of Air Freight
in International Trade
1. Speed and Time Sensitivity: Air freight is
unparalleled in its ability to move goods quickly. It's
the go-to mode when time sensitivity is paramount,
offering swift delivery of high-value and time-critical
goods. In industries such as electronics,
pharmaceuticals, and fashion, air freight ensures
products reach markets on time.
2. Global Reach: Air freight connects distant regions
efficiently. It reaches remote areas that may not be
accessible by other modes, facilitating the
distribution of goods worldwide. It's especially vital
for regions lacking adequate infrastructure.
3. Efficiency and Precision: Air freight is a precise
mode of transportation. Airlines adhere to strict
schedules, and handling is well-regulated. This
precision minimizes risks associated with handling
and exposure to the elements.
4. Capacity for Perishable Goods: Air freight is the
preferred choice for perishable goods such as
seafood, fresh produce, and pharmaceuticals. The
ability to maintain controlled temperatures and rapid
transit ensures product quality.
5. Security and Safety: Air freight offers a secure
environment. Goods are closely monitored, reducing
the risk of theft and damage. Airlines invest heavily
in security measures to protect cargo.
Components of Air
Freight in International
Trade
1. Cargo Airlines: Cargo airlines are dedicated to
transporting goods, both domestically and internationally.
Some well-known cargo airlines include FedEx, UPS,
DHL, and Cargolux. These companies maintain
extensive networks and offer a range of services.
2. Airports and Air Cargo Facilities: Airports worldwide
have dedicated cargo terminals, equipped with advanced
handling systems and storage facilities. Major
international airports such as Hong Kong International
Airport, Memphis International Airport, and Frankfurt
Airport serve as crucial hubs for air freight.
3. Air Cargo Containers: Cargo is transported in specially
designed containers to ensure its safe handling and
protection. Standardized container sizes streamline
operations and improve efficiency.
4. Freight Forwarders and Customs Brokers: Freight
forwarders coordinate and manage air cargo shipments
on behalf of shippers, handling all aspects from booking
cargo space to customs clearance. Customs brokers
ensure that goods meet the customs requirements of the
destination country.
5. Regulations and Documentation: Air freight involves
extensive documentation, including air waybills, invoices,
and packing lists. Compliance with international air cargo
regulations is essential to ensure smooth operations.
Challenges and
Issues in Air Freight
1. Costs: Air freight is generally more expensive than
other modes of transportation due to the high costs
of fuel, aircraft maintenance, and security measures.
2. Capacity Constraints: Air freight capacity can be
limited, leading to capacity constraints during peak
seasons or in times of exceptional demand.
3. Environmental Concerns: Air freight's
environmental impact, including carbon emissions,
is a growing concern. Balancing its rapid
transportation benefits with sustainability remains a
challenge.
4. Security: Ensuring the security of air cargo is a top
priority. Regulatory requirements and the potential
for cargo theft and tampering demand ongoing
vigilance.
5. Global Trade Disruptions: Air freight can be
sensitive to global trade disruptions, such as natural
disasters, pandemics, and political conflicts,
affecting routes and schedules.
The Evolving
Landscape of Air
Freight
1. Technological Advancements: Technology,
including real-time tracking and digital
documentation, is transforming air freight
operations, enhancing transparency, visibility, and
efficiency.
2. E-commerce Impact: The growth of e-commerce is
driving the need for faster and more flexible air
freight solutions to meet customer demands for
rapid shipping.
3. Sustainable Initiatives: Airlines and shippers are
investing in sustainable practices to reduce the
environmental impact of air freight, such as adopting
biofuels and optimizing routes.
4. Innovation in Cargo Aircraft: New-generation
cargo aircraft offer increased capacity and fuel
efficiency, further improving the cost-effectiveness of
air freight.
5. Global Trade Expansion: As international trade
continues to expand, air freight is expected to play
an even more significant role in connecting global
markets and industries.
Conclusion
Air freight is a critical and indispensable
element of international trade, offering
speed, efficiency, and precision in the
transportation of goods across the world. Its
importance extends to diverse industries,
from manufacturing to perishable goods, and
is further magnified in a world characterized
by globalization and rapid changes in
consumer behavior. As air freight continues
to evolve, the challenges of cost, capacity,
security, and sustainability are met with
technological advancements, sustainable
initiatives, and innovation in cargo aircraft. In
a world where time is of the essence and
global connectivity is a necessity, air freight
is poised to remain a dominant force in the
realm of international trade and logistics.
Navigating the Seas of Global
Trade: Ocean Freight and Key
Terminologies in Shipping
Ocean freight, also known as sea
freight, is the backbone of
international trade. The vast and
interconnected network of maritime
transportation is essential for the
movement of goods across the globe,
serving as a conduit for global
commerce. This essay provides an in-
depth exploration of ocean freight in
international transportation and trade,
along with an examination of key
shipping terminologies that form the
foundation of this vital industry.
Key Terminologies in Shipping
1. Vessel Voyage: A vessel voyage refers to a specific journey undertaken by a ship from
one port to another. Each voyage is unique and may involve multiple stops (ports of
call) for loading and unloading cargo.
2. Gross Weight and Net Weight: Gross Weight: Gross weight represents the total
weight of a shipment, including the weight of the cargo, packaging, containers, and any
other materials used for transport. It is often used to determine shipping costs and
verify weight limits for vessels.
1. Net Weight: Net weight, on the other hand, is the weight of the cargo itself,
excluding any packaging or additional materials.
3. Demurrage: Demurrage is a charge levied on cargo that remains in a port or on a
vessel for longer than the agreed-upon time. It is essentially a penalty for delays and
encourages the timely movement of goods.
4. Onboard: "Onboard" is a term used to confirm that a shipment has been loaded onto a
vessel. When cargo is declared as "onboard," it means that it is now in the possession
of the carrier and will be transported to its destination.
5. RFS (Rail, Road, Sea): RFS is an integrated transportation system that combines rail,
road, and sea transport to move goods seamlessly between different modes of
transportation. It is particularly important for moving cargo to and from inland locations.
6. Transshipment: Transshipment refers to the process of unloading cargo from one
vessel and loading it onto another during an intermediate stop along a voyage. This is
common when goods are transported from a smaller vessel to a larger one for long-
haul shipping.
The biggest port in the world
1. Singapore Port (Port of Singapore): Singapore is one of the busiest ports in the world.
In 2020, the Port of Singapore handled approximately 36.9 million twenty-foot
equivalent units (TEUs) of containers.
2. Shanghai Port (Port of Shanghai): The Port of Shanghai is one of the largest and
busiest ports globally. In 2020, it handled approximately 43.5 million TEUs.
3. Hong Kong Port (Port of Hong Kong): As of 2020, the Port of Hong Kong handled
approximately 18 million TEUs. Hong Kong's port has faced increased competition
from neighboring ports in the Pearl River Delta region, including Shenzhen and
Guangzhou.
The Biggest Port in the
World: The Port of
Shanghai
▶ The Port of Shanghai, located in China's Yangtze
River Delta, is the world's largest port by container
throughput, handling over 47 million TEUs in 2022.
▶ With a history dating back to the 1st century AD, the
port's growth was accelerated in the 19th century due
to China's opening to Western trade, ultimately
becoming the world's largest port in 2010.
▶ Covering more than 400 square kilometers, the Port
of Shanghai boasts over 200 berths and utilizes
advanced technology like automated cranes and
conveyor systems.
▶ The port handles diverse cargo types, including
containers, bulk cargo, and liquid cargo, and it also
serves as a significant hub for passenger traffic,
facilitating over 20 million passengers annually.
▶ Beyond its global trade importance, the Port of
Shanghai is a major employer in China, supporting
millions of jobs and playing a vital role in the country's
economy.
The Importance of the
Port of Shanghai
▶ The Port of Shanghai is a critical global trade hub,
handling diverse cargo types like containers, bulk cargo,
and liquid cargo, facilitating international trade
worldwide.
▶ It significantly contributes to the Chinese economy by
employing millions of people, supporting businesses, and
generating billions of dollars in revenue for the
government.
▶ Positioned strategically on the Yangtze River, the port
offers China access to the East China Sea and the
Pacific Ocean, enhancing the nation's strategic
transportation infrastructure.
▶ The port's essential role in global supply chains makes it
a linchpin in the movement of goods to and from various
parts of the world.
▶ Located near major Chinese cities like Shanghai and
Nanjing, the Port of Shanghai plays a vital role in
connecting these urban centers with international trade
routes, further solidifying its importance in China's
transportation network.
The Challenges Facing
the Port of Shanghai
▶ The Port of Shanghai faces a number of challenges.
First, the port is facing increasing competition from
other ports in China and around the world. As the
Chinese economy grows, other ports are investing in
new infrastructure and technologies. This is making it
more difficult for the Port of Shanghai to maintain its
competitive edge.
▶ Second, the Port of Shanghai is facing environmental
challenges. The port is located in a densely
populated area, and its operations generate pollution.
The Chinese government is under pressure to reduce
pollution, and this could lead to restrictions on the
Port of Shanghai's operations.
▶ Third, the Port of Shanghai is facing geopolitical
challenges. The port is located in a strategically
important location, and it is a target for potential
adversaries. The Chinese government is taking steps
to protect the port, but it remains a vulnerable target.
Difference Between
ICD, Port, and CFS:
• ICD (Inland Container Depot): ICDs are dry ports
located inland, away from the coast. They serve
as hubs for the consolidation and
deconsolidation of containerized cargo, making
it easier to move goods to and from the port.
• Port: Ports are maritime facilities located on the
coast, where ships load and unload cargo. They
serve as gateways for international trade,
handling various types of cargo, including
containerized, bulk, and general cargo.
• CFS (Container Freight Station): CFS is a facility
located within a port area or inland, serving as a
storage and consolidation point for
containerized cargo. It is where cargo is packed
into containers or unpacked from containers.
Challenges in
Ocean Freight
1. Environmental Concerns: Ocean freight, while
efficient, has a notable environmental footprint
due to emissions from vessels. The industry faces
increasing pressure to adopt greener practices
and reduce its impact on the environment.
2. Congestion and Delays: Major ports often face
congestion and delays in unloading and handling
cargo, impacting supply chains and adding costs
for shippers.
3. Regulatory Compliance: Ocean freight is heavily
regulated. Shippers must navigate complex
customs and trade regulations, as well as
evolving security measures.
4. Security and Piracy: Protecting cargo from theft
and piracy remains a challenge in certain regions.
The industry must employ security measures to
safeguard shipments.
The Evolving
Landscape of Ocean
Freight
1. TechnologyAdoption:Digital technologies, such
as blockchain, IoT, and AI, are transforming the
industry, enhancing transparency, tracking
capabilities, and efficiency.
2. Alternative Fuels: The development and
adoption of alternative fuels, such as LNG and
hydrogen, are on the horizon, offering the
potential to reduce emissions.
3. E-commerce Impact: The rapid growth of e-
commerce has increased demand for expedited
delivery options, influencing the way goods are
transported via ocean freight.
4. Global Trade Dynamics: Trade tensions, evolving
trade agreements, and geopolitical factors
continue to shape the landscape of international
shipping.
Conclusion
Ocean freight remains the linchpin of
international trade, connecting nations and
markets. Key terminologies such as vessel
voyage, gross weight, net weight, demurrage,
onboard, RFS, transshipment, and the
difference between ICD, port, and CFS
underpin the language and operation of this
dynamic industry. Challenges, including
environmental concerns and regulatory
compliance, demand innovative solutions.
The future of ocean freight lies in technology
adoption, sustainability, and adaptability to
the evolving global trade landscape. As the
world continues to rely on the seas to
transport goods, ocean freight's enduring
significance in international trade is
undeniable.
Break Time!
Enabling Learning
Objectives
Define Transport Geography.
▶ Explain the fundamental concept of transport
geography, its scope, and relevance in the field
of logistics and geography.
Describe the Relationship Between
Transportation and Space.
▶ Explore how transportation systems interact
with geographical space, including their impact
on the spatial organization of regions.
Understand the Connection Between
Transportation and Commercial Geography.
▶ Analyze the intersection of transportation and
commercial geography, highlighting how
transportation networks influence trade and
economic activities.
Examine the Geography of Transportation
Networks.
▶ Investigate the spatial distribution and
characteristics of transportation networks,
including their role in shaping regional
development.
Transportation and
geography
▶ Human societies have always relied on the
movement of people, goods, and information.
▶ Increased mobility and accessibility have
become more pronounced due to factors like
trade liberalization and efficient global
resource utilization.
▶ Effective management and expansion of
transportation systems are essential for
supporting various activities and societal
functions.
▶ Transport systems play a crucial role in
commuting, energy supply, and the
distribution of goods in manufacturing and
distribution processes.
▶ Developing transportation systems is an
ongoing challenge aimed at meeting mobility
needs, fostering economic growth, and
engaging in the global economy.
Concept 1 – What
is transport
geography?
▶ Transportation serves the unique purpose of overcoming
spatial constraints, including distance, time,
administrative divisions, and topography.
▶ These constraints create friction, known as the "friction of
space," which transportation aims to reduce.
▶ The extent to which transportation can circumvent these
constraints varies based on factors like distance,
infrastructure capacity, and the nature of the transported
items.
▶ Transportation and geography are interconnected, with
transportation transforming the geographical attributes of
items from origin to destination.
▶ Transportability, which refers to the ease of movement of
passengers, freight, or information, depends on factors
like transport costs, item attributes, and political factors
like laws and regulations. High transportability reduces
distance-related constraints.
Concept 1 – What is transport geography?
Comparisons of Direct Derived Demand and
Indirect Derived Demand
Direct derived demand
▶ Derived demand refers to movements that
result directly from economic activities.
▶ Examples include commuting between
home and work due to the supply of work
in one location and the demand for labor in
another.
▶ In freight transportation, the supply chain
involves moving raw materials, parts, and
finished products via various modes.
▶ Transportation is directly tied to production
and consumption functions.
▶ It serves as a crucial link between the
supply and demand of goods and services
in the economy.
Indirect derived demand
▶ Indirect derived demand pertains to
movements generated by the needs of
other movements.
▶ Examples include the supply of fuel for
transportation activities, involving
movements from extraction zones to
refineries, storage facilities, and
consumption areas.
▶ Warehousing can also be categorized as
indirect derived demand, as it facilitates the
storage and distribution of goods between
production and consumption locations.
Concept 1 – What is transport geography?
Euclidean distance: A simple function of a straight line between
two locations where distance is expressed in geographical units
such as kilometers.
Transport distance: A more complex representation where a set of
activities related to circulation, such as loading, unloading and
transshipment, are considered.
Logistical distance: A complex representation that encompasses
all the tasks required so that a movement between two locations
can take place.
Concept 1 – What is transport geography?
Spatial flows
and their
patterns
Geographical . Each ow has an origin and a destination and
consequently a degree of separation. Flows with high degrees of
separation tend to be more limited than flows with low degrees of
separation.
Physical . Each ow involves specific physical characteristics in
terms of possible load units and the conditions in which they can
be carried. Flows, depending on the transportation mode, can be
atomized (smallest load unit) or massified (moving load units in
batches).
Transactional . The realization of each ow has to be negotiated
with providers of transport services, such as booking a slot on a
container ship or an air travel seat. Commonly, a ow is related to a
monetary exchange between provider of transportation and the
user.
Distribution . Flows are organized in sequences where the more
complex are involving different modes and terminals. Many
transport flows are scheduled and routed to minimize costs or
maximize efficiency, often through intermediary locations.
Urbanization, multinational
corporations, the
globalization of trade and
the international division of
labor
▶ Urbanization, globalization,
multinational corporations, and the
international division of labor are
influential forces in transportation,
operating at different but
interconnected scales.
▶ Transportation serves a
fundamentally geographic purpose
by enabling movements between
diverse locations, contributing to
the spatial organization and
structure of territories.
The importance of
transportation
▶ Historical: Transport modes have played several different historical roles in the rise
of civilizations (Egypt, Rome and China), in the development of societies (creation of
social structures) and also in national defense (Roman Empire, American road
network).
▶ Social: Transport modes facilitate access to healthcare, welfare, and cultural or
artistic events, thus performing a social service. They shape social interactions by
favoring or inhibiting the mobility of people. Transportation thus supports and may
even shape social structures.
▶ Political: Governments play a critical role in transport as sources of investment and
as regulators. The political role of transportation is undeniable as governments often
subsidize the mobility of their populations (highways, public transit, etc.). While most
transport demand relates to economic imperatives, many communication corridors
have been constructed for political reasons such as national accessibility or job
creation. Transport thus has an impact on nation building and national unity, but it is
also a political tool.
▶ Economic: The evolution of transport has always been linked to economic
development. It is an industry in its own right (car manufacturing, air transport
companies, etc.). The transport sector is also an economic factor in the production
of goods and services. It contributes to the value added of economic activities,
facilitates economies of scale, influences land (real estate) value and the geographic
specialization of regions. Transport is both a factor shaping economic activities and
is also shaped by them.
▶ Environmental: Despite the manifest advantages of transport, its environmental
consequences are also significant. They include air and water quality, noise level
and public health. All decisions relating to transport need to be evaluated
considering the corresponding environmental costs. Transport is a dominant factor
in contemporary environmental issues.
Transportation
Trends
Growth of the demand . The years following the Second World War have seen
a considerable growth of the transport demand related to individual (passengers)
as well as freight mobility. This growth is jointly the result of larger quantities of
passengers and freight being moved, but also the longer distances over which
they are carried. Recent trends underline an ongoing process of mobility growth,
which has led to the multiplication of the number of journeys involving a wide
variety of modes that service transport demands.
Reduction of costs . Even if several transportation modes are very expensive
to own and operate (ships and planes, for instance), costs per unit transported
have dropped significantly over the last decades. This has made it possible to
overcome larger distances and further exploit the comparative advantages of
space. As a result, despite the lower costs, the share of transport activities in the
economy has remained relatively constant in time.
Expansion of infrastructures . The above two trends have obviously extended
the requirements for transport infrastructures both quantitatively and qualitatively.
Roads, harbors, airports, telecommunication facilities and pipelines have
expanded considerably to service new areas and add capacity to existing
networks. Transportation infrastructures are thus a major component of land use,
notably in developed countries.
Transportation in
geography
Transport geography is a sub-
discipline of geography concerned
about movements of freight, people
and information. It seeks to
understand their spatial
organization by linking spatial
constraints and attributes with the
origin, the destination, the extent,
the nature and the purpose of
movements.
Transportation in geography
Transportation in
geography
▶ Transportation nodes . Transportation primarily links
locations, often characterized as nodes. They serve
as access points to a distribution system or as
transshipment/ intermediary locations within a
transport network. This function is mainly serviced
by transport terminals where ows originate, end or
are being transshipped from one node to the other.
Transport geography must consider its places of
convergence and transshipment.
▶ Transportation networks . Considers the spatial
structure and organization of transport
infrastructures and terminals. Transport geography
must include in its investigation the structures
(routes and infrastructures) supporting and shaping
movements.
▶ Transportation demand . Considers the demand for
transport services as well as the modes used to
support movements. Once this demand is realized,
it becomes an interaction which ows through a
transport network. Transport geography must
evaluate the factors affecting its derived demand
function.
Transportation in
geography
▶ Location . As all activities are located somewhere,
each location has its own characteristics conferring
a potential supply and/or a demand for resources,
products, services or labor. A location will determine
the nature, the origin, the destination, the distance
and even the possibility of a movement to be
realized. For instance, a city provides employment
in various sectors of activity in addition to
consuming resources.
▶ Complementarity . Locations must require
exchanging goods, people or information. This
implies that some locations have a surplus while
others have a de cit. The only way an equilibrium
can be reached is by movements between locations
having surpluses and locations having demands.
For instance, a complementarity is created between
a store (surplus of goods) and its customers
(demand of goods). Scale .
▶ Movements generated by complementarity are
occurring at different scales, pending the nature of
the activity. Scale illustrates how transportation
systems are established over local, regional and
global geographies. For instance, home- to-work
journeys generally have a local or regional scale,
while the distribution network of a multinational
corporation is most likely to cover several regions of
the world.
Physical
constraints
Transport geography is concerned
with movements that take place over
space. The physical features of this
space impose major constraints on
transportation systems, in terms of
what mode can be used, the extent of
the service, its costs, capacity and
reliability.
Three basic spatial constraints of the
terrestrial space can be identified:
▶ Topography
▶ Hydrology
▶ Climate
Topography
▶ Topography, including features like mountains,
valleys, and water depths, significantly shapes
transportation networks and infrastructure.
▶ Land transport infrastructure is typically constructed
where physical impediments are minimal, such as
plains, valleys, or through tunnels in mountainous
regions.
▶ Coastlines influence the location of port
infrastructure, while aircraft require large airfields for
operations.
▶ Topography can promote the convergence of
transportation routes, leading to the development of
trade centers that serve as hubs for the collection
and distribution of goods.
▶ Physical constraints, both absolute (completely
preventing movement) and relative (imposing
additional costs and delays), can complicate or
hinder transportation activities. Land transportation
networks are particularly affected by topography,
with grades over 3 percent for highways and 1
percent for railways presenting challenges. Areas
with less topographical complexity tend to have
denser land transportation networks.
Hydrology
▶ Water properties, distribution, and
circulation significantly impact the
transport industry, particularly maritime
transport.
▶ Navigable channels provided by rivers,
lakes, and shallow seas, like the
Mississippi, St. Lawrence, Rhine,
Mekong, and Yangtze, are essential
routes into continents, historically driving
human activities.
▶ Port locations are influenced by natural
features like bays, sandbars, and fjords,
offering protection and facilitating
transshipment. Waterways, including
narrows, rapids, and land breaks, can
serve as both conduits and barriers,
requiring investments in infrastructure like
canals or bridges to overcome obstacles.
Climate
▶ Weather, including temperature, wind,
and precipitation, is a significant factor
impacting transportation modes and
infrastructure.
▶ Hazardous weather conditions like snow,
heavy rainfall, ice, and fog can disrupt
both freight and passenger movement.
▶ Weather-related disruptions, especially in
air transportation, can lead to cascading
effects, and even phenomena like jet
streams influence air carriers, affecting
travel costs and flight times. Volcanic
eruptions, such as the 2010 eruption in
Iceland, can also impact transportation by
causing airport closures and flight
cancellations due to ash concerns.
Sphericity of
the earth
How Transportation
Technology Has Transformed
the Environment
▶ Technological advancements have played a
crucial role in overcoming environmental
challenges in transportation.
▶ Historical efforts were focused on adapting
road locations to topography, followed by
road paving, river bridging, and mountain
pass development.
▶ Byzantine and Gothic construction
techniques, like arches and vaults, enabled
bridge building across wide streams and
river valleys.
▶ Road building has always been a core
aspect of overcoming environmental
obstacles, evolving from local to long-
distance travel support.
▶ Innovations in maritime transport include
canal locks, artificial waterways, and
advancements in navigation, resulting in
faster, larger-capacity ocean transport.
However, the increasing size of modern
ships has necessitated canal expansions
and the creation of artificial islands to
accommodate port installations.
Oceanic
Passages
▶ The Northern Sea Route along the arctic coast
of Russia. This is the maritime route that is likely
to be free of ice first. In 2007 it was open during
the summer months for the first time in recorded
history, but it remains to be seen how stable this
opening is. It would reduce a maritime journey
between East Asia and Western Europe from
21,000 km using the Suez Canal to 12,800 km,
cutting transit time by 10–15 days.
▶ The Northwest Passage crossing Canada’s
Arctic Ocean could become usable on a regular
basis by 2020, lessening maritime shipping
distances substantially. The maritime journey
between East Asia and Western Europe would
take about 13,600 km using the Northwest
Passage, while taking 24,000 km using the
Panama Canal.
▶ The Arctic Bridge linking the Russian port of
Murmansk or the Norwegian port of Narvik to
the Canadian port of Churchill could be used,
mostly for the grain trade. The Transpolar Sea
Route would use the central part of the Arctic to
link most directly the Strait of Bering and the
Atlantic Ocean of Murmansk. This route is
hypothetical for now as it involves ice- free
conditions that are not yet observed.
Oceanic
Passages
Transportation and
the spatial structure
▶ Costs . The spatial distribution of activities is
related to factors of distance, namely its
friction. Locational decisions are taken in an
attempt to minimize costs, often related to
transportation.
▶ Accessibility . All locations have a level of
accessibility, but some are more accessible
than others. Thus, because of transportation,
some locations are perceived as more
valuable than others.
▶ Agglomeration . There is a tendency for
activities to agglomerate to take advantage
of the value of specific locations. The more
valuable a location, the more likely
agglomeration will take place. The
organization of activities is essentially
hierarchical, resulting from the relationships
between agglomeration and accessibility at
the local, regional and global levels.
Transportation
and the spatial
structure
▶ Physical attributes . Natural conditions can be modified
and adapted to suit human uses, but they are a very
difficult constraint to escape, notably for land
transportation. It is thus not surprising to nd that most
networks follow the easiest (least cost) paths, which
generally follow valleys and plains. Considerations that
affected road. construction a few hundred years ago are
still in force today, although they are sometimes easier to
circumscribe.
▶ Historical considerations . New infrastructures generally
reinforce historical patterns of exchange, notably at the
regional level. For instance, the current highway network
of France has mainly followed the patterns set by the
national roads network built early in the twentieth
century. This network was established over the Royal
roads network, itself mainly following roads built by the
Romans. At the urban level, the pattern of streets is often
inherited from an older pattern, which itself may have
been influenced by the pre- existing rural structure (lot
pattern and rural roads).
Transportation Technology and the Duality of
Specialization and Segregation
▶ Specialization . Linked geographical entities can specialize in the production of
commodities for which they have an advantage, and trading for what they do
not produce. As a result, efficient transportation systems are generally linked
with higher levels of regional specialization. The globalization of production
clearly underlines this process as specialization occurs if the incurred saving in
production costs are higher than the incurred additional transport costs.
▶ Segregation . Linked geographical entities may see the reinforcement of one at
the expense of others, notably through economies of scale. This outcome often
contradicts regional development policies aiming at providing uniform
accessibility levels within a region.
Space/time relationships
▶ Transportation fundamentally affects the relationship between time and space by
determining how much distance can be covered in a given time.
▶ Space/time convergence refers to easier, faster, and more cost-effective access
between places, allowing greater distances to be covered in the same amount of
time.
▶ This convergence is not uniform and impacts locations and populations differently,
often favoring those with higher socioeconomic status.
▶ The establishment of national and continental railway systems, maritime shipping,
and later air and road transport systems in the 18th, 19th, and 20th centuries
contributed to regional and continental space/time gains.
▶ At the international level, globalization processes have benefited from transport
technology improvements over more than two centuries, resulting in a global
space/time convergence, resource and labor exploitation, and significant reductions
in transport and communication costs.
Space/time relationships
▶ Speed . The most straightforward factor relates to the increasing speed of many transport modes, a condition that particularly
prevailed in the first half of the twentieth century. More recently, speed has played a less significant role as many modes are not
going much faster. For instance, an automobile has a similar operating speed today as it had 60 years ago, and a commercial jet
plane operates at a similar speed than one 30 years ago.
▶ Economies of scale . Being able to transport larger amounts of freight and passengers at lower costs has improved considerably
the capacity and efficiency of transport systems. For space/time convergence this implies that there is more capacity for a given
quantity of passengers or freight being carried. Instead, the traffic can be handled with fewer trips implying that at the aggregate
level it is moving faster.
▶ Expansion of transport infrastructures . Transport infrastructures have expanded considerably to service areas that were not
previously serviced or were insufficiently serviced. A paradox of this feature is that although the expansion of transport
infrastructures may have enabled distribution systems to expand, it also increased the average distance over which passengers
and freight are being carried.
▶ Efficiency of transport terminals . Terminals, such as ports and airports, have shown a growing capacity to handle large quantities
in a timely manner. Thus, even if the speed of many transport modes has not increased, more efficient transport terminals and a
better management of flows have helped reduce transport time.
▶ Information technologies (IT) . Enabled several economic activities to bypass spatial constraints in a very signifcant manner as IT
supports complex management structures. Electronic mail is an example where the transmission of information does not have a
physical form (outside electrons or photons) once the supporting infrastructure is established. There is obviously a limit to this
substitution, but several corporations are trying to use the advantages of telecommuting as much as they can because of the
important savings involved.
Space/time relationships
Space/time
relationships
▶ Technological advancements in transport have led to a
gradual global space/time convergence in the transport
system.
▶ Historically, transport technology improvements primarily
benefited advanced economies by providing access to
resources and markets.
▶ Space/time convergence is not uniform globally, with
Western Europe and North America experiencing faster
convergence than regions like Latin America and Africa.
▶ As economic and infrastructure development spreads
worldwide, space/time convergence is expected to
become more uniform.
▶ Circumnavigation serves as a proxy for space/time
convergence, with significant reductions in travel time
over the centuries due to innovations like canals, steam
propulsion, and jet planes. However, convergence is not
ubiquitous, and some locations gain more accessibility
than others, while congestion in metropolitan areas can
lead to space/time divergence.
Concept 3 – Transportation and
commercial geography: Trade and
commercial geography
▶ Commercial geography investigates the
spatial characteristics of trade and
transactions in terms of their cause,
nature, origin and destination. It leans on
the analysis of contracts and
transactions. From a simple commercial
transaction involving an individual
purchasing a product at a store, to the
complex network of transactions
maintained between a multinational
corporation and its suppliers, the scale
and scope of commercial geography
varies significantly.
Trade and commercial
geography
▶ Availability . Commodities, from coal to computer chips, must
be available for trade and there must be a demand for these
commodities. In other terms, a surplus must exist at one
location and a demand in another. A surplus can often be a
simple matter of investment in production capabilities, such as
building an assembly plant, or can be constrained by complex
environmental factors like the availability of resources such as
fossil fuels, minerals and agricultural products.
▶ Transferability . Transport infrastructures in allowing
commodities to be moved from their origins to their
destinations favor the transferability of goods. There are three
major impediments to transferability, namely policy barriers
(tariffs, custom inspections, quotas), geographical barriers
(time, distance) and transportation barriers (the simple
capacity to move the outcome of a transaction). Distance often
plays an important role in trade, as does the capacity of
infrastructures to route and to transship goods.
▶ Transactional capacity . It must be legally possible to make
a transaction. This implies the recognition of a currency for
trading and legislations that de ne the environment in
which commercial transactions are taking place, such as
taxation and litigation. In the context of a global economy, the
transactional environment is very complex but is important in
facilitating trade at the regional, national and international
levels. The fundamental elements of a commercial transaction
involving the transportation of a good are the letter of credit
and the bill of lading. The transport terms have been regulated
since 1936 by international commercial terms that are
regularly updated and revised.
Trade and commercial
geography
▶ Value . Flows have a negotiated value and are settled
in a common currency. The American dollar, which
has become the major global currency, is used to
settle and/or measure many international
transactions. Further, nations must maintain reserves
of foreign currencies to settle their transactions and
the relationship between the inbound and outbound
flows of capital is known as the balance of payments.
Although, nations try to maintain a stable balance of
payments, this is rarely the case.
▶ Volume . Flows have a physical characteristic, mainly
involving a mass. The weight of flows is a significant
variable when trade involves raw materials such as
petroleum or minerals. However, in the case of
consumption goods, weight has little significance
relatively to the value of the commodities being
traded. With containerization, a new unit of volume
has been introduced; the TEU (Twenty-foot
Equivalent Unit),which can be used to assess trade
flows.
▶ Scale . Flows have a range that varies significantly
based on the nature of a transaction. While retailing
transactions tend to occur at a local scale,
transactions related to the operations of a
multinational corporation are global in scale.
Trends in commercial
geography
▶ Traditional commercial activities often developed where
there were physical breaks in transport chains, such as
cargo transfer points between different modes of
transportation.
▶ Major financial centers historically tended to be located in
port cities or load break centers due to these physical
breaks in trade.
▶ Contemporary commerce is marked by increasing free
trade, technological advancements, and geopolitical
changes, driven by trade liberalization through
organizations like the World Trade Organization (WTO).
▶ Despite globalization, regional trade remains dominant,
with trade within regions being more significant than
trade between regions, although long-distance trade is
growing.
▶ The reallocation of production capacities through
outsourcing and offshoring, as well as mergers and
acquisitions of global enterprises, reflects changing
comparative advantages and requires different strategies
to adapt to the evolving trading environment.
Trends in commercial
geography
▶ The organization of global production has become more
complex, with increased division of labor in design,
planning, and assembly, leading to greater trade in parts
and production equipment worldwide.
▶ Standards and norms, such as ISO standards, have
played a crucial role in facilitating global trade and the
development of various sectors, including railways,
electricity, automobiles, and telecommunications.
▶ The decline in manufacturing's share of global GDP
reflects the evolving complexities in value addition within
the production function.
▶ Consumption growth is a significant force shaping
commercial geography, with variations in market size,
consumption levels (measured by GDP), and regional
growth potential influencing trade patterns.
▶ While GDP is a reasonable approximation of market size,
it does not necessarily reflect standards of living. Wealth
remains concentrated, with a few major economies like
the United States, Japan, China, and Germany
accounting for a significant portion of global economic
activity, although dynamics are shifting with China's rise
as the world's second-largest economy and the growth of
countries like Brazil and India.
Commercialization of the transport industry
Trends in commercial
geography
▶ Introduction . Initially, a transport system is introduced to service a specific
opportunity in an isolated context. The technology is often “proprietary” and
incompatible with other transport systems. Since they are not interconnected, this
does not represent much of an issue.
▶ Expansion and interconnection . As the marketability and the development potential
of a transport system becomes apparent, a phase of expansion and interconnection
occurs. The size of the market serviced by these transport systems consequently
increases as they become adopted in new locations and as new providers are
created to service those markets. At some point, independently developed transport
systems connect. This connection is, however, often subject to a function of
transshipment between two incompatible transport systems.
▶ Standardization and integration . This phase often involves the emergence of a fully
developed transport system servicing vast national markets. The major challenge to
be addressed involves a standardization of modes and processes, further expanding
the commercial potential. Modal flows are moving more efficiently over the entire
network and can move from one mode to the other through intermodal integration.
A process of mergers and acquisitions of transport providers often accompanies this
phase for the purpose of rationalization and market expansion.
▶ Integrated demand . The most advanced stage of extension of a distribution system
involves a system fully able to answer mobility needs of passengers and freight
under a variety of circumstances, either predicted or unpredicted demand. As this
system tends to be global, it commonly operates close to market potential. In such a
setting, a transport system expresses an integrated demand where transport supply
is tuned with the demand in an interdependent system.
Trends in commercial
geography
▶ Investments in transportation infrastructure, modes, terminals,
marketing, and financing are crucial for the commercialization
of transportation, aiming to expand geographical reach or
capacity and maintain operational conditions.
▶ Funding for transport investments comes from both the public
and private sectors, driven by economic, social, and strategic
interests. The private sector seeks economic returns, while the
public sector often invests for social and strategic reasons.
Private transport providers may seek government assistance
for their investments, lobbying at various levels of government
to secure support for projects considered of public interest and
benefit.
The growth of regional markets and increased transborder
traffic have prompted transport firms to pursue global alliances
and advocate for greater market liberalization in the transport
and communication sector to attract investments and enhance
productivity.
Deregulation and divestiture policies in the transport industry
have led to a reorganization of the international and national
transport sectors, giving rise to transnational transport
corporations that govern global trade flows in air, maritime, and
land transportation, as well as the management of airports,
ports, and railyards.
▶
▶
▶
Concept 4 – The geography of transportation
networks
▶ The term network refers to the framework of routes within a system of locations,
identified as nodes. A route is a single link between two nodes that are part of a
larger network that can refer to tangible routes such as roads and rails, or less
tangible routes such as air and sea corridors.
The geography of transportation
networks
▶ Economies of scale on connections by offering a high frequency of services.
For instance, instead of one service per day between any two pairs in a point-
to-point network, four services per day could be possible.
▶ Economies of scale at the hubs , enabling the potential development of an
efficient distribution system since the hubs handle larger quantities of traffic.
▶ Economies of scope in the use of shared transshipment facilities . This can take
several dimensions such as lower costs for users as well as higher quality
infrastructures.
The geography of transportation
networks
The geography of
transportation
networks
▶ Transportation networks are composed of locations and
links that represent connections between these locations,
with each network having its own unique topology.
▶ The fundamental elements of a transport network include
network geometry and the level of connectivity, which
determine its structure and arrangement.
▶ Transport networks can be classified based on various
topological attributes, considering factors such as
geographical setting, modal characteristics, and
structural features.
▶ Classification criteria can involve the level of abstraction,
ranging from tangible representations closely mirroring
reality (e.g., road maps) to abstract symbolic networks
(e.g., airline route maps).
▶ Other classification criteria include the network's relative
location within a territory, its orientation, extent, and the
number of nodes and edges, which indicate its
complexity and structural characteristics. Graph theory is
a mathematical tool used to infer properties from these
network attributes.
The geography of
transportation
networks
▶ Networks are fundamental to the movement of goods, people, and
information, and they can be analyzed from a modal perspective,
where edges represent routes (e.g., roads, rail lines, maritime routes)
and nodes represent terminals (e.g., ports, railyards).
▶ Modal perspectives can further classify modes based on factors like
road types (e.g., highway, road, street) and level of control (e.g.,
speed limits, vehicle restrictions).
▶ Flows on a network have volume and direction, allowing for the
ranking of links by importance and evaluation of the general flow
direction (e.g., centripetal or centrifugal).
▶ Each segment and network has a physical capacity, indicating the
volume it can support under normal conditions. The load, expressed
as the volume-to-capacity ratio, measures how congested a network
is, with a ratio of 1 indicating full load.
▶ Networks often exhibit hierarchies reflecting the importance of nodes
and spatial patterns. Networks are dynamic and can change over
time, with nodes and links adapting to new circumstances. Different
transport modes have varying degrees of physical grounding, with
roads and railways having track infrastructure, while maritime and air
transport are more spatially flexible, except for their terminals. River
networks often form basins and can be classified as trees or
dendrograms.
The geography of
transportation
networks
▶ Clearly defined and delimited . The space
occupied by the transport network is strictly
reserved for its exclusive usage and can be
identified on a map. Ownership can also be
clearly established. Major examples include
road, canal and railway networks.
▶ Vaguely defined and delimited . The space of
these networks may be shared with other
modes and is not the object of any
ownership, only of rights of way. Examples
include air and maritime transportation
networks.
▶ Without definition . The space has no
tangible meaning, except for the distance it
imposes. Little control and ownership are
possible, but agreements must be reached
for common usage. Examples are radio,
television, WiFi and cellular
The geography of
transportation
networks
▶ Regular network . A network where all nodes have the
same number of edges. In the same vein, a random
network is a network that is formed by random
processes. While regular networks tend to be linked with
high levels of spatial organization (e.g., a city grid),
random networks tend to be linked with opportunistic
development opportunities such as accessing a
resource.
▶ Small- world network . A network with dense connections
among close neighbors and few but crucial connections
among distant neighbors. Such networks are particularly
vulnerable to catastrophic failures around large hubs.
▶ Scale- free network . A network having a strong
hierarchical dimension, with few vertices having many
connections and many vertices having few connections.
Such networks evolve through the dynamic of
preferential attachment by which new nodes added to the
network will primarily connect larger nodes instead of
being connected randomly.
The geography of
transportation
networks
▶ Coevolution . Different transport networks might follow
similar or different paths based on spatial proximity and
path- dependence of economic development, with a wider
variety of networks at core regions than at remote regions.
▶ Complementarity . Some locations may be central in one
network but peripheral in another, depending on their
specialization and function and on the scale of analysis
(terminal, city, region, country); the complementarity between
networks can be measured based on the number of common
nodes and links.
Interoperability . Typically, cargo flows from a maritime
network to a road network shift from a scale- free structure to a
regular structure, thus following different topologies that are not
easily combined; air and sea terminals remain few in the world
due to the difficulty of combining and integrating technically air
and sea networks physically at the same locations.
▶
▶ Vulnerability . How do changes in one network affect the other
network, on a global level (entire network) or local level (single
node or region)? This is particularly important for two networks
sharing common nodes, such as global cities, logistics platforms
and multilayered hubs. In the case of abrupt conjunctures(e.g.
natural disasters, targeted attacks, labor disputes, security and
geopoliticaltensions), thus
Networks and
space
▶ Ubiquity . The possibility to reach any location from any other
location on the network thus providing a general access.
Access can be a simple matter of vehicle ownership or bidding
on the market to purchase a thoroughfare from one location to
another. Some networks are continuous, implying that they can
be accessed at any location they service. Roads are the most
salient example of a continuous network. Other networks are
discrete, implying that they can only be accessed at specific
locations, commonly at a terminal. Rail, maritime and rail
networks are considered discrete networks since they can only
be accessed through their terminals.
Fractionalization . The possibility for a traveler or a unit of
freight to be transported without depending on a group. It
becomes a balance between the price advantages of
economies of scale and the convenience of a dedicated
service.
Instantaneity . The possibility to undertake transportation at the
desired or most convenient moment. There is a direct
relationship between fractionalization and instantaneity since
the more fractionalized a transport system is, the more likely
timeconvenience can be accommodated.
▶
▶
Networks and
space
▶ Three critical conditions for effective
transportation are ubiquity (wide availability and
accessibility), fractionalization (ability to move
small or large quantities), and instantaneity
(quick access and movement).
▶ Different transport modes have varying degrees
of success in meeting these conditions. For
example, automobiles are highly flexible and
widely available but have low capacity and
consume significant space and energy. Public
transit, while more cost and energy-efficient, has
limited spatial coverage, operates on schedules,
and involves batch movements.
▶ Freight transportation also varies in terms of
spatial continuity, from handling massive raw
material loads in select ports to flexible parcel
movements. Containerization has sought to
address these challenges by allowing intermodal
movements, using standardized containers as
load units, and enabling flexible loading times for
trucks and frequent port calls for container ships.
▶ The spatial distribution of economic activities,
such as industrial and urban agglomerations, can
influence transportation discontinuity. Congestion
in metropolitan areas can reduce ubiquity and
fractionalization as some locations become hard
to reach, leading to batch movements and
Networks and
space
▶ Throughout history, transportation networks
have served as tools for controlling territories,
collecting taxes, and facilitating the movement
of commodities, military forces, and trade.
▶ During colonial times, maritime networks played
a crucial role in trade, exploitation, and political
control, while the development of modern
transportation networks within colonies
expanded these capabilities.
▶ In the nineteenth and twentieth centuries,
transportation networks were instrumental in
nation-building, organizing territories, extending
settlements, and connecting markets, with
railways and road systems serving these
purposes, followed by air transportation and, in
the twenty-first century, telecommunication
networks supporting global supply chains and
interactions.
Network expansion
▶ During the industrial revolution in England, the co-
evolution of roads, canals, and ports revealed
interdependencies among these transportation
networks, driven by spatial and functional
proximity.
▶ Initial network developments were often aimed at
supporting and then competing with existing
networks by expanding geographically and
topologically in new ways.
▶ As transport networks expanded, existing
infrastructures like airports and ports underwent
transformations, expansions, or relocations.
▶ Integration of airports into multimodal transport
systems, linking air, rail, and road transport,
became a priority in the air transport sector.
▶ Maritime networks were modified with a focus on
expanding the Panama and Suez canals,
increasing traffic on inland waterways, and
creating new passages between semi-enclosed or
enclosed seas. The competition between sea and
land corridors has reduced transport costs,
encouraged international trade, and prompted
governments to reassess and extend land-based
connections.
Network expansion
▶ Landbridge . Using a landmass as a link in a maritime transport chain involving
a foreign origin and destination. This type of link is not highly used in the North American
context as it is more convenient for Europe- bound cargo from Asia to use the maritime
route instead or the emerging Eurasian Landbridge for niche cargo.
▶ Mini Landbridge . Using a landmass as a link in a transport chain involving a
foreign origin and a destination at the end of the landmass.
▶ Micro Landbridge . Using a landmass as a link in a transport chain involving a
foreign origin and an inland destination.Acommon type of service for Asian cargo
bound to an inland NorthAmerican market.
▶ Reverse Landbridge . Through a maritime detour reaching an inland destination
by
using the closest maritime facade instead of the Landbridge. This type of Landbridge has
experienced remarkable growth with the usage of the Panama Canal to reach East Coast ports
by an all- water route from Asia. The expansion of the Panama Canal is expected to increase
the significance of this type of Landbridge service.
Different forms of trade
risk
▶ There are always potential
drawbacks in trying to
categorize such a general
concept as trade risks which
could have so many different
forms and shapes, but it also
has great illustrational
advantages, particularly when
they also coincide with
commonly used business
expressions. Figure 1.1 shows
the main risk structure in
international trade, which will
affect both the seller’s and the
buyer’s view of the terms of
payment.
Different forms of trade
risk
▶ Obviously, all these risks combined do
not often occur in one and the same
transaction. For example, a sale to a
Norwegian customer may be just a matter
of a straight commercial risk on the buyer,
whereas delivery of a tailor-made
machine to Indonesia has to be risk
assessed in quite another way. In quite
general terms, the risk structure is directly
linked to the obligations undertaken by
the seller. This assessment can often be
made relatively simple as a commercial
risk only, but, in other cases, for example
if the transaction also involves assembly,
installation, testing or a maintenance
responsibility, the assessment has to
involve many other aspects as well. The
question of risk is to a large degree a
subjective evaluation, but it is still
important for both parties to have a good
knowledge of these matters in order to
carry out a proper and meaningful risk
assessment.
Different forms of trade
risk
▶ It should however also be noted that
most export credit insurance, taken
by the seller as additional security,
could be impaired or even invalid
should the seller themselves not have
fulfilled – or been able to fulfil – their
obligations according to the contract.
This is another reason why it is so
important that the obligations of the
seller, according to the contract, are
always directly related to those of the
buyer.
When all the necessary evaluations
have been done, the final decision as
to whether the deal is secure enough
to be entered into has to be taken.
The worst that can happen is finding,
after the contract has been signed,
that it contains risks that the seller
was unaware of at that time. It is then
often too late to make changes on
equal terms.
This Photo by Unknown Author is licensed under CC BY-NC
Terms of delivery and
terms of payment
▶ Here are some of the commonly used Incoterms:
• EXW (Ex Works): The seller makes the goods
available for pick-up at their premises or another
named place (factory, warehouse, etc.). The
buyer is responsible for all transportation costs,
risk, and export clearance.
• FCA (Free Carrier): The seller delivers the goods
to a named carrier or forwarder at a specified
location. The risk transfers to the buyer once the
goods are handed over to the carrier.
• CPT (Carriage Paid To): The seller pays for the
transportation of the goods to a named
destination, but the risk transfers to the buyer
upon delivery to the carrier.
• CIP (Carriage and Insurance Paid To): Similar to
CPT, but the seller also provides insurance
coverage for the goods in transit.
• DAP (Delivered at Place): The seller is
responsible for delivering the goods to a named
place, often the buyer's premises, but not for
unloading. Risk and costs are transferred at the
destination.
Terms of delivery and
terms of payment
▶ Here are some of the commonly used Incoterms:
• DPU (Delivered at Place Unloaded): The seller
delivers the goods to a named place, including
unloading at the destination. Risk and costs are
transferred upon delivery.
• DDP (Delivered Duty Paid): The seller is
responsible for delivering the goods to the buyer's
premises, including all costs and import duties.
The buyer is responsible only for unloading.
• FAS (Free Alongside Ship): The seller is
responsible for delivering the goods to a named
port alongside a vessel. Risk transfers when the
goods are placed alongside the ship.
• FOB (Free On Board): The seller is responsible for
delivering the goods on board a vessel at a named
port. Risk transfers when the goods are on board.
• CFR (Cost and Freight): The seller pays for the
transportation of the goods to a named port. Risk
transfers when the goods are on board, but the
buyer is responsible for unloading and import
clearance.
• CIF (Cost, Insurance, and Freight): Similar to CFR,
but the seller also provides insurance coverage for
the goods in transit.
Terms of delivery and
terms of payment
▶ When choosing the appropriate terms of
delivery, deciding factors (here seen
from the seller’s perspective) include:
● the mode of transport and the transportation
route, the buyer and the
nature of the goods;
● standard practice, if any, in the buyer’s
country or any regulation set
by the authorities of that country to benefit
their own transport or
insurance industry;
● procedures, where the seller should avoid
terms of delivery, which are
dependent on obtaining import licences or
clearance of goods to countries
they cannot properly judge;
● the competitive situation, where the buyer
often suggests their preferred
terms of delivery and the seller has to evaluate
these terms in relation to
the risks involved.
Terms of delivery and
terms of payment
▶ For a standard delivery between
established trade partners,
neighbouring
countries or countries belonging to a
common trading area, these terms
are often easily agreed upon as a
matter of standard practice with only
an
adjustment related to the actual
freight and insurance charges, often
in connection with open account
trading. In such cases, the buyer
often takes the main responsibility for
transport and risk of the purchased
goods. However, in other cases the
seller wants to have better control of
the delivery process and to be able to
select transport and/or insurance, and
consequently chooses delivery terms
where these aspects are better
protected.
The International
Chamber of
Commerce (ICC)
▶ The ICC is the world’s only truly
global business organization and is
recognized as the voice of international
business. Based in Paris, its core
services/activities include:
● practical services to business;
● working against commercial crime;
● being an advocate for international
business;
● spreading business expertise;
● promoting growth and prosperity;
● setting rules and standards;
● promoting the multilateral trading
system.
This Photo by Unknown Author is licensed under CC BY-NC-ND
The International
Chamber of
Commerce (ICC)
▶ ICC membership groups consist thousands of
companies of every size in over 120 countries
worldwide, mainly through its national committees.
They represent a broad cross-section of business
activity, including manufacturing, trade, services and
the professions.
Through membership of the ICC, companies shape
rules and policies that stimulate international trade
and investment. These companies in turn
count on the prestige and expertise of the ICC to get
business views across to governments and
intergovernmental organizations, whose
decisions affect corporate finances and operations
worldwide.
The ICC makes policy and rules in a number of areas.
This includes terms of delivery as described in this
chapter and banking techniques and practices for
documentary payments and guarantees, but also
areas such as
anti-corruption, arbitration and commercial law and
practice. In order to support international commerce,
ICC also provides a wide range of internationally
recognized certification programmes in most areas
covered
by its policies and rules (see www.icc.academy). The
ICC also runs a comprehensive bookshop specializing
in these areas, where the complete texts can be
Product risks
▶ Product risks are risks that the seller
automatically has to accept as an integral part of
their commitment. First, it is a matter of the
product itself, or the agreed delivery; for example,
specified performance warranties or
agreed maintenance or service obligations.
There are many examples of how new and
unexpected working conditions in the buyer’s
country have led to reduced performance of the
delivered goods. It could be negligence
concerning operating procedures or restrictions,
careless treatment or lack of current
maintenance, but also damage due to the climate
or for environmental reasons.
Matters of this nature may well lead to disputes
between the parties after the contract has been
signed and to increased cost for the delivery as a
whole. It goes without saying that these risks
become even more complicated
when it comes to whole projects or larger and
more complex contracts. These are often
completed over longer periods and involve many
more possible
combinations of interrelated commitments
between the commercial parties, not only
between the seller and the buyer, but also often
involving other parties in the buyer’s country, both
commercial and political.
This Photo by Unknown Author is licensed under CC BY-SA
Commercial
documentation and
official requirement
▶ We will describe the relation
between the terms of delivery and the
terms of payment, including the
consequential insurance aspects.
These areas have to be integral parts
of the sales contract, detailed in such
a way that it leaves no doubt about
the responsibility involved for both
parties.
The sales contract should therefore
include information about, or
reference to, commercial
documentation and official
requirements. This is most easily
dealt with in standard and recurring
trade, but in other cases it may be a
major issue that must be worded in
detail in order to avoid disputes later.
Commercial
documentation and
official requirement
▶ It is important to remember that
many importing countries have
specific requirements regarding not
only layout and contents but also
verification or legalization of these
documents, often by assigned
authorities or chosen parties. Most
exporting countries have trade
councils or other similar bodies to
assist in such matters (the
forwarding agent may also have a
similar role). The exporter should
never underestimate the time
needed for such a task, which could
substantially delay the period
between shipment and due
preparation of the documentation.
Commercial
documentation and
official requirement
▶ There may also be other official
requirements to deal with, such as
export declarations for customs and
value added tax (VAT) purposes in
the exporting country. Import
licences or certificates related to
import
permission, duty, VAT or import
sales tax in the importing country
also need
to be considered. However, when
such requirements or uncertainties
arise
in the buyer’s country, the
established trade practice has
mostly been
adjusted accordingly, including the
use of terms of payment that
automatically reduce or eliminate
Manufacturing risks
▶ The concept of product risk could also
include some elements of the manufacturing
process itself (although in principle that
subject falls beyond the scope of this
handbook). This risk appears all too frequently
when the product is tailor-made or has unique
specifications. In these cases, there is often
no other readily available buyer if the
transaction cannot be completed, in which
case the seller has to carry the cost of any
necessary readjustment, if that is even an
option.
Risks of this nature occur as early as the
product planning phase but may often be
difficult to cover from that time owing to the
special nature
of these products. But they also involve
specific risks for the buyer, who often has to
enter into payment obligations at an early
stage but without
the security of the product itself until it has
been delivered and installed. To safeguard the
interests of both parties, the terms of payment
are often
divided into part-payments related to the
production and delivery phases, in
combination with separate guarantees, to
Transport risks and
cargo insurance
▶ From a general risk perspective it is not only
the product but also the physical movement of the
goods from the seller to the buyer that has to be
evaluated, based on aspects such as the nature
of the product, size of delivery, the buyer and
their country, and the actual transportation route.
Most goods in international trade, apart from
smaller and non-expensive deliveries, are
covered by cargo insurance, providing coverage
against physical loss or damage while in transit,
by land, sea or air, or by a combination of these
modes of transport.
The cover under a cargo insurance (which is a
sub-branch of marine insurance) is almost always
defined by standard policy wordings issued by the
Institute of London Underwriters (or the American
Institute of Marine Underwriters). These are
called Institute Cargo Clauses. While there are
numerous clauses that will apply to different
cargos, the widest cover is provided under
Institute Cargo Clauses A (Institute Cargo
Clauses [Air] for transport by air), or with more
restrictive cover under Institute Cargo Clauses B
and Institute Cargo Clauses C. (The new A-
clauses have replaced the previous Institute
Cargo Clauses All Risks.) Cargo insurance is
therefore normally provided through one of these
Transport risks and
cargo insurance
▶ The question of who should arrange the insurance
is determined by the agreed terms of delivery, as
defined by the relevant Incoterms as described earlier.
These terms also define the critical point during
transport, where the risk is transferred from the seller
to the buyer. That can be any given point between a
named place at the seller’s location (Ex Works) and a
named place at the buyer’s location (Delivered Duty
Paid, DDP). That specified critical
point also determines the seller’s and/or the buyer’s
responsibility to arrange insurance.
However, there is another aspect of risk coverage that
the seller has to be particularly aware of, and that is
the potential risk of the buyer arranging insurance
according to some of the terms of delivery. If such a
term of delivery is chosen, for example FOB (...
named port of shipment), and the buyer fails to insure
in a proper and agreed way, the goods may arrive at
the destination in a damaged condition and without
adequate insurance cover. If, at the same time, the
terms of payment allow for payment after delivery, this
risk de facto becomes a risk for the seller, who may
end up with unpaid for, uninsured and damaged
goods at the point of destination. Such a situation is
obviously a consequence of the seller agreeing to
terms of payment that did not cover the actual
commercial risk, but the insurance risk involved could,
in most cases, have been eliminated by separate
seller’s interest contingency insurance, as described
below.
This Photo by Unknown Author is licensed under CC BY-NC-ND
Transport risks and
cargo insurance
▶ From the seller’s perspective, there are basically
three different ways to insure the cargo, either with an
open insurance policy covering most or all shipments
within the seller’s basic trade as agreed in advance
with the insurer, or with a specific insurance policy,
covering specific shipments on an ad hoc basis or
those which are outside the set criteria of the open
policy. The open policy is by far the most common in
international trade, normally reviewed on an annual
basis, and with a 30- to 60-day cancellation clause
should conditions deteriorate substantially. The open
cover is the most cost-effective alternative, but it also
has obvious administrative advantages and will
automatically secure the actual coverage of all
individual shipments under the policy.
The third basic form of cargo insurance is seller’s
interest contingency insurance, normally only offered
as a complement to the open policy or as an integral
part of a specific policy, and on an undisclosed basis
as far as the buyer is concerned. This insurance
covers the risk that the goods may arrive at their
destination in a damaged condition, resulting in the
buyer’s refusal to accept them (even if the risk was on
their part according to the terms of delivery), or they
may simply be unable or unwilling to pay for
commercial or political reasons, including failure to
produce a valid import licence. In such cases the
insurance covers the physical loss of, or damage to,
the goods but it does not cover the credit risk
(commercial or political) on the buyer, which has to be
This Photo by Unknown Author is licensed under CC BY-NC-ND
Commercial risks
(purchaser risks)
▶ Commercial risk, also called purchaser
risk, is often defined as the risk of the
buyer going into bankruptcy or being in any
other way incapable of fulfilling their
contractual obligations. One might first
think of the buyer’s payment obligations
but, as seen above, it also covers all other
obligations of the buyer, according to the
contract, necessary for the seller to fulfil
their obligations.
How does the seller, therefore, evaluate
the buyer’s ability to fulfil their obligations?
In most industrialized countries within the
Organization for Economic Co-operation
and Development (OECD) area, it is
relatively easy to obtain a fair picture of
potential buyers, either to study their
published accounts or to ask for an
independent business credit report, which
is a more reliable way of dealing with
customer risks. This will often also give
much broader information about the buyer
and their business, and not simply some
Credit information
▶ Export trade may be an important factor in the
potential growth of business; however, the risks involved
in carrying out international business can also be high.
In little more than a decade, the world of commerce has
changed dramatically. In this commercial environment,
the global suppliers of credit information have become a
vital source of knowledge and expertise, based on the
great wealth of information that they maintain about
consumers and how they behave, about businesses and
how they perform, and about different markets and how
they are changing.
The more the seller understands their customers, the
more they are able to respond to their individual needs
and circumstances. Credit information in itself may also
help the seller to reach new customers and to build,
nurture and maximize lasting customer relationships. It
thus forms a vital part of establishing the structure of a
potential export transaction and, in particular, the terms
of payment to be used. In some cases the information
can be provided instantly, inexpensively and in a
standardized manner over the internet, but in other
cases a more researched profile is required.
Each seller must have a policy for obtaining up-to-date
information about the commercial risk structure in
connection with any new potential buyer or business and
with outstanding export receivables. How this is done
may differ depending on the volume and structure of the
exports, but it is recommended at least to review the
business information systems offered by the larger
providers and to choose an alternative that is optimal for
the individual seller as to the services and costs
involved.
Credit information
▶ The business information may vary, depending
on the registered information available about the
company and the contents can sometimes also be
difficult to evaluate. Questions will also often arise
about how up to date it really is, particularly when
dealing with customers outside the most advanced
industrialized countries.
With buyers from non-OECD countries, the matter
becomes more complicated. The information, if
available, will be much more difficult to evaluate
and it will be harder to assess how it has been
produced and how it should be analyzed. In these
cases, the information probably has limited value
anyway, because other risk factors, such as the
political risk, may be greater – and terms of
payment that reflect this combined risk have to be
chosen.
The seller may also be able to get assistance
abroad through the export or trade council or similar
institutions in their country, and/or from the
commercial sections of embassies abroad, which
may assist with market surveys and other studies in
that country. Banks can participate by issuing
introductory letters to their branches or
correspondents, enabling the seller to obtain more
up-to-date information about the local business
conditions and form an opinion about the buyer and
their business in connection with the contract
negotiations.
This Photo by Unknown Author is licensed under CC BY
Credit management
tips for export success
1. Don’t be convinced by a company’s website or its
entry in a telephone directory, as unscrupulous
traders can ‘buy’ visibility in order to defraud
suppliers.
2. Don’t be satisfied with trade or bank references,
as no company will point a supplier towards
someone who will give them a bad reference.
3. Don’t be afraid to ask awkward questions, look at
the latest company accounts and check for
evidence that the company is trading profitably.
4. Don’t be discouraged if the company uses a
reputable factor or invoice discounter, as this is a
growing means of obtaining finance.
5. Don’t rely on your instincts that a new customer
is trustworthy; obtain an objective assessment of
risk through a reputable credit reference agency
with international reach.
6. Don’t be afraid to ask for full or partial payment
up-front. A credit limit is a reward for good
payment and not an automatic right of new
customers.
7. Don’t rush into increasing a customer’s credit
limit because they have paid their first invoice
promptly and in full.
This Photo by Unknown Author is licensed under CC BY-SA
Providers of
international credit
reports
Information about potential foreign
counterparts can be obtained from a number
of independent providers of business
information through branches or
correspondents around the world. Such credit
reports can be provided on a case-by-case
basis or be part of a broader risk management
solution, offered by domestic or multinational
business information companies that keep
huge databases of customers from all over the
world.
The information required could be on an ad
hoc basis or as an ongoing process of
monitoring actual and potential customers. It
could be of a general or more specific nature
depending on what other information is
already available and delivered through
various media and within different time frames,
which will be reflected in the cost structure.
Since domestic banks also make use of such
credit information, they could in most cases
give the exporter valuable advice on which
provider to turn to, based on their individual
needs
This Photo by Unknown Author is licensed under CC BY-ND
Providers of
international credit
reports
Some of the global providers of credit
information are listed in alphabetical order
below, covering the most important trade
markets with millions of companies in their
databases:
● Atradius – a global credit information and
management group of companies, providing
both credit and market information through their
own or partners’ international network;
www.atradius.com.
● Coface – one of the world’s largest domestic
and export credit insurance groups. Apart from
insurance, Coface also specializes in providing
global credit information and related services on
companies worldwide; www.coface.com.
● D&B (formerly Dun & Bradstreet) – one of the
largest providers of business information for
credit, marketing and purchasing decisions
worldwide; www.dnb.com.
● Experian – a global provider of credit
information and related consulting services;
www.experian.com.
Adverse business risks
▶ Adverse business risks include all
business practices of a negative nature,
which are not only common but also almost
endemic in some parts of the world. This
could have serious consequences for the
individual transaction, but also for the
general business and financial standing of
the seller, as well as their moral reputation.
We are, of course, referring to all sorts of
corrupt practices that flourish in many
countries, particularly in connection with
larger contracts or projects: bribery, money
laundering and a variety of facilitation
payments:
Bribery in general can broadly be defined as
the receiving or offering of an undue reward
by or to any holder of public office or a
private employee designed to influence
them in the exercise of their duty, and thus
to incline them to act contrary to the known
rules of honesty and integrity.
This quotation is taken from a UK
government body, and even if it is not a
legal definition, it gives an accurate
Transport risks and
cargo insurance
▶ Apart from these three basic ways to insure cargo
goods, sometimes a Cover Note may be issued by the
insurance company or insurance broker instead of, or
before definite insurance policies or certificates are
issued, to serve as proof of insurance.
The seller should bear in mind that cargo insurance is
a specialized business, where cover and conditions
may vary according to the commodity or goods to be
shipped, the transportation route and the mode of
transport,
which is a major reason why open policy cover is the
most common in international trade. Cargo insurance
can be obtained directly from an insurance company
or,
very often today, directly through the transporting
company or the forwarding agent handling the goods.
In some countries it is also quite common to use
independent cargo insurance brokers, who may be
more able to select the most cost-efficient insurance
package, based on specific conditions or the trade
structure in each individual case.
However, the seller should always ensure that the
selected insurer is part of an established international
network for dealing with claims and settlement
procedures. This is often also a requisite of the buyer,
and if not explicitly agreed in the sales contract, such
conditions may appear later on, for example in the
insurance specifications in a letter of credit
Terms of delivery and
terms of payment
▶ The standard rules of reference for the
interpretation of the most commonly used
trade terms in international trade are
Incoterms® (International Commercial
Terms), issued by the International Chamber
of Commerce (ICC). These rules are now
generally recognized throughout the world,
so any other unspecified trading terms,
which may also have different meanings for
companies in different countries, should be
avoided.
The basic purpose of the rules is to define
how each Incoterm, as agreed in the sales
contract, should be dealt with in terms of
delivery, risks and costs, and specify the
responsibility of the buyer and seller. For
example, who should arrange and pay
freight, other transport charges, insurance,
duties and taxes? These aspects are often
referred to as the critical points in
international trade, detailing at what point the
risk is transferred from the seller to the buyer
and how the costs involved should be split
between the parties. The new Incoterms
2010 consists of 11 terms, separated into
two groups.
Adverse business risks
▶ If bribery is generally a technique to press the seller
for undue rewards, money laundering often has the
opposite purpose, which is to invite the seller to do a
deal that may on the face of it seem very
advantageous, but where the true intention is to
disguise or conceal the actual origin of the money
involved. It covers criminal activities, corruption and
breaches of financial sanctions. It includes the
handling, or aiding the handling, of assets, knowing
that they are the result of crime, terrorism or illegal
drug activities.
Criminal and terrorist organizations generate large
sums of cash, which they need to channel into the
banking, corporate and trade financial systems, and
both banks and traders can innocently fall victim to
such activity if not exercising due diligence. A
frequently used technique is over-invoicing or inflated
transactions, with or without payment to a third party,
where the seller may be completely unaware that they
could be part of a ruse to launder money. The seller
should be particularly observant in the case of cash
payments and be aware that new anti-money
laundering regulations must be complied with for such
payments in most countries.
A reputable business adds respectability to any
organization being used for laundering operations,
and money launderers will try to use any business,
directly through ownership or indirectly by deceit.
Developing nations are particularly vulnerable to
money launderers because they usually have poorly
regulated financial systems. These provide the
Adverse business risks
▶ In general terms, a suspicious
transaction is one that is outside the
normal range of transactions from the
seller’s point of view, in particular in
relation to new customers or where an
old customer changes transaction
structure in an unusual way. It can
include:
● unusual payment settlements;
● unusual transfer instructions;
● secretiveness;
● rapid movements in and out of
accounts;
● numerous transfers;
● complicated accounts structures.
Any of the above should be considered
suspicious.
Adverse business risks
▶ Bribery, money laundering and any
other form of corrupt behavior are bad for
business; they distort the normal trade
patterns and give unfair advantages to
those involved in them. They are also
extremely harmful for the countries
themselves, owing to the damage they
cause to the often fragile
social fabric; they destroy the economy
and are strongly counterproductive for
trade and all forms of foreign investments
into the country.
In the long run, such practices also
prevent social and economic stability and
development, and they have an especially
negative impact on the most
disadvantaged parts of the population.
Even within the countries where these
practices are frequent among individual
public and private employees, they are
almost always illegal, even if these
countries often lack the means
and the resources to tackle these
problems effectively.
The need for a strong
policy
▶ The World Bank and the OECD
have put a great deal of resources
into combating corruption worldwide,
and in most countries corruption is
now illegal even when committed
abroad. The companies also have full
responsibility for the wrongdoings of
their employees abroad when acting
for the company.
As a consequence of the inclusion of
anti-corruption laws, which are in
place in most countries today, it is
also incorporated in the procedures of
their government departments, for
example in the rules of the respective
export credit agency (which will be
described at length later in this book).
Any violation of the anti-corruption
statement that the seller has to give
when applying for such insurance
This Photo by Unknown Author is licensed under CC BY-NC-ND
The need for a strong
policy
▶ It is often not just the threat of prosecution that
should most worry the seller. There have been a
number of cases in which companies were
allegedly involved in corrupt behaviour, but where
the true circumstances were not fully disclosed.
The allegation could be damaging enough,
sometimes based only on rumours emanating
from economic groups or political factions within
the society (a frequently used method), to stop or
postpone a project or to favour another bidder.
Such rumours, true or false, or involving either
smaller facilitation payments or large-scale
bribery to senior private or public officials, can
drag on for years, with economic and detrimental
consequences for the company, both overseas
and at home.
Every company involved in overseas trade or
investments should have a clear anti-corruption
policy that is implemented and clearly understood
by all its employees, and supervised by the
management in an appropriate way. Such a
policy is also supported by local laws, which give
both the company and its employees a much
stronger moral and legal defence against every
attempt to extort bribes from them or to induce
them into any other form of corrupt practice.
This Photo by Unknown Author is licensed under CC BY-SA
Political risks
▶ Political risk or country risk is often
defined as:
the risk of a separate commercial
transaction not being realized in a
contractual way due to measures
emanating from the government or
authority of the buyer’s own or any other
foreign country.
No matter how reliable the buyer may be in
fulfilling their obligations and paying in local
currency, their obligations to the seller
(according to the contract) are
nevertheless dependent on the current
situation in their own country – or along the
route of transport to that country.
However, in practice, it may be difficult to
separate commercial and political risk
because political decisions, or other similar
acts by local authorities, also affect the
local company and its capabilities of
honouring the contract. For example, some
countries may change taxes, import duties
or currency regulations, often with
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  • 1. International Transportation and Trade P5 Land Transportation, Air Freight and Ocean Freight
  • 3. Important Dates ▶ Assignment 4/11/2024 ▶ Midterm 4/19/2024 ▶ Final 4/26/2024 This Photo by Unknown Author is licensed under CC BY-SA-NC
  • 4. Land Transportation in International Trade: Connecting the Global Supply Chain In the dynamic world of international trade, efficient and reliable transportation is essential to the movement of goods across borders. Land transportation plays a pivotal role in connecting various modes of transportation, bridging the gaps between sea and air transport, and making the last-mile delivery to its destination. This essay explores the significance of land transportation in international trade, highlighting its key components, challenges, and the evolving landscape of this crucial link in the global supply chain.
  • 5. The Role of Land Transportation in International Trade Connecting Modes of Transportation: Land transportation acts as a bridge between different modes of transportation, facilitating the smooth flow of goods. For example, it links seaports and airports to inland distribution centers and manufacturing hubs. This connectivity is essential for creating a seamless supply chain, reducing transit times, and ensuring the timely delivery of goods. Last-Mile Delivery: In international trade, the journey of goods doesn't end at the port or airport. Land transportation is responsible for the "last mile" delivery, bringing products from distribution centers to their final destinations, which can be warehouses, retail stores, or even directly to consumers. The effectiveness of last-mile delivery significantly impacts customer satisfaction and the competitiveness of businesses. Regional Distribution: Land transportation is crucial for efficient regional distribution, allowing goods to reach specific markets, manufacturing facilities, and storage locations. This is particularly important for industries with extensive regional supply networks. Customs Clearance and Border Crossings:Land transportation facilitates the movement of goods across borders and through customs checkpoints. Trucks and trains transport cargo to and from border areas, streamlining the customs clearance process and reducing delays.
  • 6. Components of Land Transportation in International Trade 1. Road Transport: Road transport, primarily through trucks and trailers, is a dominant mode of land transportation for international trade. It offers flexibility, accessibility, and the ability to reach remote or underserved areas. Trucking is particularly important for just-in- time inventory systems and the transportation of perishable or high- value goods. 2. Rail Transport: Rail transportation is a cost-effective and environmentally friendly option for long-distance cargo transport. It's often used to move bulk cargo, such as minerals, energy resources, and large quantities of goods, between regions and countries. Rail networks are vital for connecting seaports to inland areas. 3. Intermodal Transportation: Intermodal transportation combines different modes of land transportation, such as trucking and rail, with sea and air transportation. Containers are often used to facilitate the easy transfer of goods between different modes, enhancing efficiency and reducing handling. 4. Infrastructure and Logistics: Infrastructure development, including roads, railways, and logistics hubs, is a significant driver of efficient land transportation. Well-designed transportation networks and logistics facilities help reduce congestion, enhance connectivity, and improve the overall efficiency of international trade.
  • 7. Challenges and Issues in Land Transportation 1. Border Crossings and Customs Procedures: Complex customs procedures, varying regulations, and differing standards at international borders can result in delays and increased administrative burdens. 2. Traffic Congestion: Urban congestion and traffic delays can disrupt delivery schedules and increase transportation costs. Managing urban logistics is an ongoing challenge for businesses. 3. Infrastructure Gaps: Inadequate or outdated transportation infrastructure can lead to inefficiencies in land transportation. Governments and the private sector must invest in infrastructure development to maintain competitiveness. 4. Environmental Impact: The environmental impact of land transportation, especially road transport, is a growing concern. Emissions, fuel consumption, and their contribution to climate change require sustainable solutions. 5. Security and Safety: Ensuring the safety and security of goods in transit is crucial. Land transportation is vulnerable to theft, accidents, and other risks that can disrupt the supply chain.
  • 8. The Evolving Landscape of Land Transportation 1. Digitalization: Digital technologies are transforming land transportation. Tracking and tracing systems, route optimization, and real-time data are enhancing visibility and efficiency. 2. Sustainability: The emphasis on sustainability is driving the adoption of alternative fuels, electric vehicles, and green logistics practices in land transportation. 3. Automation and Autonomous Vehicles: Automation, including the use of autonomous trucks, is poised to revolutionize the industry, offering the potential for safer, more efficient, and cost-effective transportation. 4. Global Supply Chain Integration: The increasing integration of global supply chains demands greater efficiency in land transportation, which is further facilitated by advanced technologies and improved logistics coordination. 5. Challenges and Opportunities of E-commerce: The growth of e-commerce is impacting land transportation, demanding faster, more flexible, and customer-centric last-mile delivery solutions.
  • 9. Conclusion Land transportation is an indispensable link in the global supply chain, connecting modes of transportation, facilitating the last-mile delivery, and ensuring the efficient movement of goods in international trade. As the landscape of international trade evolves, land transportation must adapt to meet new challenges and opportunities. Advancements in digitalization, sustainability, automation, and supply chain integration are reshaping the industry, offering the potential for greater efficiency and sustainability in the transportation of goods across borders. As international trade continues to grow and diversify, the role of land transportation remains vital to the world's interconnected economy.
  • 10. The Sky's the Limit: Air Freight in International Transportation and Trade The field of international transportation and trade is continually evolving, and one mode of transportation that has played a pivotal role in this dynamic environment is air freight. The concept of swiftly moving goods across borders through the air is a game-changer for global commerce. This essay explores the significance of air freight in international trade, delving into its history, key components, challenges, and the evolving landscape of this vital aspect of global logistics.
  • 11. The Role of Air Freight in International Trade 1. Speed and Time Sensitivity: Air freight is unparalleled in its ability to move goods quickly. It's the go-to mode when time sensitivity is paramount, offering swift delivery of high-value and time-critical goods. In industries such as electronics, pharmaceuticals, and fashion, air freight ensures products reach markets on time. 2. Global Reach: Air freight connects distant regions efficiently. It reaches remote areas that may not be accessible by other modes, facilitating the distribution of goods worldwide. It's especially vital for regions lacking adequate infrastructure. 3. Efficiency and Precision: Air freight is a precise mode of transportation. Airlines adhere to strict schedules, and handling is well-regulated. This precision minimizes risks associated with handling and exposure to the elements. 4. Capacity for Perishable Goods: Air freight is the preferred choice for perishable goods such as seafood, fresh produce, and pharmaceuticals. The ability to maintain controlled temperatures and rapid transit ensures product quality. 5. Security and Safety: Air freight offers a secure environment. Goods are closely monitored, reducing the risk of theft and damage. Airlines invest heavily in security measures to protect cargo.
  • 12. Components of Air Freight in International Trade 1. Cargo Airlines: Cargo airlines are dedicated to transporting goods, both domestically and internationally. Some well-known cargo airlines include FedEx, UPS, DHL, and Cargolux. These companies maintain extensive networks and offer a range of services. 2. Airports and Air Cargo Facilities: Airports worldwide have dedicated cargo terminals, equipped with advanced handling systems and storage facilities. Major international airports such as Hong Kong International Airport, Memphis International Airport, and Frankfurt Airport serve as crucial hubs for air freight. 3. Air Cargo Containers: Cargo is transported in specially designed containers to ensure its safe handling and protection. Standardized container sizes streamline operations and improve efficiency. 4. Freight Forwarders and Customs Brokers: Freight forwarders coordinate and manage air cargo shipments on behalf of shippers, handling all aspects from booking cargo space to customs clearance. Customs brokers ensure that goods meet the customs requirements of the destination country. 5. Regulations and Documentation: Air freight involves extensive documentation, including air waybills, invoices, and packing lists. Compliance with international air cargo regulations is essential to ensure smooth operations.
  • 13. Challenges and Issues in Air Freight 1. Costs: Air freight is generally more expensive than other modes of transportation due to the high costs of fuel, aircraft maintenance, and security measures. 2. Capacity Constraints: Air freight capacity can be limited, leading to capacity constraints during peak seasons or in times of exceptional demand. 3. Environmental Concerns: Air freight's environmental impact, including carbon emissions, is a growing concern. Balancing its rapid transportation benefits with sustainability remains a challenge. 4. Security: Ensuring the security of air cargo is a top priority. Regulatory requirements and the potential for cargo theft and tampering demand ongoing vigilance. 5. Global Trade Disruptions: Air freight can be sensitive to global trade disruptions, such as natural disasters, pandemics, and political conflicts, affecting routes and schedules.
  • 14. The Evolving Landscape of Air Freight 1. Technological Advancements: Technology, including real-time tracking and digital documentation, is transforming air freight operations, enhancing transparency, visibility, and efficiency. 2. E-commerce Impact: The growth of e-commerce is driving the need for faster and more flexible air freight solutions to meet customer demands for rapid shipping. 3. Sustainable Initiatives: Airlines and shippers are investing in sustainable practices to reduce the environmental impact of air freight, such as adopting biofuels and optimizing routes. 4. Innovation in Cargo Aircraft: New-generation cargo aircraft offer increased capacity and fuel efficiency, further improving the cost-effectiveness of air freight. 5. Global Trade Expansion: As international trade continues to expand, air freight is expected to play an even more significant role in connecting global markets and industries.
  • 15. Conclusion Air freight is a critical and indispensable element of international trade, offering speed, efficiency, and precision in the transportation of goods across the world. Its importance extends to diverse industries, from manufacturing to perishable goods, and is further magnified in a world characterized by globalization and rapid changes in consumer behavior. As air freight continues to evolve, the challenges of cost, capacity, security, and sustainability are met with technological advancements, sustainable initiatives, and innovation in cargo aircraft. In a world where time is of the essence and global connectivity is a necessity, air freight is poised to remain a dominant force in the realm of international trade and logistics.
  • 16. Navigating the Seas of Global Trade: Ocean Freight and Key Terminologies in Shipping Ocean freight, also known as sea freight, is the backbone of international trade. The vast and interconnected network of maritime transportation is essential for the movement of goods across the globe, serving as a conduit for global commerce. This essay provides an in- depth exploration of ocean freight in international transportation and trade, along with an examination of key shipping terminologies that form the foundation of this vital industry.
  • 17. Key Terminologies in Shipping 1. Vessel Voyage: A vessel voyage refers to a specific journey undertaken by a ship from one port to another. Each voyage is unique and may involve multiple stops (ports of call) for loading and unloading cargo. 2. Gross Weight and Net Weight: Gross Weight: Gross weight represents the total weight of a shipment, including the weight of the cargo, packaging, containers, and any other materials used for transport. It is often used to determine shipping costs and verify weight limits for vessels. 1. Net Weight: Net weight, on the other hand, is the weight of the cargo itself, excluding any packaging or additional materials. 3. Demurrage: Demurrage is a charge levied on cargo that remains in a port or on a vessel for longer than the agreed-upon time. It is essentially a penalty for delays and encourages the timely movement of goods. 4. Onboard: "Onboard" is a term used to confirm that a shipment has been loaded onto a vessel. When cargo is declared as "onboard," it means that it is now in the possession of the carrier and will be transported to its destination. 5. RFS (Rail, Road, Sea): RFS is an integrated transportation system that combines rail, road, and sea transport to move goods seamlessly between different modes of transportation. It is particularly important for moving cargo to and from inland locations. 6. Transshipment: Transshipment refers to the process of unloading cargo from one vessel and loading it onto another during an intermediate stop along a voyage. This is common when goods are transported from a smaller vessel to a larger one for long- haul shipping.
  • 18. The biggest port in the world 1. Singapore Port (Port of Singapore): Singapore is one of the busiest ports in the world. In 2020, the Port of Singapore handled approximately 36.9 million twenty-foot equivalent units (TEUs) of containers. 2. Shanghai Port (Port of Shanghai): The Port of Shanghai is one of the largest and busiest ports globally. In 2020, it handled approximately 43.5 million TEUs. 3. Hong Kong Port (Port of Hong Kong): As of 2020, the Port of Hong Kong handled approximately 18 million TEUs. Hong Kong's port has faced increased competition from neighboring ports in the Pearl River Delta region, including Shenzhen and Guangzhou.
  • 19. The Biggest Port in the World: The Port of Shanghai ▶ The Port of Shanghai, located in China's Yangtze River Delta, is the world's largest port by container throughput, handling over 47 million TEUs in 2022. ▶ With a history dating back to the 1st century AD, the port's growth was accelerated in the 19th century due to China's opening to Western trade, ultimately becoming the world's largest port in 2010. ▶ Covering more than 400 square kilometers, the Port of Shanghai boasts over 200 berths and utilizes advanced technology like automated cranes and conveyor systems. ▶ The port handles diverse cargo types, including containers, bulk cargo, and liquid cargo, and it also serves as a significant hub for passenger traffic, facilitating over 20 million passengers annually. ▶ Beyond its global trade importance, the Port of Shanghai is a major employer in China, supporting millions of jobs and playing a vital role in the country's economy.
  • 20. The Importance of the Port of Shanghai ▶ The Port of Shanghai is a critical global trade hub, handling diverse cargo types like containers, bulk cargo, and liquid cargo, facilitating international trade worldwide. ▶ It significantly contributes to the Chinese economy by employing millions of people, supporting businesses, and generating billions of dollars in revenue for the government. ▶ Positioned strategically on the Yangtze River, the port offers China access to the East China Sea and the Pacific Ocean, enhancing the nation's strategic transportation infrastructure. ▶ The port's essential role in global supply chains makes it a linchpin in the movement of goods to and from various parts of the world. ▶ Located near major Chinese cities like Shanghai and Nanjing, the Port of Shanghai plays a vital role in connecting these urban centers with international trade routes, further solidifying its importance in China's transportation network.
  • 21. The Challenges Facing the Port of Shanghai ▶ The Port of Shanghai faces a number of challenges. First, the port is facing increasing competition from other ports in China and around the world. As the Chinese economy grows, other ports are investing in new infrastructure and technologies. This is making it more difficult for the Port of Shanghai to maintain its competitive edge. ▶ Second, the Port of Shanghai is facing environmental challenges. The port is located in a densely populated area, and its operations generate pollution. The Chinese government is under pressure to reduce pollution, and this could lead to restrictions on the Port of Shanghai's operations. ▶ Third, the Port of Shanghai is facing geopolitical challenges. The port is located in a strategically important location, and it is a target for potential adversaries. The Chinese government is taking steps to protect the port, but it remains a vulnerable target.
  • 22. Difference Between ICD, Port, and CFS: • ICD (Inland Container Depot): ICDs are dry ports located inland, away from the coast. They serve as hubs for the consolidation and deconsolidation of containerized cargo, making it easier to move goods to and from the port. • Port: Ports are maritime facilities located on the coast, where ships load and unload cargo. They serve as gateways for international trade, handling various types of cargo, including containerized, bulk, and general cargo. • CFS (Container Freight Station): CFS is a facility located within a port area or inland, serving as a storage and consolidation point for containerized cargo. It is where cargo is packed into containers or unpacked from containers.
  • 23. Challenges in Ocean Freight 1. Environmental Concerns: Ocean freight, while efficient, has a notable environmental footprint due to emissions from vessels. The industry faces increasing pressure to adopt greener practices and reduce its impact on the environment. 2. Congestion and Delays: Major ports often face congestion and delays in unloading and handling cargo, impacting supply chains and adding costs for shippers. 3. Regulatory Compliance: Ocean freight is heavily regulated. Shippers must navigate complex customs and trade regulations, as well as evolving security measures. 4. Security and Piracy: Protecting cargo from theft and piracy remains a challenge in certain regions. The industry must employ security measures to safeguard shipments.
  • 24. The Evolving Landscape of Ocean Freight 1. TechnologyAdoption:Digital technologies, such as blockchain, IoT, and AI, are transforming the industry, enhancing transparency, tracking capabilities, and efficiency. 2. Alternative Fuels: The development and adoption of alternative fuels, such as LNG and hydrogen, are on the horizon, offering the potential to reduce emissions. 3. E-commerce Impact: The rapid growth of e- commerce has increased demand for expedited delivery options, influencing the way goods are transported via ocean freight. 4. Global Trade Dynamics: Trade tensions, evolving trade agreements, and geopolitical factors continue to shape the landscape of international shipping.
  • 25. Conclusion Ocean freight remains the linchpin of international trade, connecting nations and markets. Key terminologies such as vessel voyage, gross weight, net weight, demurrage, onboard, RFS, transshipment, and the difference between ICD, port, and CFS underpin the language and operation of this dynamic industry. Challenges, including environmental concerns and regulatory compliance, demand innovative solutions. The future of ocean freight lies in technology adoption, sustainability, and adaptability to the evolving global trade landscape. As the world continues to rely on the seas to transport goods, ocean freight's enduring significance in international trade is undeniable.
  • 27. Enabling Learning Objectives Define Transport Geography. ▶ Explain the fundamental concept of transport geography, its scope, and relevance in the field of logistics and geography. Describe the Relationship Between Transportation and Space. ▶ Explore how transportation systems interact with geographical space, including their impact on the spatial organization of regions. Understand the Connection Between Transportation and Commercial Geography. ▶ Analyze the intersection of transportation and commercial geography, highlighting how transportation networks influence trade and economic activities. Examine the Geography of Transportation Networks. ▶ Investigate the spatial distribution and characteristics of transportation networks, including their role in shaping regional development.
  • 28. Transportation and geography ▶ Human societies have always relied on the movement of people, goods, and information. ▶ Increased mobility and accessibility have become more pronounced due to factors like trade liberalization and efficient global resource utilization. ▶ Effective management and expansion of transportation systems are essential for supporting various activities and societal functions. ▶ Transport systems play a crucial role in commuting, energy supply, and the distribution of goods in manufacturing and distribution processes. ▶ Developing transportation systems is an ongoing challenge aimed at meeting mobility needs, fostering economic growth, and engaging in the global economy.
  • 29. Concept 1 – What is transport geography? ▶ Transportation serves the unique purpose of overcoming spatial constraints, including distance, time, administrative divisions, and topography. ▶ These constraints create friction, known as the "friction of space," which transportation aims to reduce. ▶ The extent to which transportation can circumvent these constraints varies based on factors like distance, infrastructure capacity, and the nature of the transported items. ▶ Transportation and geography are interconnected, with transportation transforming the geographical attributes of items from origin to destination. ▶ Transportability, which refers to the ease of movement of passengers, freight, or information, depends on factors like transport costs, item attributes, and political factors like laws and regulations. High transportability reduces distance-related constraints.
  • 30. Concept 1 – What is transport geography?
  • 31. Comparisons of Direct Derived Demand and Indirect Derived Demand Direct derived demand ▶ Derived demand refers to movements that result directly from economic activities. ▶ Examples include commuting between home and work due to the supply of work in one location and the demand for labor in another. ▶ In freight transportation, the supply chain involves moving raw materials, parts, and finished products via various modes. ▶ Transportation is directly tied to production and consumption functions. ▶ It serves as a crucial link between the supply and demand of goods and services in the economy. Indirect derived demand ▶ Indirect derived demand pertains to movements generated by the needs of other movements. ▶ Examples include the supply of fuel for transportation activities, involving movements from extraction zones to refineries, storage facilities, and consumption areas. ▶ Warehousing can also be categorized as indirect derived demand, as it facilitates the storage and distribution of goods between production and consumption locations.
  • 32. Concept 1 – What is transport geography? Euclidean distance: A simple function of a straight line between two locations where distance is expressed in geographical units such as kilometers. Transport distance: A more complex representation where a set of activities related to circulation, such as loading, unloading and transshipment, are considered. Logistical distance: A complex representation that encompasses all the tasks required so that a movement between two locations can take place.
  • 33. Concept 1 – What is transport geography?
  • 34. Spatial flows and their patterns Geographical . Each ow has an origin and a destination and consequently a degree of separation. Flows with high degrees of separation tend to be more limited than flows with low degrees of separation. Physical . Each ow involves specific physical characteristics in terms of possible load units and the conditions in which they can be carried. Flows, depending on the transportation mode, can be atomized (smallest load unit) or massified (moving load units in batches). Transactional . The realization of each ow has to be negotiated with providers of transport services, such as booking a slot on a container ship or an air travel seat. Commonly, a ow is related to a monetary exchange between provider of transportation and the user. Distribution . Flows are organized in sequences where the more complex are involving different modes and terminals. Many transport flows are scheduled and routed to minimize costs or maximize efficiency, often through intermediary locations.
  • 35. Urbanization, multinational corporations, the globalization of trade and the international division of labor ▶ Urbanization, globalization, multinational corporations, and the international division of labor are influential forces in transportation, operating at different but interconnected scales. ▶ Transportation serves a fundamentally geographic purpose by enabling movements between diverse locations, contributing to the spatial organization and structure of territories.
  • 36. The importance of transportation ▶ Historical: Transport modes have played several different historical roles in the rise of civilizations (Egypt, Rome and China), in the development of societies (creation of social structures) and also in national defense (Roman Empire, American road network). ▶ Social: Transport modes facilitate access to healthcare, welfare, and cultural or artistic events, thus performing a social service. They shape social interactions by favoring or inhibiting the mobility of people. Transportation thus supports and may even shape social structures. ▶ Political: Governments play a critical role in transport as sources of investment and as regulators. The political role of transportation is undeniable as governments often subsidize the mobility of their populations (highways, public transit, etc.). While most transport demand relates to economic imperatives, many communication corridors have been constructed for political reasons such as national accessibility or job creation. Transport thus has an impact on nation building and national unity, but it is also a political tool. ▶ Economic: The evolution of transport has always been linked to economic development. It is an industry in its own right (car manufacturing, air transport companies, etc.). The transport sector is also an economic factor in the production of goods and services. It contributes to the value added of economic activities, facilitates economies of scale, influences land (real estate) value and the geographic specialization of regions. Transport is both a factor shaping economic activities and is also shaped by them. ▶ Environmental: Despite the manifest advantages of transport, its environmental consequences are also significant. They include air and water quality, noise level and public health. All decisions relating to transport need to be evaluated considering the corresponding environmental costs. Transport is a dominant factor in contemporary environmental issues.
  • 37. Transportation Trends Growth of the demand . The years following the Second World War have seen a considerable growth of the transport demand related to individual (passengers) as well as freight mobility. This growth is jointly the result of larger quantities of passengers and freight being moved, but also the longer distances over which they are carried. Recent trends underline an ongoing process of mobility growth, which has led to the multiplication of the number of journeys involving a wide variety of modes that service transport demands. Reduction of costs . Even if several transportation modes are very expensive to own and operate (ships and planes, for instance), costs per unit transported have dropped significantly over the last decades. This has made it possible to overcome larger distances and further exploit the comparative advantages of space. As a result, despite the lower costs, the share of transport activities in the economy has remained relatively constant in time. Expansion of infrastructures . The above two trends have obviously extended the requirements for transport infrastructures both quantitatively and qualitatively. Roads, harbors, airports, telecommunication facilities and pipelines have expanded considerably to service new areas and add capacity to existing networks. Transportation infrastructures are thus a major component of land use, notably in developed countries.
  • 38. Transportation in geography Transport geography is a sub- discipline of geography concerned about movements of freight, people and information. It seeks to understand their spatial organization by linking spatial constraints and attributes with the origin, the destination, the extent, the nature and the purpose of movements.
  • 40. Transportation in geography ▶ Transportation nodes . Transportation primarily links locations, often characterized as nodes. They serve as access points to a distribution system or as transshipment/ intermediary locations within a transport network. This function is mainly serviced by transport terminals where ows originate, end or are being transshipped from one node to the other. Transport geography must consider its places of convergence and transshipment. ▶ Transportation networks . Considers the spatial structure and organization of transport infrastructures and terminals. Transport geography must include in its investigation the structures (routes and infrastructures) supporting and shaping movements. ▶ Transportation demand . Considers the demand for transport services as well as the modes used to support movements. Once this demand is realized, it becomes an interaction which ows through a transport network. Transport geography must evaluate the factors affecting its derived demand function.
  • 41. Transportation in geography ▶ Location . As all activities are located somewhere, each location has its own characteristics conferring a potential supply and/or a demand for resources, products, services or labor. A location will determine the nature, the origin, the destination, the distance and even the possibility of a movement to be realized. For instance, a city provides employment in various sectors of activity in addition to consuming resources. ▶ Complementarity . Locations must require exchanging goods, people or information. This implies that some locations have a surplus while others have a de cit. The only way an equilibrium can be reached is by movements between locations having surpluses and locations having demands. For instance, a complementarity is created between a store (surplus of goods) and its customers (demand of goods). Scale . ▶ Movements generated by complementarity are occurring at different scales, pending the nature of the activity. Scale illustrates how transportation systems are established over local, regional and global geographies. For instance, home- to-work journeys generally have a local or regional scale, while the distribution network of a multinational corporation is most likely to cover several regions of the world.
  • 42. Physical constraints Transport geography is concerned with movements that take place over space. The physical features of this space impose major constraints on transportation systems, in terms of what mode can be used, the extent of the service, its costs, capacity and reliability. Three basic spatial constraints of the terrestrial space can be identified: ▶ Topography ▶ Hydrology ▶ Climate
  • 43. Topography ▶ Topography, including features like mountains, valleys, and water depths, significantly shapes transportation networks and infrastructure. ▶ Land transport infrastructure is typically constructed where physical impediments are minimal, such as plains, valleys, or through tunnels in mountainous regions. ▶ Coastlines influence the location of port infrastructure, while aircraft require large airfields for operations. ▶ Topography can promote the convergence of transportation routes, leading to the development of trade centers that serve as hubs for the collection and distribution of goods. ▶ Physical constraints, both absolute (completely preventing movement) and relative (imposing additional costs and delays), can complicate or hinder transportation activities. Land transportation networks are particularly affected by topography, with grades over 3 percent for highways and 1 percent for railways presenting challenges. Areas with less topographical complexity tend to have denser land transportation networks.
  • 44. Hydrology ▶ Water properties, distribution, and circulation significantly impact the transport industry, particularly maritime transport. ▶ Navigable channels provided by rivers, lakes, and shallow seas, like the Mississippi, St. Lawrence, Rhine, Mekong, and Yangtze, are essential routes into continents, historically driving human activities. ▶ Port locations are influenced by natural features like bays, sandbars, and fjords, offering protection and facilitating transshipment. Waterways, including narrows, rapids, and land breaks, can serve as both conduits and barriers, requiring investments in infrastructure like canals or bridges to overcome obstacles.
  • 45. Climate ▶ Weather, including temperature, wind, and precipitation, is a significant factor impacting transportation modes and infrastructure. ▶ Hazardous weather conditions like snow, heavy rainfall, ice, and fog can disrupt both freight and passenger movement. ▶ Weather-related disruptions, especially in air transportation, can lead to cascading effects, and even phenomena like jet streams influence air carriers, affecting travel costs and flight times. Volcanic eruptions, such as the 2010 eruption in Iceland, can also impact transportation by causing airport closures and flight cancellations due to ash concerns.
  • 47. How Transportation Technology Has Transformed the Environment ▶ Technological advancements have played a crucial role in overcoming environmental challenges in transportation. ▶ Historical efforts were focused on adapting road locations to topography, followed by road paving, river bridging, and mountain pass development. ▶ Byzantine and Gothic construction techniques, like arches and vaults, enabled bridge building across wide streams and river valleys. ▶ Road building has always been a core aspect of overcoming environmental obstacles, evolving from local to long- distance travel support. ▶ Innovations in maritime transport include canal locks, artificial waterways, and advancements in navigation, resulting in faster, larger-capacity ocean transport. However, the increasing size of modern ships has necessitated canal expansions and the creation of artificial islands to accommodate port installations.
  • 48. Oceanic Passages ▶ The Northern Sea Route along the arctic coast of Russia. This is the maritime route that is likely to be free of ice first. In 2007 it was open during the summer months for the first time in recorded history, but it remains to be seen how stable this opening is. It would reduce a maritime journey between East Asia and Western Europe from 21,000 km using the Suez Canal to 12,800 km, cutting transit time by 10–15 days. ▶ The Northwest Passage crossing Canada’s Arctic Ocean could become usable on a regular basis by 2020, lessening maritime shipping distances substantially. The maritime journey between East Asia and Western Europe would take about 13,600 km using the Northwest Passage, while taking 24,000 km using the Panama Canal. ▶ The Arctic Bridge linking the Russian port of Murmansk or the Norwegian port of Narvik to the Canadian port of Churchill could be used, mostly for the grain trade. The Transpolar Sea Route would use the central part of the Arctic to link most directly the Strait of Bering and the Atlantic Ocean of Murmansk. This route is hypothetical for now as it involves ice- free conditions that are not yet observed.
  • 50. Transportation and the spatial structure ▶ Costs . The spatial distribution of activities is related to factors of distance, namely its friction. Locational decisions are taken in an attempt to minimize costs, often related to transportation. ▶ Accessibility . All locations have a level of accessibility, but some are more accessible than others. Thus, because of transportation, some locations are perceived as more valuable than others. ▶ Agglomeration . There is a tendency for activities to agglomerate to take advantage of the value of specific locations. The more valuable a location, the more likely agglomeration will take place. The organization of activities is essentially hierarchical, resulting from the relationships between agglomeration and accessibility at the local, regional and global levels.
  • 51. Transportation and the spatial structure ▶ Physical attributes . Natural conditions can be modified and adapted to suit human uses, but they are a very difficult constraint to escape, notably for land transportation. It is thus not surprising to nd that most networks follow the easiest (least cost) paths, which generally follow valleys and plains. Considerations that affected road. construction a few hundred years ago are still in force today, although they are sometimes easier to circumscribe. ▶ Historical considerations . New infrastructures generally reinforce historical patterns of exchange, notably at the regional level. For instance, the current highway network of France has mainly followed the patterns set by the national roads network built early in the twentieth century. This network was established over the Royal roads network, itself mainly following roads built by the Romans. At the urban level, the pattern of streets is often inherited from an older pattern, which itself may have been influenced by the pre- existing rural structure (lot pattern and rural roads).
  • 52. Transportation Technology and the Duality of Specialization and Segregation ▶ Specialization . Linked geographical entities can specialize in the production of commodities for which they have an advantage, and trading for what they do not produce. As a result, efficient transportation systems are generally linked with higher levels of regional specialization. The globalization of production clearly underlines this process as specialization occurs if the incurred saving in production costs are higher than the incurred additional transport costs. ▶ Segregation . Linked geographical entities may see the reinforcement of one at the expense of others, notably through economies of scale. This outcome often contradicts regional development policies aiming at providing uniform accessibility levels within a region.
  • 53. Space/time relationships ▶ Transportation fundamentally affects the relationship between time and space by determining how much distance can be covered in a given time. ▶ Space/time convergence refers to easier, faster, and more cost-effective access between places, allowing greater distances to be covered in the same amount of time. ▶ This convergence is not uniform and impacts locations and populations differently, often favoring those with higher socioeconomic status. ▶ The establishment of national and continental railway systems, maritime shipping, and later air and road transport systems in the 18th, 19th, and 20th centuries contributed to regional and continental space/time gains. ▶ At the international level, globalization processes have benefited from transport technology improvements over more than two centuries, resulting in a global space/time convergence, resource and labor exploitation, and significant reductions in transport and communication costs.
  • 54. Space/time relationships ▶ Speed . The most straightforward factor relates to the increasing speed of many transport modes, a condition that particularly prevailed in the first half of the twentieth century. More recently, speed has played a less significant role as many modes are not going much faster. For instance, an automobile has a similar operating speed today as it had 60 years ago, and a commercial jet plane operates at a similar speed than one 30 years ago. ▶ Economies of scale . Being able to transport larger amounts of freight and passengers at lower costs has improved considerably the capacity and efficiency of transport systems. For space/time convergence this implies that there is more capacity for a given quantity of passengers or freight being carried. Instead, the traffic can be handled with fewer trips implying that at the aggregate level it is moving faster. ▶ Expansion of transport infrastructures . Transport infrastructures have expanded considerably to service areas that were not previously serviced or were insufficiently serviced. A paradox of this feature is that although the expansion of transport infrastructures may have enabled distribution systems to expand, it also increased the average distance over which passengers and freight are being carried. ▶ Efficiency of transport terminals . Terminals, such as ports and airports, have shown a growing capacity to handle large quantities in a timely manner. Thus, even if the speed of many transport modes has not increased, more efficient transport terminals and a better management of flows have helped reduce transport time. ▶ Information technologies (IT) . Enabled several economic activities to bypass spatial constraints in a very signifcant manner as IT supports complex management structures. Electronic mail is an example where the transmission of information does not have a physical form (outside electrons or photons) once the supporting infrastructure is established. There is obviously a limit to this substitution, but several corporations are trying to use the advantages of telecommuting as much as they can because of the important savings involved.
  • 56. Space/time relationships ▶ Technological advancements in transport have led to a gradual global space/time convergence in the transport system. ▶ Historically, transport technology improvements primarily benefited advanced economies by providing access to resources and markets. ▶ Space/time convergence is not uniform globally, with Western Europe and North America experiencing faster convergence than regions like Latin America and Africa. ▶ As economic and infrastructure development spreads worldwide, space/time convergence is expected to become more uniform. ▶ Circumnavigation serves as a proxy for space/time convergence, with significant reductions in travel time over the centuries due to innovations like canals, steam propulsion, and jet planes. However, convergence is not ubiquitous, and some locations gain more accessibility than others, while congestion in metropolitan areas can lead to space/time divergence.
  • 57. Concept 3 – Transportation and commercial geography: Trade and commercial geography ▶ Commercial geography investigates the spatial characteristics of trade and transactions in terms of their cause, nature, origin and destination. It leans on the analysis of contracts and transactions. From a simple commercial transaction involving an individual purchasing a product at a store, to the complex network of transactions maintained between a multinational corporation and its suppliers, the scale and scope of commercial geography varies significantly.
  • 58. Trade and commercial geography ▶ Availability . Commodities, from coal to computer chips, must be available for trade and there must be a demand for these commodities. In other terms, a surplus must exist at one location and a demand in another. A surplus can often be a simple matter of investment in production capabilities, such as building an assembly plant, or can be constrained by complex environmental factors like the availability of resources such as fossil fuels, minerals and agricultural products. ▶ Transferability . Transport infrastructures in allowing commodities to be moved from their origins to their destinations favor the transferability of goods. There are three major impediments to transferability, namely policy barriers (tariffs, custom inspections, quotas), geographical barriers (time, distance) and transportation barriers (the simple capacity to move the outcome of a transaction). Distance often plays an important role in trade, as does the capacity of infrastructures to route and to transship goods. ▶ Transactional capacity . It must be legally possible to make a transaction. This implies the recognition of a currency for trading and legislations that de ne the environment in which commercial transactions are taking place, such as taxation and litigation. In the context of a global economy, the transactional environment is very complex but is important in facilitating trade at the regional, national and international levels. The fundamental elements of a commercial transaction involving the transportation of a good are the letter of credit and the bill of lading. The transport terms have been regulated since 1936 by international commercial terms that are regularly updated and revised.
  • 59. Trade and commercial geography ▶ Value . Flows have a negotiated value and are settled in a common currency. The American dollar, which has become the major global currency, is used to settle and/or measure many international transactions. Further, nations must maintain reserves of foreign currencies to settle their transactions and the relationship between the inbound and outbound flows of capital is known as the balance of payments. Although, nations try to maintain a stable balance of payments, this is rarely the case. ▶ Volume . Flows have a physical characteristic, mainly involving a mass. The weight of flows is a significant variable when trade involves raw materials such as petroleum or minerals. However, in the case of consumption goods, weight has little significance relatively to the value of the commodities being traded. With containerization, a new unit of volume has been introduced; the TEU (Twenty-foot Equivalent Unit),which can be used to assess trade flows. ▶ Scale . Flows have a range that varies significantly based on the nature of a transaction. While retailing transactions tend to occur at a local scale, transactions related to the operations of a multinational corporation are global in scale.
  • 60. Trends in commercial geography ▶ Traditional commercial activities often developed where there were physical breaks in transport chains, such as cargo transfer points between different modes of transportation. ▶ Major financial centers historically tended to be located in port cities or load break centers due to these physical breaks in trade. ▶ Contemporary commerce is marked by increasing free trade, technological advancements, and geopolitical changes, driven by trade liberalization through organizations like the World Trade Organization (WTO). ▶ Despite globalization, regional trade remains dominant, with trade within regions being more significant than trade between regions, although long-distance trade is growing. ▶ The reallocation of production capacities through outsourcing and offshoring, as well as mergers and acquisitions of global enterprises, reflects changing comparative advantages and requires different strategies to adapt to the evolving trading environment.
  • 61. Trends in commercial geography ▶ The organization of global production has become more complex, with increased division of labor in design, planning, and assembly, leading to greater trade in parts and production equipment worldwide. ▶ Standards and norms, such as ISO standards, have played a crucial role in facilitating global trade and the development of various sectors, including railways, electricity, automobiles, and telecommunications. ▶ The decline in manufacturing's share of global GDP reflects the evolving complexities in value addition within the production function. ▶ Consumption growth is a significant force shaping commercial geography, with variations in market size, consumption levels (measured by GDP), and regional growth potential influencing trade patterns. ▶ While GDP is a reasonable approximation of market size, it does not necessarily reflect standards of living. Wealth remains concentrated, with a few major economies like the United States, Japan, China, and Germany accounting for a significant portion of global economic activity, although dynamics are shifting with China's rise as the world's second-largest economy and the growth of countries like Brazil and India.
  • 62. Commercialization of the transport industry
  • 63. Trends in commercial geography ▶ Introduction . Initially, a transport system is introduced to service a specific opportunity in an isolated context. The technology is often “proprietary” and incompatible with other transport systems. Since they are not interconnected, this does not represent much of an issue. ▶ Expansion and interconnection . As the marketability and the development potential of a transport system becomes apparent, a phase of expansion and interconnection occurs. The size of the market serviced by these transport systems consequently increases as they become adopted in new locations and as new providers are created to service those markets. At some point, independently developed transport systems connect. This connection is, however, often subject to a function of transshipment between two incompatible transport systems. ▶ Standardization and integration . This phase often involves the emergence of a fully developed transport system servicing vast national markets. The major challenge to be addressed involves a standardization of modes and processes, further expanding the commercial potential. Modal flows are moving more efficiently over the entire network and can move from one mode to the other through intermodal integration. A process of mergers and acquisitions of transport providers often accompanies this phase for the purpose of rationalization and market expansion. ▶ Integrated demand . The most advanced stage of extension of a distribution system involves a system fully able to answer mobility needs of passengers and freight under a variety of circumstances, either predicted or unpredicted demand. As this system tends to be global, it commonly operates close to market potential. In such a setting, a transport system expresses an integrated demand where transport supply is tuned with the demand in an interdependent system.
  • 64. Trends in commercial geography ▶ Investments in transportation infrastructure, modes, terminals, marketing, and financing are crucial for the commercialization of transportation, aiming to expand geographical reach or capacity and maintain operational conditions. ▶ Funding for transport investments comes from both the public and private sectors, driven by economic, social, and strategic interests. The private sector seeks economic returns, while the public sector often invests for social and strategic reasons. Private transport providers may seek government assistance for their investments, lobbying at various levels of government to secure support for projects considered of public interest and benefit. The growth of regional markets and increased transborder traffic have prompted transport firms to pursue global alliances and advocate for greater market liberalization in the transport and communication sector to attract investments and enhance productivity. Deregulation and divestiture policies in the transport industry have led to a reorganization of the international and national transport sectors, giving rise to transnational transport corporations that govern global trade flows in air, maritime, and land transportation, as well as the management of airports, ports, and railyards. ▶ ▶ ▶
  • 65. Concept 4 – The geography of transportation networks ▶ The term network refers to the framework of routes within a system of locations, identified as nodes. A route is a single link between two nodes that are part of a larger network that can refer to tangible routes such as roads and rails, or less tangible routes such as air and sea corridors.
  • 66. The geography of transportation networks ▶ Economies of scale on connections by offering a high frequency of services. For instance, instead of one service per day between any two pairs in a point- to-point network, four services per day could be possible. ▶ Economies of scale at the hubs , enabling the potential development of an efficient distribution system since the hubs handle larger quantities of traffic. ▶ Economies of scope in the use of shared transshipment facilities . This can take several dimensions such as lower costs for users as well as higher quality infrastructures.
  • 67. The geography of transportation networks
  • 68. The geography of transportation networks ▶ Transportation networks are composed of locations and links that represent connections between these locations, with each network having its own unique topology. ▶ The fundamental elements of a transport network include network geometry and the level of connectivity, which determine its structure and arrangement. ▶ Transport networks can be classified based on various topological attributes, considering factors such as geographical setting, modal characteristics, and structural features. ▶ Classification criteria can involve the level of abstraction, ranging from tangible representations closely mirroring reality (e.g., road maps) to abstract symbolic networks (e.g., airline route maps). ▶ Other classification criteria include the network's relative location within a territory, its orientation, extent, and the number of nodes and edges, which indicate its complexity and structural characteristics. Graph theory is a mathematical tool used to infer properties from these network attributes.
  • 69. The geography of transportation networks ▶ Networks are fundamental to the movement of goods, people, and information, and they can be analyzed from a modal perspective, where edges represent routes (e.g., roads, rail lines, maritime routes) and nodes represent terminals (e.g., ports, railyards). ▶ Modal perspectives can further classify modes based on factors like road types (e.g., highway, road, street) and level of control (e.g., speed limits, vehicle restrictions). ▶ Flows on a network have volume and direction, allowing for the ranking of links by importance and evaluation of the general flow direction (e.g., centripetal or centrifugal). ▶ Each segment and network has a physical capacity, indicating the volume it can support under normal conditions. The load, expressed as the volume-to-capacity ratio, measures how congested a network is, with a ratio of 1 indicating full load. ▶ Networks often exhibit hierarchies reflecting the importance of nodes and spatial patterns. Networks are dynamic and can change over time, with nodes and links adapting to new circumstances. Different transport modes have varying degrees of physical grounding, with roads and railways having track infrastructure, while maritime and air transport are more spatially flexible, except for their terminals. River networks often form basins and can be classified as trees or dendrograms.
  • 70. The geography of transportation networks ▶ Clearly defined and delimited . The space occupied by the transport network is strictly reserved for its exclusive usage and can be identified on a map. Ownership can also be clearly established. Major examples include road, canal and railway networks. ▶ Vaguely defined and delimited . The space of these networks may be shared with other modes and is not the object of any ownership, only of rights of way. Examples include air and maritime transportation networks. ▶ Without definition . The space has no tangible meaning, except for the distance it imposes. Little control and ownership are possible, but agreements must be reached for common usage. Examples are radio, television, WiFi and cellular
  • 71. The geography of transportation networks ▶ Regular network . A network where all nodes have the same number of edges. In the same vein, a random network is a network that is formed by random processes. While regular networks tend to be linked with high levels of spatial organization (e.g., a city grid), random networks tend to be linked with opportunistic development opportunities such as accessing a resource. ▶ Small- world network . A network with dense connections among close neighbors and few but crucial connections among distant neighbors. Such networks are particularly vulnerable to catastrophic failures around large hubs. ▶ Scale- free network . A network having a strong hierarchical dimension, with few vertices having many connections and many vertices having few connections. Such networks evolve through the dynamic of preferential attachment by which new nodes added to the network will primarily connect larger nodes instead of being connected randomly.
  • 72. The geography of transportation networks ▶ Coevolution . Different transport networks might follow similar or different paths based on spatial proximity and path- dependence of economic development, with a wider variety of networks at core regions than at remote regions. ▶ Complementarity . Some locations may be central in one network but peripheral in another, depending on their specialization and function and on the scale of analysis (terminal, city, region, country); the complementarity between networks can be measured based on the number of common nodes and links. Interoperability . Typically, cargo flows from a maritime network to a road network shift from a scale- free structure to a regular structure, thus following different topologies that are not easily combined; air and sea terminals remain few in the world due to the difficulty of combining and integrating technically air and sea networks physically at the same locations. ▶ ▶ Vulnerability . How do changes in one network affect the other network, on a global level (entire network) or local level (single node or region)? This is particularly important for two networks sharing common nodes, such as global cities, logistics platforms and multilayered hubs. In the case of abrupt conjunctures(e.g. natural disasters, targeted attacks, labor disputes, security and geopoliticaltensions), thus
  • 73. Networks and space ▶ Ubiquity . The possibility to reach any location from any other location on the network thus providing a general access. Access can be a simple matter of vehicle ownership or bidding on the market to purchase a thoroughfare from one location to another. Some networks are continuous, implying that they can be accessed at any location they service. Roads are the most salient example of a continuous network. Other networks are discrete, implying that they can only be accessed at specific locations, commonly at a terminal. Rail, maritime and rail networks are considered discrete networks since they can only be accessed through their terminals. Fractionalization . The possibility for a traveler or a unit of freight to be transported without depending on a group. It becomes a balance between the price advantages of economies of scale and the convenience of a dedicated service. Instantaneity . The possibility to undertake transportation at the desired or most convenient moment. There is a direct relationship between fractionalization and instantaneity since the more fractionalized a transport system is, the more likely timeconvenience can be accommodated. ▶ ▶
  • 74. Networks and space ▶ Three critical conditions for effective transportation are ubiquity (wide availability and accessibility), fractionalization (ability to move small or large quantities), and instantaneity (quick access and movement). ▶ Different transport modes have varying degrees of success in meeting these conditions. For example, automobiles are highly flexible and widely available but have low capacity and consume significant space and energy. Public transit, while more cost and energy-efficient, has limited spatial coverage, operates on schedules, and involves batch movements. ▶ Freight transportation also varies in terms of spatial continuity, from handling massive raw material loads in select ports to flexible parcel movements. Containerization has sought to address these challenges by allowing intermodal movements, using standardized containers as load units, and enabling flexible loading times for trucks and frequent port calls for container ships. ▶ The spatial distribution of economic activities, such as industrial and urban agglomerations, can influence transportation discontinuity. Congestion in metropolitan areas can reduce ubiquity and fractionalization as some locations become hard to reach, leading to batch movements and
  • 75. Networks and space ▶ Throughout history, transportation networks have served as tools for controlling territories, collecting taxes, and facilitating the movement of commodities, military forces, and trade. ▶ During colonial times, maritime networks played a crucial role in trade, exploitation, and political control, while the development of modern transportation networks within colonies expanded these capabilities. ▶ In the nineteenth and twentieth centuries, transportation networks were instrumental in nation-building, organizing territories, extending settlements, and connecting markets, with railways and road systems serving these purposes, followed by air transportation and, in the twenty-first century, telecommunication networks supporting global supply chains and interactions.
  • 76. Network expansion ▶ During the industrial revolution in England, the co- evolution of roads, canals, and ports revealed interdependencies among these transportation networks, driven by spatial and functional proximity. ▶ Initial network developments were often aimed at supporting and then competing with existing networks by expanding geographically and topologically in new ways. ▶ As transport networks expanded, existing infrastructures like airports and ports underwent transformations, expansions, or relocations. ▶ Integration of airports into multimodal transport systems, linking air, rail, and road transport, became a priority in the air transport sector. ▶ Maritime networks were modified with a focus on expanding the Panama and Suez canals, increasing traffic on inland waterways, and creating new passages between semi-enclosed or enclosed seas. The competition between sea and land corridors has reduced transport costs, encouraged international trade, and prompted governments to reassess and extend land-based connections.
  • 77. Network expansion ▶ Landbridge . Using a landmass as a link in a maritime transport chain involving a foreign origin and destination. This type of link is not highly used in the North American context as it is more convenient for Europe- bound cargo from Asia to use the maritime route instead or the emerging Eurasian Landbridge for niche cargo. ▶ Mini Landbridge . Using a landmass as a link in a transport chain involving a foreign origin and a destination at the end of the landmass. ▶ Micro Landbridge . Using a landmass as a link in a transport chain involving a foreign origin and an inland destination.Acommon type of service for Asian cargo bound to an inland NorthAmerican market. ▶ Reverse Landbridge . Through a maritime detour reaching an inland destination by using the closest maritime facade instead of the Landbridge. This type of Landbridge has experienced remarkable growth with the usage of the Panama Canal to reach East Coast ports by an all- water route from Asia. The expansion of the Panama Canal is expected to increase the significance of this type of Landbridge service.
  • 78. Different forms of trade risk ▶ There are always potential drawbacks in trying to categorize such a general concept as trade risks which could have so many different forms and shapes, but it also has great illustrational advantages, particularly when they also coincide with commonly used business expressions. Figure 1.1 shows the main risk structure in international trade, which will affect both the seller’s and the buyer’s view of the terms of payment.
  • 79. Different forms of trade risk ▶ Obviously, all these risks combined do not often occur in one and the same transaction. For example, a sale to a Norwegian customer may be just a matter of a straight commercial risk on the buyer, whereas delivery of a tailor-made machine to Indonesia has to be risk assessed in quite another way. In quite general terms, the risk structure is directly linked to the obligations undertaken by the seller. This assessment can often be made relatively simple as a commercial risk only, but, in other cases, for example if the transaction also involves assembly, installation, testing or a maintenance responsibility, the assessment has to involve many other aspects as well. The question of risk is to a large degree a subjective evaluation, but it is still important for both parties to have a good knowledge of these matters in order to carry out a proper and meaningful risk assessment.
  • 80. Different forms of trade risk ▶ It should however also be noted that most export credit insurance, taken by the seller as additional security, could be impaired or even invalid should the seller themselves not have fulfilled – or been able to fulfil – their obligations according to the contract. This is another reason why it is so important that the obligations of the seller, according to the contract, are always directly related to those of the buyer. When all the necessary evaluations have been done, the final decision as to whether the deal is secure enough to be entered into has to be taken. The worst that can happen is finding, after the contract has been signed, that it contains risks that the seller was unaware of at that time. It is then often too late to make changes on equal terms. This Photo by Unknown Author is licensed under CC BY-NC
  • 81. Terms of delivery and terms of payment ▶ Here are some of the commonly used Incoterms: • EXW (Ex Works): The seller makes the goods available for pick-up at their premises or another named place (factory, warehouse, etc.). The buyer is responsible for all transportation costs, risk, and export clearance. • FCA (Free Carrier): The seller delivers the goods to a named carrier or forwarder at a specified location. The risk transfers to the buyer once the goods are handed over to the carrier. • CPT (Carriage Paid To): The seller pays for the transportation of the goods to a named destination, but the risk transfers to the buyer upon delivery to the carrier. • CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller also provides insurance coverage for the goods in transit. • DAP (Delivered at Place): The seller is responsible for delivering the goods to a named place, often the buyer's premises, but not for unloading. Risk and costs are transferred at the destination.
  • 82. Terms of delivery and terms of payment ▶ Here are some of the commonly used Incoterms: • DPU (Delivered at Place Unloaded): The seller delivers the goods to a named place, including unloading at the destination. Risk and costs are transferred upon delivery. • DDP (Delivered Duty Paid): The seller is responsible for delivering the goods to the buyer's premises, including all costs and import duties. The buyer is responsible only for unloading. • FAS (Free Alongside Ship): The seller is responsible for delivering the goods to a named port alongside a vessel. Risk transfers when the goods are placed alongside the ship. • FOB (Free On Board): The seller is responsible for delivering the goods on board a vessel at a named port. Risk transfers when the goods are on board. • CFR (Cost and Freight): The seller pays for the transportation of the goods to a named port. Risk transfers when the goods are on board, but the buyer is responsible for unloading and import clearance. • CIF (Cost, Insurance, and Freight): Similar to CFR, but the seller also provides insurance coverage for the goods in transit.
  • 83. Terms of delivery and terms of payment ▶ When choosing the appropriate terms of delivery, deciding factors (here seen from the seller’s perspective) include: ● the mode of transport and the transportation route, the buyer and the nature of the goods; ● standard practice, if any, in the buyer’s country or any regulation set by the authorities of that country to benefit their own transport or insurance industry; ● procedures, where the seller should avoid terms of delivery, which are dependent on obtaining import licences or clearance of goods to countries they cannot properly judge; ● the competitive situation, where the buyer often suggests their preferred terms of delivery and the seller has to evaluate these terms in relation to the risks involved.
  • 84. Terms of delivery and terms of payment ▶ For a standard delivery between established trade partners, neighbouring countries or countries belonging to a common trading area, these terms are often easily agreed upon as a matter of standard practice with only an adjustment related to the actual freight and insurance charges, often in connection with open account trading. In such cases, the buyer often takes the main responsibility for transport and risk of the purchased goods. However, in other cases the seller wants to have better control of the delivery process and to be able to select transport and/or insurance, and consequently chooses delivery terms where these aspects are better protected.
  • 85. The International Chamber of Commerce (ICC) ▶ The ICC is the world’s only truly global business organization and is recognized as the voice of international business. Based in Paris, its core services/activities include: ● practical services to business; ● working against commercial crime; ● being an advocate for international business; ● spreading business expertise; ● promoting growth and prosperity; ● setting rules and standards; ● promoting the multilateral trading system. This Photo by Unknown Author is licensed under CC BY-NC-ND
  • 86. The International Chamber of Commerce (ICC) ▶ ICC membership groups consist thousands of companies of every size in over 120 countries worldwide, mainly through its national committees. They represent a broad cross-section of business activity, including manufacturing, trade, services and the professions. Through membership of the ICC, companies shape rules and policies that stimulate international trade and investment. These companies in turn count on the prestige and expertise of the ICC to get business views across to governments and intergovernmental organizations, whose decisions affect corporate finances and operations worldwide. The ICC makes policy and rules in a number of areas. This includes terms of delivery as described in this chapter and banking techniques and practices for documentary payments and guarantees, but also areas such as anti-corruption, arbitration and commercial law and practice. In order to support international commerce, ICC also provides a wide range of internationally recognized certification programmes in most areas covered by its policies and rules (see www.icc.academy). The ICC also runs a comprehensive bookshop specializing in these areas, where the complete texts can be
  • 87. Product risks ▶ Product risks are risks that the seller automatically has to accept as an integral part of their commitment. First, it is a matter of the product itself, or the agreed delivery; for example, specified performance warranties or agreed maintenance or service obligations. There are many examples of how new and unexpected working conditions in the buyer’s country have led to reduced performance of the delivered goods. It could be negligence concerning operating procedures or restrictions, careless treatment or lack of current maintenance, but also damage due to the climate or for environmental reasons. Matters of this nature may well lead to disputes between the parties after the contract has been signed and to increased cost for the delivery as a whole. It goes without saying that these risks become even more complicated when it comes to whole projects or larger and more complex contracts. These are often completed over longer periods and involve many more possible combinations of interrelated commitments between the commercial parties, not only between the seller and the buyer, but also often involving other parties in the buyer’s country, both commercial and political. This Photo by Unknown Author is licensed under CC BY-SA
  • 88. Commercial documentation and official requirement ▶ We will describe the relation between the terms of delivery and the terms of payment, including the consequential insurance aspects. These areas have to be integral parts of the sales contract, detailed in such a way that it leaves no doubt about the responsibility involved for both parties. The sales contract should therefore include information about, or reference to, commercial documentation and official requirements. This is most easily dealt with in standard and recurring trade, but in other cases it may be a major issue that must be worded in detail in order to avoid disputes later.
  • 89. Commercial documentation and official requirement ▶ It is important to remember that many importing countries have specific requirements regarding not only layout and contents but also verification or legalization of these documents, often by assigned authorities or chosen parties. Most exporting countries have trade councils or other similar bodies to assist in such matters (the forwarding agent may also have a similar role). The exporter should never underestimate the time needed for such a task, which could substantially delay the period between shipment and due preparation of the documentation.
  • 90. Commercial documentation and official requirement ▶ There may also be other official requirements to deal with, such as export declarations for customs and value added tax (VAT) purposes in the exporting country. Import licences or certificates related to import permission, duty, VAT or import sales tax in the importing country also need to be considered. However, when such requirements or uncertainties arise in the buyer’s country, the established trade practice has mostly been adjusted accordingly, including the use of terms of payment that automatically reduce or eliminate
  • 91. Manufacturing risks ▶ The concept of product risk could also include some elements of the manufacturing process itself (although in principle that subject falls beyond the scope of this handbook). This risk appears all too frequently when the product is tailor-made or has unique specifications. In these cases, there is often no other readily available buyer if the transaction cannot be completed, in which case the seller has to carry the cost of any necessary readjustment, if that is even an option. Risks of this nature occur as early as the product planning phase but may often be difficult to cover from that time owing to the special nature of these products. But they also involve specific risks for the buyer, who often has to enter into payment obligations at an early stage but without the security of the product itself until it has been delivered and installed. To safeguard the interests of both parties, the terms of payment are often divided into part-payments related to the production and delivery phases, in combination with separate guarantees, to
  • 92. Transport risks and cargo insurance ▶ From a general risk perspective it is not only the product but also the physical movement of the goods from the seller to the buyer that has to be evaluated, based on aspects such as the nature of the product, size of delivery, the buyer and their country, and the actual transportation route. Most goods in international trade, apart from smaller and non-expensive deliveries, are covered by cargo insurance, providing coverage against physical loss or damage while in transit, by land, sea or air, or by a combination of these modes of transport. The cover under a cargo insurance (which is a sub-branch of marine insurance) is almost always defined by standard policy wordings issued by the Institute of London Underwriters (or the American Institute of Marine Underwriters). These are called Institute Cargo Clauses. While there are numerous clauses that will apply to different cargos, the widest cover is provided under Institute Cargo Clauses A (Institute Cargo Clauses [Air] for transport by air), or with more restrictive cover under Institute Cargo Clauses B and Institute Cargo Clauses C. (The new A- clauses have replaced the previous Institute Cargo Clauses All Risks.) Cargo insurance is therefore normally provided through one of these
  • 93. Transport risks and cargo insurance ▶ The question of who should arrange the insurance is determined by the agreed terms of delivery, as defined by the relevant Incoterms as described earlier. These terms also define the critical point during transport, where the risk is transferred from the seller to the buyer. That can be any given point between a named place at the seller’s location (Ex Works) and a named place at the buyer’s location (Delivered Duty Paid, DDP). That specified critical point also determines the seller’s and/or the buyer’s responsibility to arrange insurance. However, there is another aspect of risk coverage that the seller has to be particularly aware of, and that is the potential risk of the buyer arranging insurance according to some of the terms of delivery. If such a term of delivery is chosen, for example FOB (... named port of shipment), and the buyer fails to insure in a proper and agreed way, the goods may arrive at the destination in a damaged condition and without adequate insurance cover. If, at the same time, the terms of payment allow for payment after delivery, this risk de facto becomes a risk for the seller, who may end up with unpaid for, uninsured and damaged goods at the point of destination. Such a situation is obviously a consequence of the seller agreeing to terms of payment that did not cover the actual commercial risk, but the insurance risk involved could, in most cases, have been eliminated by separate seller’s interest contingency insurance, as described below. This Photo by Unknown Author is licensed under CC BY-NC-ND
  • 94. Transport risks and cargo insurance ▶ From the seller’s perspective, there are basically three different ways to insure the cargo, either with an open insurance policy covering most or all shipments within the seller’s basic trade as agreed in advance with the insurer, or with a specific insurance policy, covering specific shipments on an ad hoc basis or those which are outside the set criteria of the open policy. The open policy is by far the most common in international trade, normally reviewed on an annual basis, and with a 30- to 60-day cancellation clause should conditions deteriorate substantially. The open cover is the most cost-effective alternative, but it also has obvious administrative advantages and will automatically secure the actual coverage of all individual shipments under the policy. The third basic form of cargo insurance is seller’s interest contingency insurance, normally only offered as a complement to the open policy or as an integral part of a specific policy, and on an undisclosed basis as far as the buyer is concerned. This insurance covers the risk that the goods may arrive at their destination in a damaged condition, resulting in the buyer’s refusal to accept them (even if the risk was on their part according to the terms of delivery), or they may simply be unable or unwilling to pay for commercial or political reasons, including failure to produce a valid import licence. In such cases the insurance covers the physical loss of, or damage to, the goods but it does not cover the credit risk (commercial or political) on the buyer, which has to be This Photo by Unknown Author is licensed under CC BY-NC-ND
  • 95. Commercial risks (purchaser risks) ▶ Commercial risk, also called purchaser risk, is often defined as the risk of the buyer going into bankruptcy or being in any other way incapable of fulfilling their contractual obligations. One might first think of the buyer’s payment obligations but, as seen above, it also covers all other obligations of the buyer, according to the contract, necessary for the seller to fulfil their obligations. How does the seller, therefore, evaluate the buyer’s ability to fulfil their obligations? In most industrialized countries within the Organization for Economic Co-operation and Development (OECD) area, it is relatively easy to obtain a fair picture of potential buyers, either to study their published accounts or to ask for an independent business credit report, which is a more reliable way of dealing with customer risks. This will often also give much broader information about the buyer and their business, and not simply some
  • 96. Credit information ▶ Export trade may be an important factor in the potential growth of business; however, the risks involved in carrying out international business can also be high. In little more than a decade, the world of commerce has changed dramatically. In this commercial environment, the global suppliers of credit information have become a vital source of knowledge and expertise, based on the great wealth of information that they maintain about consumers and how they behave, about businesses and how they perform, and about different markets and how they are changing. The more the seller understands their customers, the more they are able to respond to their individual needs and circumstances. Credit information in itself may also help the seller to reach new customers and to build, nurture and maximize lasting customer relationships. It thus forms a vital part of establishing the structure of a potential export transaction and, in particular, the terms of payment to be used. In some cases the information can be provided instantly, inexpensively and in a standardized manner over the internet, but in other cases a more researched profile is required. Each seller must have a policy for obtaining up-to-date information about the commercial risk structure in connection with any new potential buyer or business and with outstanding export receivables. How this is done may differ depending on the volume and structure of the exports, but it is recommended at least to review the business information systems offered by the larger providers and to choose an alternative that is optimal for the individual seller as to the services and costs involved.
  • 97. Credit information ▶ The business information may vary, depending on the registered information available about the company and the contents can sometimes also be difficult to evaluate. Questions will also often arise about how up to date it really is, particularly when dealing with customers outside the most advanced industrialized countries. With buyers from non-OECD countries, the matter becomes more complicated. The information, if available, will be much more difficult to evaluate and it will be harder to assess how it has been produced and how it should be analyzed. In these cases, the information probably has limited value anyway, because other risk factors, such as the political risk, may be greater – and terms of payment that reflect this combined risk have to be chosen. The seller may also be able to get assistance abroad through the export or trade council or similar institutions in their country, and/or from the commercial sections of embassies abroad, which may assist with market surveys and other studies in that country. Banks can participate by issuing introductory letters to their branches or correspondents, enabling the seller to obtain more up-to-date information about the local business conditions and form an opinion about the buyer and their business in connection with the contract negotiations. This Photo by Unknown Author is licensed under CC BY
  • 98. Credit management tips for export success 1. Don’t be convinced by a company’s website or its entry in a telephone directory, as unscrupulous traders can ‘buy’ visibility in order to defraud suppliers. 2. Don’t be satisfied with trade or bank references, as no company will point a supplier towards someone who will give them a bad reference. 3. Don’t be afraid to ask awkward questions, look at the latest company accounts and check for evidence that the company is trading profitably. 4. Don’t be discouraged if the company uses a reputable factor or invoice discounter, as this is a growing means of obtaining finance. 5. Don’t rely on your instincts that a new customer is trustworthy; obtain an objective assessment of risk through a reputable credit reference agency with international reach. 6. Don’t be afraid to ask for full or partial payment up-front. A credit limit is a reward for good payment and not an automatic right of new customers. 7. Don’t rush into increasing a customer’s credit limit because they have paid their first invoice promptly and in full. This Photo by Unknown Author is licensed under CC BY-SA
  • 99. Providers of international credit reports Information about potential foreign counterparts can be obtained from a number of independent providers of business information through branches or correspondents around the world. Such credit reports can be provided on a case-by-case basis or be part of a broader risk management solution, offered by domestic or multinational business information companies that keep huge databases of customers from all over the world. The information required could be on an ad hoc basis or as an ongoing process of monitoring actual and potential customers. It could be of a general or more specific nature depending on what other information is already available and delivered through various media and within different time frames, which will be reflected in the cost structure. Since domestic banks also make use of such credit information, they could in most cases give the exporter valuable advice on which provider to turn to, based on their individual needs This Photo by Unknown Author is licensed under CC BY-ND
  • 100. Providers of international credit reports Some of the global providers of credit information are listed in alphabetical order below, covering the most important trade markets with millions of companies in their databases: ● Atradius – a global credit information and management group of companies, providing both credit and market information through their own or partners’ international network; www.atradius.com. ● Coface – one of the world’s largest domestic and export credit insurance groups. Apart from insurance, Coface also specializes in providing global credit information and related services on companies worldwide; www.coface.com. ● D&B (formerly Dun & Bradstreet) – one of the largest providers of business information for credit, marketing and purchasing decisions worldwide; www.dnb.com. ● Experian – a global provider of credit information and related consulting services; www.experian.com.
  • 101. Adverse business risks ▶ Adverse business risks include all business practices of a negative nature, which are not only common but also almost endemic in some parts of the world. This could have serious consequences for the individual transaction, but also for the general business and financial standing of the seller, as well as their moral reputation. We are, of course, referring to all sorts of corrupt practices that flourish in many countries, particularly in connection with larger contracts or projects: bribery, money laundering and a variety of facilitation payments: Bribery in general can broadly be defined as the receiving or offering of an undue reward by or to any holder of public office or a private employee designed to influence them in the exercise of their duty, and thus to incline them to act contrary to the known rules of honesty and integrity. This quotation is taken from a UK government body, and even if it is not a legal definition, it gives an accurate
  • 102. Transport risks and cargo insurance ▶ Apart from these three basic ways to insure cargo goods, sometimes a Cover Note may be issued by the insurance company or insurance broker instead of, or before definite insurance policies or certificates are issued, to serve as proof of insurance. The seller should bear in mind that cargo insurance is a specialized business, where cover and conditions may vary according to the commodity or goods to be shipped, the transportation route and the mode of transport, which is a major reason why open policy cover is the most common in international trade. Cargo insurance can be obtained directly from an insurance company or, very often today, directly through the transporting company or the forwarding agent handling the goods. In some countries it is also quite common to use independent cargo insurance brokers, who may be more able to select the most cost-efficient insurance package, based on specific conditions or the trade structure in each individual case. However, the seller should always ensure that the selected insurer is part of an established international network for dealing with claims and settlement procedures. This is often also a requisite of the buyer, and if not explicitly agreed in the sales contract, such conditions may appear later on, for example in the insurance specifications in a letter of credit
  • 103. Terms of delivery and terms of payment ▶ The standard rules of reference for the interpretation of the most commonly used trade terms in international trade are Incoterms® (International Commercial Terms), issued by the International Chamber of Commerce (ICC). These rules are now generally recognized throughout the world, so any other unspecified trading terms, which may also have different meanings for companies in different countries, should be avoided. The basic purpose of the rules is to define how each Incoterm, as agreed in the sales contract, should be dealt with in terms of delivery, risks and costs, and specify the responsibility of the buyer and seller. For example, who should arrange and pay freight, other transport charges, insurance, duties and taxes? These aspects are often referred to as the critical points in international trade, detailing at what point the risk is transferred from the seller to the buyer and how the costs involved should be split between the parties. The new Incoterms 2010 consists of 11 terms, separated into two groups.
  • 104. Adverse business risks ▶ If bribery is generally a technique to press the seller for undue rewards, money laundering often has the opposite purpose, which is to invite the seller to do a deal that may on the face of it seem very advantageous, but where the true intention is to disguise or conceal the actual origin of the money involved. It covers criminal activities, corruption and breaches of financial sanctions. It includes the handling, or aiding the handling, of assets, knowing that they are the result of crime, terrorism or illegal drug activities. Criminal and terrorist organizations generate large sums of cash, which they need to channel into the banking, corporate and trade financial systems, and both banks and traders can innocently fall victim to such activity if not exercising due diligence. A frequently used technique is over-invoicing or inflated transactions, with or without payment to a third party, where the seller may be completely unaware that they could be part of a ruse to launder money. The seller should be particularly observant in the case of cash payments and be aware that new anti-money laundering regulations must be complied with for such payments in most countries. A reputable business adds respectability to any organization being used for laundering operations, and money launderers will try to use any business, directly through ownership or indirectly by deceit. Developing nations are particularly vulnerable to money launderers because they usually have poorly regulated financial systems. These provide the
  • 105. Adverse business risks ▶ In general terms, a suspicious transaction is one that is outside the normal range of transactions from the seller’s point of view, in particular in relation to new customers or where an old customer changes transaction structure in an unusual way. It can include: ● unusual payment settlements; ● unusual transfer instructions; ● secretiveness; ● rapid movements in and out of accounts; ● numerous transfers; ● complicated accounts structures. Any of the above should be considered suspicious.
  • 106. Adverse business risks ▶ Bribery, money laundering and any other form of corrupt behavior are bad for business; they distort the normal trade patterns and give unfair advantages to those involved in them. They are also extremely harmful for the countries themselves, owing to the damage they cause to the often fragile social fabric; they destroy the economy and are strongly counterproductive for trade and all forms of foreign investments into the country. In the long run, such practices also prevent social and economic stability and development, and they have an especially negative impact on the most disadvantaged parts of the population. Even within the countries where these practices are frequent among individual public and private employees, they are almost always illegal, even if these countries often lack the means and the resources to tackle these problems effectively.
  • 107. The need for a strong policy ▶ The World Bank and the OECD have put a great deal of resources into combating corruption worldwide, and in most countries corruption is now illegal even when committed abroad. The companies also have full responsibility for the wrongdoings of their employees abroad when acting for the company. As a consequence of the inclusion of anti-corruption laws, which are in place in most countries today, it is also incorporated in the procedures of their government departments, for example in the rules of the respective export credit agency (which will be described at length later in this book). Any violation of the anti-corruption statement that the seller has to give when applying for such insurance This Photo by Unknown Author is licensed under CC BY-NC-ND
  • 108. The need for a strong policy ▶ It is often not just the threat of prosecution that should most worry the seller. There have been a number of cases in which companies were allegedly involved in corrupt behaviour, but where the true circumstances were not fully disclosed. The allegation could be damaging enough, sometimes based only on rumours emanating from economic groups or political factions within the society (a frequently used method), to stop or postpone a project or to favour another bidder. Such rumours, true or false, or involving either smaller facilitation payments or large-scale bribery to senior private or public officials, can drag on for years, with economic and detrimental consequences for the company, both overseas and at home. Every company involved in overseas trade or investments should have a clear anti-corruption policy that is implemented and clearly understood by all its employees, and supervised by the management in an appropriate way. Such a policy is also supported by local laws, which give both the company and its employees a much stronger moral and legal defence against every attempt to extort bribes from them or to induce them into any other form of corrupt practice. This Photo by Unknown Author is licensed under CC BY-SA
  • 109. Political risks ▶ Political risk or country risk is often defined as: the risk of a separate commercial transaction not being realized in a contractual way due to measures emanating from the government or authority of the buyer’s own or any other foreign country. No matter how reliable the buyer may be in fulfilling their obligations and paying in local currency, their obligations to the seller (according to the contract) are nevertheless dependent on the current situation in their own country – or along the route of transport to that country. However, in practice, it may be difficult to separate commercial and political risk because political decisions, or other similar acts by local authorities, also affect the local company and its capabilities of honouring the contract. For example, some countries may change taxes, import duties or currency regulations, often with