transport
Tuesday, 1 January, 2013 2:29 PM

Transportation and Economic Development Authors: Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom1. The Economic Importance of Transportation Like many economic activities that are intensive in infrastructures, the transport sector is an important component of the economy impacting on development and the welfare of populations. When transport systems are efficient, they provide economic and social opportunities and benefits that result in positive multipliers effects such as better accessibility to markets, employment and additional investments. When transport systems are deficient in terms of capacity or reliability, they can have an economic cost such as reduced or missed opportunities. Efficient transportation reduces costs, while inefficient transportation increases costs. The impacts of transportation are not always intended, and can have unforeseen or unintended consequences such as congestion. Transport also carries an important social and environmental load, which cannot be neglected.The added value and employment effects of transport services usually extend beyond employment and added value generated by that activity; indirect effects are salient. For instance, transportation companies purchase a part of their inputs from local suppliers. The production of these inputs generates additional value-added and employment in the local economy. The suppliers in turn purchase goods and services from other local firms. There are further rounds of local re-spending which generate additional value-added and employment. Similarly, households that receive income from employment in transport activities spend some of their income on local goods and services. These purchases result in additional local jobs and added value. Some of the household income from these additional jobs is in turn spent on local goods and services, thereby creating further jobs and income for local households. As a result of these successive rounds of respending in the framework of local purchases, the overall impact on the economy exceeds the initial round of output, income and employment generated by passenger and freight transport activities. Thus, from a general standpoint the economic impacts of transportation can be direct, indirect and related: • Direct impacts (also known as induced) the outcome of accessibility changes where transport enables employment, added value, larger markets and enables to save time and costs. • Indirect impacts the outcome of the economic multiplier effects where the price of commodities, goods or services drop and/or their variety increases. Indirect value-added and jobs are the result of local purchases by companies directly dependent upon transport activity. Transport activities are responsible for a wide range of indirect value-added and employment effects, through the linkages of transport with other economic sectors (e.g. office supply firms, equipment and parts suppliers, maintenance and repair services, insurance companies, consulting and other business services). • Related impacts the outcome of economic activities and firms partly relying on efficient transport services for both passengers and freight. For instance, the steel industry requires cost efficient import of iron ore and coal for the blast furnaces and export activities for finished products such as steel booms and coils. Manufacturers and retail outlets and distribution centers handling imported containerized cargo rely on efficient transport and seaport operations. Mobility is one of the most fundamental and important characteristics of economic activity as it satisfies the basic need of going from one location to the other, a need shared by passengers, freight and information. All economies and regions do not share the same level of mobility as most are in a different stage in their mobility transition towards motorized forms of transport. Economies that possess greater mobility are often those with better opportunities to develop than those with scarce mobility. Reduced mobility impedes development while greater mobility is a catalyst for development. Mobility is thus a reliable indicator of development. Providing this mobility is an industry that offers services to its customers, employs people and pays wages, invests capital and generates income. The economic importance of the transportation industry can thus be assessed from a macroeconomic and microeconomic perspective: • At the macroeconomic level (the importance of transportation for a whole economy), transportation and the mobility it confers are linked to a level of output, employment and income within a national economy. In many developed countries, transportation accounts between 6% and 12% of the GDP. • At the microeconomic level (the importance of transportation for specific parts of the economy) transportation is linked to producer, consumer and production costs. The importance of specific transport activities and infrastructure can thus be assessed for eachsector of the economy. Transportation accounts on average between 10% and 15% of household expenditures while it accounts around 4% of the costs of each unit of output in manufacturing, but this figure varies greatly according to sub sectors. Transportation links together the factors of production in a complex web of relationships between producers and consumers. The outcome is commonly a more efficient division of production by an exploitation of geographical comparative advantages, as well as the means to develop economies of scale and scope. The productivity of space, capital and labor is thus enhanced with the efficiency of distribution and personal mobility. It is acknowledged that economic growth is increasingly linked with transport developments, namely infrastructures but also managerial expertise is crucial for logistics. The following impacts can be assessed: • Networks. Setting of routes enabling new or existing interactions between economic entities. • Performance. Improvements in cost and time attributes for existing passenger and freight movements. • Reliability. Improvement in the time performance, notably in terms of punctuality, as well as reduced loss or damage. • Market size. Access to a wider market base where economies of scale in production, distribution and consumption can be improved. • Productivity. Increases in productivity from the access to a larger and more diverse base of inputs (raw materials, parts, energy or labor) and broader markets for diverse outputs (intermediate and finished goods). 2. Transportation and Economic OpportunitiesTransportation developments that have taken place since the beginning of the industrial revolution have been linked to growing economic opportunities. At each stage of human societal development, a particular transport mode has been developed or adapted. However, it has been observed that throughout history that no single transport has been solely responsible for economic growth. Instead, modes have been linked with the function and the geography in which growth was taking place. The first trade routes established a rudimentary system of distribution and transactions that would eventually be expanded by long distance maritime shipping networks and the setting of the first multinational corporations. Major flows of international migration that occurred since the 18th century were linked with the expansion of international and continental transport systems that radically shaped emerging economies such as in North America and Australia. Transport has played a catalytic role in these migrations, transforming the economic and social geography of many nations. Concomitantly, transportation has been a tool of territorial control and exploitation, particularly during the colonial era where resource-based transport systems supported the extraction of commodities in the developing world and forwarded them to the industrializing nations of the time. More recently, port development, particularly container ports, has been of strategic interest as a tool of integration to the global economy as the case ofChina illustrates.While some regions benefit from the development of transport systems, others are often marginalized by a set of conditions in which inadequate transportation plays a role. Transport by itself is not a sufficient condition for development. However, the lack of transport infrastructures can be seen as a constraining factor on development. In developing countries, the lack of transportation infrastructures and regulatory impediments are jointly impacting economic development by conferring higher transport costs, but also delays rendering supply chain management unreliable. A poor transport service level can negatively affect the competitiveness of regions and corporations and thus have a negative impact on the regional added value and employment. In 2007, the World Bank published its first ever report which ranked nations according to their logistics performance based on the so-called Logistics Performance Index.Investment in transport infrastructures is thus seen as a tool of regional development, particularly in developing countries and for the road sector.The standard assumption is that transportation investments tend to be more wealth producing as opposed to wealth consuming investments such as services. Still, several transportation investments
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investments tend to be more wealth producing as opposed to wealth consuming investments such as services. Still, several transportation investments can be wealth consuming if they merely provide convenience, such as parking andsidewalks, or service a market size well below any possible economic return, with for instance projects labeled "bridges to nowhere". In such a context, transport investment projects can becounterproductive by draining the resources of an economy instead creating wealth and additional opportunities. Efficient and sustainable transport markets and systems play a key role in regional development although the direction of causality between transport and wealth generation is not always clear. In a number of regions around the world, transport markets and related transport infrastructure networks are seen as key drivers in the promotion of a more balanced and sustainable development of the region or even the entire continent, particularly by improving accessibility and the situation of weaker regions and disadvantaged social groups.There is also a tendency for transport investments to have declining marginal returns. While initial infrastructure investments tend to have a high return since they provide an entirely new range of mobility options, the more the system is developed the more likely additional investment would result in lower returns. At some point, the marginal returns can be close to zero or even negative, implying a shift of transport investments from wealth producing to wealth consuming. A common fallacy is assuming that additional transport investments will have a similar multiplying effect than the initial investments had, which can lead to capital misallocation. This means quite understandably that the economic impacts of transport investments tend to be significant when infrastructures were previously inexistent or deficient and marginal when an extensive network is already present. Therefore, each development project must be considered independently.3. Types of Transport ImpactsThe relationship between transportation and economic development is difficult to formally establish and has been debated for many years. There are several layers of activity that transportation can valorize, from a suitable location that experiences the development of its accessibility through infrastructure investment to a better usage of existing transport assets through management. This is further nuanced by the nature, scale and scope of possible impacts: • Timing of the development varies as the impacts of transportation can precede, occur during or take place after economic development. The lag, concomitant and lead impacts make it difficult to separate the specific contributions of transport to development. Each case study appears to be specific to a set of timing circumstances that are difficult to replicate elsewhere. • Types of impacts vary considerably. The spectrum of impacts range from the positive through the permissive to the negative. In some cases transportation impacts can promote, in others they may hinder economic development in a region. In many cases, few, if any, direct linkages could be clearly established. Cycles of economic development provide a revealing conceptual perspective about how transport systems evolve in time and space as they include the timing and the nature of the transport impact on economic development. This perspective underlines that after a phase of introduction and growth, a transport system will eventually reach a phase of maturity through geographical and market saturation. There is also the risk of overinvestment when economic growth is credit driven, which can lead to significant misallocations of capital, including in the transportation sector. The outcome is a surplus capacity in infrastructures and modes creating deflationary pressures that undermines profitability. In periods of recession that commonly follow periods of expansion, transportation activities may experiment a setback, namely in terms of lower demand and a scarcity of capital investment.Transport, as a technology, typically follows a path of experimentation, introduction, adoption and diffusion and, finally, obsolescence, each of which has an impact on the rate of economic development. They follow a cyclic behavior where a high level of benefits and productivity is realized in the early phase while later phases are facing diminishing returns. Containerization is a relevant example of such a diffusion behavior. As most innovations are eventually abandoned, many technologies go through what can be called a "hype phase" with unrealistic expectations. In addition, transport modes and infrastructures are depreciating assets that constantly require maintenance and upgrades. At some point, their useful lifespan is exceeded and the vehicle must be retired or the infrastructure rebuilt. Thus, transport investments for their amortization must consider the lifespan of the concerned mode or infrastructure. In general, transport technology can be linked to five major waves of economic development where a specific mode or system emerged: • Seaports. Linked with the early stages of European expansion from the 16th to the 18th centuries. They supported the development of international trade through colonial empires, but were constrained by limited inland access. • Rivers and canals. The first stage of the industrial revolution in the late 18th and early 19th centuries was linked to the development of canal systems in Western Europe and North America, mainly to transport heavy goods. This permitted the development of rudimentary and constrained inland distribution systems. • Railways. The second stage of industrial revolution in the 19th century was intimately linked to the development and implementation of rail systems, some transcontinental, enabling a more flexible inland transportation system. • Roads. The 20th century saw the development of road transportation systems and automobile manufacturing. Individual transportation became a commodity available to the masses, especially after the Second World War. This process was reinforced by the development of national highway systems. • Airways and information. The later part of the 20th century saw the development of global air and telecommunication networks in conjunction with the globalization of economic activities. New organization, control and maintenance capacities were made possible. Electronic communications have become consistent with transport functions, especially in the rapidly developing realm of logistics and supply chain management. 4. Transport as a Factor of ProductionContemporary trends have underlined that economic development has become less dependent on relations with the environment (resources) and more dependent on relations across space. While resources remain the foundation of economic activities, the commodification of the economy has been linked with higher levels of material flows of all kinds. Concomitantly, resources, capital and even labor have shown increasing levels of mobility. This is particularly the case for multinational firms that can benefit from transport improvements in two significant markets: • Commodity market. Improvement in the efficiency with which firms have access to raw materials and parts as well as to their respective customers. Thus, transportation expands opportunities to acquire and sell a variety of commodities necessary for industrial and manufacturing systems. • Labor market. Improvement in the access to labor and a reduction in access costs, mainly by improved commuting (local scale) or the use of lower cost labor (global scale). A common fallacy in assessing the importance and impact of transportation on the economy is to focus only on transportation costs, which tend to be relatively low (5 to 10% of the value of a good). Transportation is an economic factor of production of goods and services, implying that relatively small changes can have substantial impacts in on costs, locations and performance. An efficient transport system with modern infrastructures favors many economic changes, most of them positive. It provides market accessibility by linking producers and consumers. The major impacts of transport on economic processes can be categorized as follows: • Geographic specialization. Improvements in transportation and communication favor a process of geographical specialization that increases productivity and spatial interactions. An economic entity tends to produce goods and services with the most appropriate combination of capital, labor, and raw materials. A given area will thus tend to specialize in the production of goods and services for which it has the greatest advantages (or the least disadvantages) compared to other areas as long as appropriate transport is available for trade. Through geographic specialization supported by efficient transportation, economic productivity is promoted. This process is known in economic theory as comparative advantages. • Large scale production. An efficient transport system offering cost, time and reliability advantages permits goods to be transported over longer distances. This facilitates mass production through economies of scale because larger markets can be accessed. The concept of “just-in-time” has further expanded the productivity of production and distribution with benefits such as lower inventory levels and better responses to shifting market conditions. Thus, the more efficient transportation becomes, the larger the markets that can be serviced and the larger the scale of production. • Increased competition. When transport is efficient, the potential market for a given product (or service) increases, and so does competition. A wider array of goods and services becomes available to consumers through competition which tends to reduce costs and promote quality and
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wider array of goods and services becomes available to consumers through competition which tends to reduce costs and promote quality and innovation. Globalization has clearly been associated with a competitive environment that spans the world. • Increased land value. Land which is adjacent or serviced by good transport services generally has greater value due to the utility it confers to many activities. In some cases, the opposite can be true if related to residential activities. Land located near airports and highways, near noise and pollution sources, will thus suffer from corresponding diminishing land value. Transport also contributes to economic development through job creation and its derived economic activities. Accordingly, a large number of direct (freighters, managers, shippers) and indirect (insurance, finance, packaging, handling, travel agencies, transit operators) employment are associated with transport. Producers and consumers take economic decisions on products, markets, costs, location, prices which are themselves based on transport services, their availability, costs and capacity.5. Socioeconomic ImpactsWhile many of the economic impacts of transportation are positive, there are also significant negative impacts that are assumed by individuals or by the society in one way or another. Among the most significant are: • Mobility gaps. Since mobility is one of the fundamental components of the economic benefits of transportation, its variations are likely to have substantial impacts on the opportunities of individuals. Mobility needs do not always coincide due to several factors, namely the lack of income, lack of time, lack of means and the lack of access. People’s mobility and transport demands thus depend on their socioeconomic situation. The higher the income, the higher the mobility, which may give rise to substantial mobility gaps between different population groups. Gender gaps exist in mobility as women tend to have lower incomes. Mobility gaps are particularly prevalent for long distance travel. With the development of air transport, a segment of the global population has achieved a very high level of mobility for their business and leisure activities, while the great majority of the global population has little mobility. This issue is expected to become more acute as the population of many advanced economies is aging rapidly, which implies that access to mobility will not be an income issue but an age issue. By 2020, about 10% of the global population (719 million) will be over 65 while by 2050 it will be 16% (1,492 million). • Costs differences. Locations that have low levels of accessibility, such as landlocked countries, tend to have higher costs for many goods (sometimes basic necessities such as food) as most have to be imported, often over long distances. The resulting higher transport costs inhibit the competitiveness of such locations and limits opportunities. Consumers and industries will pay higher prices, impacting on their welfare (disposable income) and competitiveness. • Congestion. With the increased use of transport systems, it has become increasingly common for parts of the network to be used above design capacity. Congestion is the outcome of such a situation with its associated costs, delays and waste of energy. Distribution systems that rely upon ontime deliveries are particularly susceptible to congestion. • Accidents. The use of transport modes and infrastructure is never entirely safe. Every motorized vehicle contains an element of danger and nuisance. Due to human errors and various forms of physical failures (mechanical or infrastructural) injuries, damages and even death occur. Accidents tend to be proportional to the intensity of use of transport infrastructures which means the more traffic the higher the probability for an accident to occur. They have important socioeconomic impacts including healthcare, insurance, damage to property and the loss of life. The respective level of safety depends on the mode of transport and the speed at which an accident occurs. No mode is completely safe but the road remains the most dangerous medium for transportation, accounting for 90% of all transport accidents on average (Statistics for OECD countries). At the global level about 1.3 million people died in road accidents in 2010 in addition to 50 million injuries. China has one of the highest car accident death rates in the world, with more than 110,000 fatalities per year (300 per day), a factor mainly due to recent growth in vehicle ownership. The emission of pollutants related to transport activities has a wide range of environmental consequences that have to be assumed by the society, more specifically on four elements: • Air quality. Atmospheric emissions from pollutants produced transportation, especially by the internal combustion engine, are associated with air pollution and, arguably, global climate change. Some pollutants (NOx, CO, O3, VOC, etc.) can produce respiratory troubles and aggravate cardiovascular illnesses. In urban regions, about 50% of all air pollution emanates from automobile traffic. • Noise. A major irritant, noise can impact on human health and most often human welfare. Noise can be manifested in three levels depending on emissions intensity; psychological disturbances (perturbations, displeasure), functional disturbances (sleep disorders, loss of work productivity, speech interference) or physiological disturbances (health issues such as fatigue, and hearing damage). Noise and vibration associated with trains, trucks, and planes in the vicinity of airports are major irritants. • Water quality. Accidental and nominal runoff of pollutants from transport such as oil spills, are sources of contamination for both surface water and groundwater. • Land take. Transport is a large consumer of space when all of its supporting infrastructure and equipment are considered. Furthermore, the planning associated with these structures does not always consider aesthetic values as is often the case in the construction of urban highways. These visual impacts have adverse consequences on the quality of life of nearby residents.
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Source: adapted from Global Insight, Inc., TRANSEARCH database, and U.S. Department of Transportation Freight Analysis Framework data.Freight Transportation Service SpectrumCargo value and weight is related to the mode of transportation used. Freight transport offers a whole spectrum of transport services, each with its own cost, speed and reliability characteristics. On one side of the spectrum, air cargo is the fastest, but the most expensive, which caters to high value and time sensitive cargo. On the other side of this spectrum, maritime transport offers low costs, high capacity, but low speeds. While this is suitable for bulk trades (e.g. oil and raw materials), containerized shipping is coping with low speeds by offering high
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but low speeds. While this is suitable for bulk trades (e.g. oil and raw materials), containerized shipping is coping with low speeds by offering high service frequency. Rail transportation is in the middle of this spectrum.
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Economic Opportunities According to Automobile OwnershipCar ownership can be a factor behind mobility gaps. An individual having access to a car has a more significant commuting range (CR(A)) than an individual without a car (CR(B)). Another nuance to be brought forward involves the shape of this commuting range. While a car theoretically involves an uniform range (the reality is somewhat different with highways), an individual without a car is very likely to rely on a public transit system that is commonly shaped along a set of corridors. The commuting range reflects accessibility to employment, but also the range of commercial and personal interactions. For instance, an individual located at point H can have access to employment zones E1, E2 and E3 while an individual without an automobile may only access employment zone E1. In this case, access to an automobile implies larger economic opportunities and the mobility gap is simply CR(A) - CR(B).Poverty, handicaps, age and gender are all factors which influence the variability of mobility gaps. Therefore, people with low incomes make less trips, which incidentally restricts their access to jobs and other services. People suffering from physical handicaps are further limited in function of the severity of their handicap. Age also engenders mobility gaps. Elderly persons are further limited in their movement due to the precarious nature of their health, their physical capacity and other factors. Youth are also limited in their travels but only until they reach driving age. Finally, gender differences also involve mobility gaps.
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Adapted from: E. J., Gauthier H. L. and M. E. O'Kelly (1996) Geography of Transportation.Trade, Transportation and Geographic SpecializationThe evolution of transport systems impacts the regional economy in terms of spatial specialization. The above figure represents a simplified example of how changes in transport may impact on the specialization of regional economies, which a priori have similar environmental endowments.In a situation of self reliance there is no apparent transport link between two regions. They are isolated from one another and must satisfy their own needs. Each region thus tends to be similar in terms of economic output. While regions have different environmental endowments, they must still provide for every basic necessity such as food. Quantities produced depend on the demand and the industrial capacity.With a transport link between two regions, specialization can take place. Each region develops its respective potential; Product A for the first region and Product B for the second, assuming that they respectively have a comparative advantage for these two products. If Product A is cheaper to produce in the first

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the second, assuming that they respectively have a comparative advantage for these two products. If Product A is cheaper to produce in the first region, it becomes more efficient to lessen the production of other products and concentrate on Product A. Respectively, the second region can do so for Product B. Therefore, the first region can delegate more resource for the production of Product A which it can then sell the surplus (minus local consumption) to the second region. The key of this specialization becomes the difference between transport costs and production costs of a product. If the unit costs savings resulting from specialization exceed the unit transports costs, then specialization can take place.Regional specialization is greatly expanded with international trade. By having access to a larger market through a gateway, namely a seaport, region A and B can specialize even more in the production they have respective comparative advantages on. They can even cease production in a specific array of products, which are now imported. Under such circumstances, the reliance on transportation increases, even if its relative costs may be declining.
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Direct Transport Supply Income from transport operations (fares and wages) Access to wider distribution markets and niches

Direct Transport Demand

Indirect Microeconomic

Indirect Macroeconomic Formation of distribution networksAttraction and accumulation of economic activitiesIncreased competitivenessGrowth of consumptionFulfilling mobility needs

Improved accessibilityTime and cost Rent incomeLower price savingsProductivity gainsDivision of of commoditiesHig her laborAccess to a wider range of suppliers and supply of commodities consumersEconomies of scale

Source: adapted from the European Conference of Ministers of Transport.Economic Benefits of TransportationThere are a wide range of economic benefits conveyed by transportation systems, some direct (income related) and some indirect (accessibility related), impacting transport supply and demand and at the microeconomic (sector-wise) and macroeconomic (whole economy) levels. The matter remains about what is the extent of the economic benefits for specific modes and locations.
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Some appendix
Tuesday, 1 January, 2013 2:44 PM

Stages in a BubbleBusiness cycles are a well understood concept commonly linked with technological innovations, which are often triggering a phase of investment and new opportunities in terms of market and employment. The outcome is economic expansion and as the technology matures and markets become saturated, expansion slows down. A phase of recession is then a likely possibility as a correction is required to clear the excess investment or capacity that irremediably occur in the later stages of an economic cycle. The bottom line is that recessions are a normal condition to a market economy as they are regulating any excess, bankrupting the weakest players or those with the highest leverage. However, one of the mandates of central banking is to fight a process (business cycles) that occurs "naturally". The interference of central banks such as the Federal Reserve appear to be exaggerating the amplitude of bubbles and the manias that fuel them. It could be argued that business cycles are being replaced by phases of booms and busts, which are still displaying a cyclic behavior, but subject to much more volatility. Although manias and bubbles have taken place many times before in history under very specific circumstances (Tulip Mania, South Sea Company, Mississippi Company, etc.), central banks appear to make matters worst by providing too much credit and being unable or unwilling to stop the process with things are getting out of control (massive borrowing). Instead of economic stability regulated by market forces, monetary intervention creates long term instability for the sake of short term stability.Bubbles (financial manias) unfold in several stages, an observation which backed up by 500 years of economic history. Each mania is obviously different, but there are always similarities; simplistically four phases can be identified: 1. Stealth. Those who understand the new fundamentals realize an emerging opportunity for substantial future appreciation, but at a risk since their assumptions are so far unproven. So the "smart money" gets invested in the asset class, often quietly and cautiously. This category of investor tends to have better access to information and a higher capacity to understand the wider economic context that would trigger asset inflation. Prices gradually increase, but often completely unnoticed by the general population. Larger and larger positions are established as the smart money start to better understand that the fundamentals are well grounded and that this asset class is likely to experience significant future valuations. 2. Awareness. Many investors start to notice the momentum, bringing additional money in and pushing prices higher. There can be a short-lived sell off phase taking place as a few investors cash in their first profits (there could also be several sell off phases, each beginning at an higher level than the previous one). The smart money takes this opportunity to reinforce its existing positions. In the later stages of this phase the media starts to notice with positive reports about how this new boom benefits the economy by "creating" wealth; those getting in becoming increasingly "unsophisticated". 3. Mania. Everyone is noticing that prices are going up and the public jumps in for this "investment opportunity of a lifetime". The expectations about future appreciation becomes a "no brainer" and a linear inference mentality sets in; future prices are an extrapolation of past price appreciation, which of course goes against any conventional wisdom. This phase is however not about logic, but a lot about psychology. Floods of money come in creating even greater expectations and pushing prices to stratospheric levels. The higher the price, the more investments pour in. Fairly unnoticed from the general public caught in this new frenzy, the smart money as well as many institutional investors are quietly pulling out and selling their assets. Unbiased opinion about the fundamentals becomes increasingly difficult to find as many players are heavily invested and have every interest to keep asset inflation going. The market gradually becomes more exuberant as "paper fortunes" are made from regular "investors" and greed sets in. Everyone tries to jump in and new intrants have absolutely no understanding of the market, its dynamic and fundamentals. Prices are simply bid up with all financial means possible, particularly leverage and debt. If the bubble is linked with lax sources of credit, then it will endure far longer than many observers would expect, therefore discrediting many rational assessments that the situation is unsustainable. At some point statements are made about entirely new fundamentals implying that a "permanent high plateau" has been reached to justify future price increases; the bubble is about to collapse. 4. Blow-off. A moment of epiphany (a trigger) arrives and everyone roughly at the same time realize that the situation has changed. Confidence and expectations encounter a paradigm shift, not without a phase of denial where many try to reassure the public that this is just a temporary setback. Some are fooled, but not for long. Many try to unload their assets, but takers are few; everyone is expecting further price declines. The house of cards collapses under its own weight and late comers (commonly the general public) are left holding depreciating assets while the smart money has pulled out a long time ago. Prices plummet at a rate much faster than the one that inflated the bubble. Many over-leveraged asset owners go bankrupt, triggering additional waves of sales. There is even the possibility that the valuation undershoots the long term mean, implying a significant buying opportunity. However, the general public at this point considers this sector as "the worst possible investment one can make". This is the time when the smart money starts acquiring assets at low prices. Bubbles can be very damaging, especially for those who arrived late with the hope of getting something for nothing. Even if they are inflationary events, the outcome of a bubble's blow off is very deflationary as large quantities of capital vanish in the wave of bankruptcies and financial defaults they trigger. Historically, they tended to be far in-between, but between 1995 and 2008 three bubbles took place back-to-back; the stock market (deflated in 2000), real estate (deflated in 2006) and commodities (deflated in 2008).
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Source: adapted from Notteboom, T. and J-P Rodrigue (2007) "Re-assessing Port-Hinterland Relationships in the Context of Global Supply Chains", in J. Wang et al. (eds) Inserting Port-Cities in Global Supply Chains, London: Ashgate.A Multi-Layer Perspective about Transport and Economic DevelopmentTransport involves the operation of transport services on links between locations within a multimodal transport system. Transport service operations and the associated traffic flows do not take place in a vacuum but are strongly influenced by other functional layers. Thus, transport markets are not only about the supply of and demand for transport services but also concern the process of valorization of a location leading to positive impacts on economic development. The interaction with locations (including intermediate locations), transport infrastructure and transport chain organization also deserves attention: • Geographical location (first layer). Locations are relative and define the market potential through their function of being an origin, destination or an intermediary for transport flows. Thanks to an excellent location and economies of scale and density, many transport nodes such as airports, seaports, railway stations or intermodal terminals serve as important consolidation and bundling points in transport systems. By offering a good intermediate location, for example near the main maritime routes and / or near production and consumption centers, transport nodes can adopt an important turntable function in national or international transport service networks, thereby attracting not only destination traffic but also substantial transit flows. • Transport infrastructure (second layer). A favorable geographical location is meaningless if it is not valorized by means of the provision of efficient infrastructures. The infrastructural layer involves the provision and exploitation of basic infrastructure for both links and nodes in the transport system. The development of intermodalism has made particularly relevant the connectedness of infrastructures. • Transport service operation (third layer). The transportation of passengers or freight between two places involves the use of a complex mix of transport infrastructures and transport services. Passenger and goods do not always follow the shortest path between origins and destinations, but instead pass via intermediate nodes in the transport system. This takes plae in view of switching to another transport mode (e.g. transfer from rail to air in an airport) or to shift between small units to larger units of the same transport mode (e.g. transfer from a shorthaul intraregional flight to a connecting longhaul flight or the transfer in a transshipment hub from a feeder vessel to a deepsea post-panamax container vessel). • Transport chain organization (fourth layer). The flow of passengers or freight through a multimodal transport system requires the involvement of actors who have the managerial capabilities to design a seamless and efficient transport chain. Logistics service providers and freight forwarders have developed a specialization in this area, supported by a good market knowledge and powerful information and communication systems. At the logistical layer shippers, freight forwarders, logistics service providers and other market parties design the routing solutions that best fit the requirements of the supply chains they are dealing with. The decision-making at the level of the logistics layers is mainly oriented towards the design of the distribution network and the choice of the transport route and associated transport modes and nodes. The upward arrow on the above figure depicts that each layer valorizes the lower layers. The downward arrow represents the demand pull exerted from the higher levels towards more fundamental layers. In a demand-driven transport market environment the infrastructural layer serves the transport service and chain organization layers. The more fundamental the layer is, the lower the adaptability (expressed in time) in facing market changes. For instance, the planning and construction of major transport infrastructures (infrastructural level) typically takes many years. The duration of the planning and implementation of new transport services on specific transport corridors (transport level) usually varies between a few months up to one year. At the logistical level, freight forwarders and multimodal transport operators are able to respond almost instantly to variations in the market by modifying the commodity chain design, i.e. the routing of the goods through the transport system. As adaptable as they may be, they are still dependent on the existing capacity, but their decisions are often indications of the inefficiencies of the other layers and potential adjustments to be made.
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Source: CPCS Transcom (2010) Analytical Comparative Transport Costs Study Along the Northern Corridor Region.Logistics Costs and Average Transit Time of a 20 Foot Container, Mombasa - Nairobi (Kenya)Moving freight inland in developing countries can be a complex and costly endeavor prone to delays since infrastructure issues are compounded by regulatory problems. While a lack of capacity and maintenance of the road system hinders road circulation, various regulations such as check points are the major sources of delays as public authorities adopt a rent seeking behavior. The above figure provides an example of the time and costs involved to move a 20 foot container carrying regular consumption goods from Mombasa, which is Kenya's main port, to Nairobi, the main city and capital, located 430 km inland.A share of the logistics costs are standard transport and terminal charges such as sea shipping rates and port handling charges. The shipping lines charges are more controversial since they include fees such as delivery order fee, bill of lading fee and piracy risk surcharge (the freight forwarding community often call those "junk fees"). All these charges put together are almost equivalent to the sea shipping rate. The inland routing costs are the contracted rate of the trucking company. More than 40% of the total logistics costs are indirect costs due to delays that include additional and inventory demurrage costs, but also bribe costs paid at a wide variety of police "checkpoints" and weighting stations, which can alone total more than $1,000 for an import container, depending on the value of the cargo. For instance, due to low profit margins trucking company have a tendency to overload and pay a bribe at the weight stations to be allowed to go through.The Mombasa-Nairobi segment takes on average 29.8 hours, most of this time spent at various regulatory delays, such as waiting at the two weight stations (+ 6 hours), delays to several police checks (+2 hours; there can be 8 to 10 such checks for the 430 km journey) and other driver delays such as rest and personal errands (+ 11 hours). Under normal circumstances the latter would be unnecessary for such a short distance, but the various regulatory delays force the driver to rest a night during transit. A similar distance in North America would be serviced in less than 6 hours. Therefore, such a system hinders economic development because supply chains tend to be unreliable while consumers and manufacturers pay higher prices for goods and inputs. In such a setting, various public authorities are using freight transportation to generate income in a rent seeking (predatory) fashion.
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World Migration Routes Since 1700Major migration flows since the 18th century are dominantly linked with the European colonial expansion and its control of maritime transport technology. Continental developments and settlements, namely in North America and Siberia were closely linked with the development of railway systems.
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(Detailed PDF map)The Silk Road and Arab Sea RoutesThe Silk Road was the most enduring trade route in human history, being used for about 1,500 years. Its name is taken from the prized Chinese textile that flowed from Asia to the Middle East and Europe, although many other commodities were traded along the route. The Silk Road consisted of a succession of trails followed by caravans through Central Asia, about 6,400 km in length. Travel was favored by the presence of steppes, although several arid zones had to be bypassed such as the Gobi and Takla Makan deserts. Economies of scale, harsh conditions and security considerations required the organization of trade into caravans slowly trekking from one stage (town and/or oasis) to the other.Although it is suspected that significant trade occurred for about 1,000 years beforehand, the Silk Road opened around 139 B.C. once China was unified under the Han dynasty. It started at Changan (Xian) and ended at Antioch or Constantinople (Istanbul), passing by commercial cities such as Samarkand and Kashgar. It was very rare that caravans traveled for the whole distance since the trade system functioned as a chain. Merchants with their caravans were shipping goods back and forth from one trade center to the other. Major commodities traded included silk (of course), gold, jade, tea and spices. Since the transport capacity was limited, over long distance and often unsafe, luxury goods were the only commodities that could be traded. The Silk Road also served as a vector for the diffusion of ideas and religions (initially Buddhism and then Islam), enabling civilizations from Europe, the Middle East and Asia to interact.The initial use of the sea route linking the Mediterranean basin and India took place during the Roman Era. Between the 1st and 6th centuries, ships were sailing between the Red Sea and India, aided by summer monsoon winds. Goods were transshipped at the town of Berenike along the Red Sea and moved by camels inland to the Nile. From that point, river boats moved the goods to Alexandria, from which trade could be undertaken with the Roman Empire. From the 9th century, maritime routes controlled by the Arab traders emerged and gradually undermined the importance of the Silk Road. Since ships were much less constraining than caravans in terms of capacity, larger quantities of goods could be traded. The main maritime route started at Canton (Guangzhou), passed through Southeast Asia, the Indian Ocean, the Red Sea and then reached Alexandria. A significant feeder went to the Spice Islands (Maluku Islands) in today's Indonesia. The diffusion of Islam was also favored through trade as many rules of ethics and commerce are embedded in the religion.The Silk Road reached its peak during the Mongolian Empire (13th century) when China and Central Asia were controlled by Mongol Khans, which were strong proponent of trade even if they were ruthless conquerors. At the same time relationships between Europe and China were renewed, notably after the voyages of Marco Polo (1271-1292).During the Middle Ages, the Venetians and Genoese controlled the bulk of the Mediterranean trade which connected to the major trading centers of Constantinople, Antioch and Alexandria. As European powers developed their maritime technologies from the 15th century, they successfully overthrew the Arab control of this lucrative trade route to replace it by their own. Ships being able to transport commodities faster and cheaper marked the downfall of the Silk Road by the 16th century.
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Cumulative Waves of Transport DevelopmentTransport development tends to be a cumulative process as each new transport technology adds to the capacity and mobility potential of the previous technologies. It may also lead to the obsolescence and decline of prior technologies when they service similar markets. Since the modern era, five major waves of transport developments can be identified: • First wave; sailships. The mastery of high sea navigation in the mid 16th and early 17th centuries led to the gradual setting of a global trade network supported by the emergence of colonial empires. In the late 19th century, the steamship would mark the demise of the sailship, but not of commercial maritime shipping networks that continued to expand. Subsequently in the late 20th century, the containership would strengthen
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commercial maritime shipping networks that continued to expand. Subsequently in the late 20th century, the containership would strengthen global commercial relations to an unparalleled level. Second wave; canals. The early stages of the industrial revolution in the 19th were accompanied with the setting of canals complementing existing rivers or linking them. They provided the first level of inland access with the economies of scale they were able to confer, but such accessibility was highly punctual; where canals could be built. Although canal systems were historically been set in other parts of the world (China being the most salient example), it is in Western Europe andNorth America that their impacts on economic development were the most significant. Even if canal systems were supplemented by railways for many commercial relations, they remained active transport modes, particularly in Europe, China and North America. Third wave; railways. The setting of rail systems in the second half of the 19th century permitted the first effective forms of inland accessibility and concomitantly of cohesive national transport systems, but interconnecting different rail systems took time. At the beginning of the 20th century, rail systems were the dominant mode supporting passengers and freight flows. Although their relative importance has declined with the setting of highways, railways are far from being an obsolete technology with the setting of high speed rail systems around the world as well as their conversion tointermodalism. Fourth wave; highways. The diffusion of the internal combustion engine and the availability of cheap oil supplies permitted an effective setting of individual or small load (truckload) mobility (national mobility systems). This however could not take place without the construction of national highway systems, such as the Interstate in the United States. Another important impact of the highways was lower density forms of urbanization, namely suburbs. Fifth wave; airports. The introduction of jet services in the late 1950s permitted for the first time the setting of true global mobility systems where locations can be reached within hours. Airports became important nodes in the national and global systems of passenger flows as well as freight flows.

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Source: adapted from HOP Associates (2005) "Time, mobility and economic growth", http://www.flexibility.co.uk/issues/transport/timemobility.htmCumulative Modal Contribution to Economic OpportunitiesEach transport mode and technology is linked to a set of economic opportunities, notably in terms of market areas, the types of commodities that can be transported (including passengers) and economies of scale. All these issues are related to a scale and level of commercial geography that transport systems are supporting. Prior to the industrial revolution, economic opportunities were limited by the low capacity to move commodities over long distances, as most activities were very localized is scale and scope. The industrial revolution unleashed greater economic opportunities, initially with the development of inland canal systems, steamship services and then railway systems. Passenger and freight transportation expanded as well as production and consumption while new markets and resources became available. In many instances, the development of a transportation mode built on the opportunities developed by another, such as maritime and canal shipping. In other situations, the growth of a new mode of transportation favored the decline of others, such as the collapse of many inland canal networks in the late 19th century because of rail competition.The development of the mass production system at the beginning of the 20th century increasingly relied on the commercial opportunities introduced by road transportation, particularly the automobile. Later in the 20th century, globalization benefited from the joint synergy of maritime transportation, roadways, railways, air and telecommunications, all of which supporting integrated transport systems and supply chain management. Economic opportunities became global in scale and scope, particularly because of the capacity to maintain an intricate network of trade and transactions through transport systems. More recently, new opportunities arose with the convergence of telecommunications and information technologies, supporting a higher level of management of production, consumption and distribution, as well as a more efficient mobility of passengers. It is expected that such a process, building upon the advantages conferred by other transportation modes, will account for a significant share of economic opportunities of the first half of the 21st century.
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Source: Transport Satellite Accounts. US Department of Transportation, 1999.Transport Costs by Industry Type, 1999There is a distinct difference between economic sectors, as each has a level of transport intensity. It is not surprising to find that the most transport intensive sectors involve agriculture, forestry and fishing, which are by their nature handling ponderous goods over long distances. For instance, the costs of shipping lettuce between California and New York is about $8,000 per truckload. This is related to long distance, but also to the requirement that the lettuce must be stored at constant temperatures (cold chain) between 0 and 2 degrees Celsius (33 to 35 Fahrenheit). Construction and mining share similar characteristics are ponderous products are transported. In a contemporary global setting, wholesale and retail activities are increasingly becoming transport dependent as production and consumption are separated. Information processing activities, namely finance, insurance and real estate are the least dependant on transportation.
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Source: U.S. Department of Transportation, Bureau of Transportation Statistics, Pocket Guide to Transportation.The Share of Transportation in the GDP, United States 2007Transportation accounted to about 11% of all the expenses in the economy, the 4th most important expense after housing, health care and food.
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Source: Bureau of Transportation Statistics.Employment in Transportation Occupations, United States, 1985-2001Transportation employed directly in 2001 4.8 million people in the United States, a million more than 15 years earlier. The dominant sector of employment involves motor vehicle operators, namely truck drivers, many of which are owner-operator. Transportation employs about 7.5% of the American workforce.
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Source: US Department of Transportation, BTS, G-7 Countries: Transportation Highlights.Employment in the Transport Sector, Selected Countries, 1996Transportation is a significant source of employment, namely to operate vehicles such as trucks or buses. It employs between 3% and 7% of the total labor force of developed countries.
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Source: adapted from J. Kauppila, Ten stylized facts about household spending on transport, Statistical Paper 2010-3, September 2010, ITF Paris.Transport Spending as Share of GDP, Selected Countries 2005Transport spending represent a relatively constant share of the GDP among a sample of countries.
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Spending as Share of GDP, Selected Countries 2005Transport spending represent a relatively constant share of the GDP among a sample of countries. Higher levels of GDP per capita tend to be related to higher levels of transport spending as well as higher levels of automobile ownership.
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Source: adapted from R. Carruthers (2003) The Impacts of Motorization and What Can Be Done to Mitigate Them, The World Bank.Relationship between GDP and Motorization, Selected Asian Countries, 1960-1990This sample concerns major Asian economies, including Japan, China, South Korea and Singapore taken at different points in time in from 1960 to 1990, when most were experiencing a strong period of economic growth. Based on this sample, there is a clear exponential relationship between GDP per capita and motorization. After the $2,000 per capita threshold is crossed, the level of motor vehicle ownership, and the expected mobility, increases significantly.
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