Emerging Global Logistics Networks: Implications for Transport Systems and Policies

Transcription

1 Growth and Change Vol. 34 No. 4 (Fall 2003), pp Emerging Global Logistics Networks: Implications for Transport Systems and Policies L.A. TAVASSZY, C.J. RUIJGROK, AND M.J.P.M. THISSEN ABSTRACT Logistics chains are constantly changing to facilitate increasingly global movements. In qualitative terms, long term trends in logistics services indicate a growing degree of product customization and an increased responsiveness in order delivery. These trends impact on the development of technology and the growth of welfare in different world regions in different ways. This paper drafts a research agenda which will help to improve understanding of the interrelationships between trade, logistics, transport, and regional development at a global scale. Rather than being an exhaustive or detailed inventory of trends, the paper provides a focus on supply chain by thinking. The key starting point is the need for more and more efficient transportation and sophisticated logistics processes. Three subjects are treated: First, the strategic implications of borderless supply chain management on the choice of alternative logistics structures in supply chains are considered; second, the possible impacts of the expected changes in supply chain processes upon regional economic activities are examined; third, the impacts of changes in global logistic processes on the transportation system and, in turn, on the environment are explored. This discussion leads to the identification of some new research challenges in the field of transportation and logistics. Introduction T he last few decades have seen a steady growth of international trade and international transport. The main driving forces behind this growth are the worldwide growth of the global economy and the relaxation of trade barriers. Of course this growth is not evenly spread around the globe and sometimes disruptions can be observed caused by incidental factors such as local economic crises, weather conditions, and political incidents. On average, however, one can see these trends continue (Trilog 1999). As a third driving force often the development of logistics is mentioned. Nowadays, the increased L.A. Tavasszy is the head of the Department of Spatial Development at TNO Inro in Delft, the Netherlands. His address is lta@inro.tno.nl. C.J. Ruijgrok is a professor of Transport and Logistics Management at Tilburg University, Tilburg, the Netherlands, and is a senior advisor at TNO Inro. M.J.P.M. Thissen is an assistant professor in the Department of Regional Economics, Faculty of Economics at the University of Groningen, Groningen, the Netherlands. Submitted Feb. 2003; revised June Gatton College of Business and Economics, University of Kentucky. Published by Blackwell Publishing, 350 Main Street, Malden MA US and 9600 Garsington Road, Oxford OX4, 2DQ, UK.

2 EMERGING GLOBAL LOGISTICS NETWORKS 457 possibilities for communications, the increased efficiency of transport operations, as well as the increased standardization of processes, make it possible to integrate supply chains on a worldwide scale. This paper focuses on this last aspect. It tries to understand the mechanisms behind this development and, furthermore, seeks to assess the consequences of these mechanisms on transportation systems, regional economies, and their level of environmental sustainability. To illustrate the relevance of these issues to public policy, a recent study on the EU freight market by Caldwell et al. (2002), which, among others, distills lessons for North American policy makers, makes the following observation: Global market logistics rely heavily on the performance of infrastructure owned and operated by the public sector. Understanding the motivation of logistics decisions and their local implications is a critical point of departure for a national or multinational effort on fostering trade. Identifying freight bottlenecks, solving them, and establishing market conditions that provide free access should be an important focus of regional, state, national, and international planning/policy efforts. This paper builds on the work of McCann (1998) and the recommendations of Lakshamanan and Anderson (2002), by extending their description of total logistics costs, explaining its relevance to regional economics and proposing an integrative modeling framework in which the spatial restructuring of logistics systems and regional equilibrium can be studied together empirically. See Figure 1 for an illustration of issues treated. Instead of attempting to build up an exhaustive account of relevant indicators, the paper summarizes some relevant research in this area and poses new research questions. The gist of these findings is that there is a need to combine areas of research that have largely been Interregional equilibration Changes in accessibility of regions Changes in total logistic costs Changes in physical distribution structures Changes in logistics cost structure Other megatrends e.g.: increasing product diversity technological progress mobility of labor de-materialization falling barriers for trade reduced costs of ICT usage Trends in logistics cost drivers FIGURE 1. KEY ISSUES TREATED IN THIS PAPER.

3 458 GROWTH AND CHANGE, FALL 2003 working separately until now, i.e., regional economics and logistics management. This will lead to new decision support information for public policy in the area of regional planning and transportation. The paper is structured as follows: An initial section introduces key trends in the restructuring of logistics systems that impact on the spatial ordering of economic activities. Following this, the mechanisms behind the spatial organization of logistics activities are detailed. The question of which innovations in transport technology are to support the changing logistics structures is then explored. Finally, the main challenges ahead for the research community are discussed, and the paper concludes with recommendations for transport policy analysis. Trends in Trade and Logistics Structures Trends in trade patterns. Trends toward globalization, supply chain management (SCM), and the development of Information and Communications Technology (ICT) are all reshaping the world s trading patterns and consequently the physical trade flows. Such restructuring is leading to economic growth, better allocation of resources, and above all greater freedom of choice for consumers. Apart from an aggregate rise in welfare, the above trends may lead to a more equitable spread of welfare. The increase in international trade is, amongst other factors, caused by the fact that in the past few decades many trade barriers have fallen. Key factors in supply and demand have resulted in a burgeoning of trade relationships between nations and regions across the world. Figure 2 and Figure 3 present the results of this expansion in trade volumes between 1980 and 1995 for the three key areas of the world economy (for North America, E I Western Europe Eastern Europe I E NAFTA I ASIA PACIFIC E FIGURE 2. TIME-SERIES OF TRADE (IN MILLION TONS) BETWEEN EUROPE AND NAFTA/ASIAN PACIFIC AND BETWEEN THE EU AND EASTERN EUROPE (I = IMPORTS, E = EXPORTS).

4 EMERGING GLOBAL LOGISTICS NETWORKS E I Western Europe Eastern Europe I E NAFTA E I ASIA PACIFIC FIGURE 3. TIME-SERIES OF TRADE (IN MILLION EUROS) BETWEEN EUROPE AND NAFTA/ASIAN PACIFIC AND BETWEEN THE EU AND EASTERN EUROPE (I = IMPORTS, E = EXPORTS). Asia/Middle East, and Europe, see Trilog 1999). At a global level, the growth of the value of international trade since 1989 (up 190 percent) has substantially outstripped the growth in production (up by 80 percent). Figure 2 shows that there is a relatively stable amount of goods being traded amongst the trade blocks, certainly if only the years are taken into account. For all the trade relations of Western Europe shown, the imports exceed the exports. The amount of trade with NAFTA is higher as compared with Asian Pacific (225 million tons as compared to 140 million tons). The trade with Eastern Europe has shown a steady rise since the beginning of the 1990s. In Figure 3 the trade-flow, measured in value, is presented. Figure 3 shows that, measured in value of the goods, the difference between imports and exports is smaller. The reason for this is that on average the imports from other trading blocks concern the less valuable goods and that the value density of goods is rising. Also it shows clearly the rise in trade with Eastern Europe, especially the rise in the goods exported from Western Europe to Eastern Europe. The question now is how this change in traded volumes (in value and weight) translates into changed logistical structures, worldwide. Unfortunately there is no data available to directly answer this question. However, from the literature an analysis of the key trends can be made. Evolution of logistics networks. Complex trading networks have evolved primarily to exploit labor cost differences, global product differentiation opportunities, and availability of raw materials in particular countries. Their development has also been facilitated

5 460 GROWTH AND CHANGE, FALL 2003 by major regulatory and technological trends. Trade liberalization, particularly within trading blocks such as the EU and NAFTA, has removed constraints on cross-border movement and has reduced related barrier costs. Advances in telecommunications and information technology have given companies the means to manage the physical movement of product over long, often circuitous, routes. Many carriers have invested heavily in track and trace systems to be able to establish the location of any consignment at any time, improving the visibility of the global supply chain to shippers and their customers (see HIDC 1998). The combination of these factors gives rise to a large number of individual trends. The way in which individual trends manifest themselves varies according to the geographical scale at which companies and markets are operating. An increase in product variety is seen up to the level of individualized products and services. Eventually, this will go hand in hand with an improvement of lead times to the extent that customized products have the same responsiveness as standardized products have now. Note that the two main axes for development, service responsiveness and customization, can be operationalized using practical performance criteria like lead time or reliability, respectively shipment size or frequency. The question that needs to be answered is how these trends in logistics concepts are related to the global spatial economy. Figure 4 shows different production and distribution concepts, from the global scale toward the local market. These concepts vary according to the degree of customization (moving toward the top of the vertical axis of Figure 4, varying from standardized to individualized) and the degree of responsiveness (pictured on the horizontal axis as lead times to the market, where lead times increase with distance to market). Note that the right hand half of the figure depicts logistics structures for products requiring high responsiveness (lead times from hours to days). The left hand half of the figure shows structures for longer lead times. Typical trends are the moves from European distribution, based on production to stock, towards production to order, where delivery takes place directly or through cross-docking. 1 INDIVIDUALIZED STANDARD BTO BTO CD FOP EDC FOP BTO BTS VAL RFD CD CD BTS global market RDC Europe region lead time lead time Legend Short FOP BTS BTO RDC EDC CD DC RFD VAL Detail flexible order production built to stock built to order regional distribution center European distribution center cross-docking distribution center rapid fulfillment depot value added logistics weeks days hours days FIGURE 4. NEW LOGISTICS STRUCTURES BY DEMAND SEGMENT (ADAPTED FROM VERMUNT AND BINNEKADE 2000).

6 EMERGING GLOBAL LOGISTICS NETWORKS 461 Also new concepts like rapid fulfillment 2 depots (for low demand but urgent products) and flexible order production (allowing fast switching in batch size and end-product specifications) are being introduced to allow for better responsiveness. The changing of distribution concepts is accelerated by wide-reaching Internet-based planning and management systems. These do not only include the new business-to-business and business-to-consumer applications, but business-internal applications as well. The Cisco spare part delivery network guarantees fulfillment of any order anywhere in the world within two hours; this is only possible through a seamless connection between external linkages and the internal logistics processes. This is an illustration of state-of-the-art transport requirements for products with a high degree of customization, short lead time, and small shipments. The preliminary conclusion from the above pictured trends toward individualized products and services is that they appear to favor structures with a regional or continental reach. Global logistic chains may remain reserved for standard products and services. Note that the focus now is on the distribution of products towards markets. The inbound materials, needed to build standard or high-end products, may still involve sourcing from all over the world. The next section will explore the diverse mechanisms behind these developments in more detail. Logistics and the Spatial Economy Total logistic costs as accessibility measure. The development of international trade is influenced by differences in factor costs in the respective regions as well as by the barriers to trade, both regulatory and generated through the distance between these regions (see Figure 5). From this picture it becomes clear that neoclassical equilibrium theory can also be applied here (see also the section on Scenario Building, for an exploration of this Barriers to trade Factor costs region A Factor costs region B New interregional equilibrium Accessibility Total Logistic Costs Logistics Structures Logistics Cost Drivers FIGURE 5. RELATIONSHIP BETWEEN LOGISTICS AND THE SPATIAL ECONOMY.

7 462 GROWTH AND CHANGE, FALL 2003 theme). The only extension to this theory is that, instead of distance and transportation costs being used as measures of resistance between regions, one now introduces the concept of total logistics costs. These costs not only reflect transportation related elements but all relevant logistic costs which also include storage, handling, and inventory costs. In a situation where travel costs decrease and differences in factor costs remain high, one can expect globalization to proceed. If production cost differences diminish, while at the same time transport costs increase, the reverse would be likely. Logistics, as a business competence, deals with the achievement of customer satisfaction at the minimum level of (logistic) costs. Customer satisfaction, or improved customer service, is reached as the suppliers of goods and services succeed in achieving the growing needs of consumers to deliver their products according to the ever emerging demands of the customers, not only with regards to the physical nature of these products (strawberries in winter time), but also with regards to their demands of reliability and flexibility of the logistics organization. In the logistics management literature (Christopher 1998; Cooper 1991) emphasis is normally placed on the possibility to achieve efficiency and effectiveness simultaneously. Efficiency is then interpreted as minimizing logistics costs and effectiveness to the extent to which customer satisfaction is reached. Logistics costs normally focus on the total expenditure related to the changing location (in the right quantity, at the right time, in the right condition) of physical objects. However, these costs are interrelated with another determinant of product costs, being the actual production costs. In this sense, one can say that in optimizing global logistics, supply chain managers try to minimize the total sum of production costs, logistic costs, and management costs, given the level of customer service that is required. Production costs do vary around the globe, partly because of differences in climate, but also, and more importantly, because of wage differences and exchange rates. The last few decades have seen the relocation of the production sites of multinational companies, especially for their labor intensive activities toward low wage countries. These trends (which are a clear example of the mechanisms with regards to labor division already pointed out by Adam Smith) started some centuries ago, but recently have intensified. Countries like China are exploited because of their vast amounts of available cheap labor. However, logistics will form one of the key success factors for these countries and will determine whether trade can actually develop (see e.g., Abernathy et al. 1999). In some cases the move toward these low wage countries is not a lasting one, as the emerging economic activities in these countries lead to a quick adaptation toward Western living standards. And even when this has not led to complete equilibrium, there are often other factors that make these countries less attractive in the eyes of the multinationals. Shortly after the fall of the iron curtain, many West European companies have moved production location towards former Communist states, such as Hungary and Poland. The wages in these countries have been rising since then, but another important factor was the level of flexibility of the labor force, which was considered to be inadequate. This has led to a movement away again from these countries; companies like Philips and Microsoft

8 EMERGING GLOBAL LOGISTICS NETWORKS 463 recently have moved production plants from East European countries towards locations in East Asia. In summary, despite the importance of factors like barriers and factor costs, accessibility remains the key linking factor between logistics and the spatial economy. This paper proposes to apply the concept of total logistic costs as an accessibility measure, in order to be able to describe spatial restructuring effects of logistics trends. Below we explore in more detail how the changes in total logistic costs follow from changes in spatial structures of logistics activities. Logistics costs and logistics structure. A key mechanism by which logistics structural change occurs is the trade-off between transport and inventory costs, which determines the degree of centralization of inventories. Structures with many depots and small and frequent shipments will emerge when firms are primarily service oriented, and will generally be preferred when transport rates are high. The decrease of transport costs has, on the one hand, placed increasing pressure on firms to centralize their inventories. On the other hand, the increasing orientation of firms toward service quality leads to a growing pressure to decentralize operations. One should take care that inventory costs do not explode because of the multiple stock locations. A well-known rule of thumb says that the total inventory cost in situations of m warehouses is related to the inventory costs in a situation of n warehouses as the square root of the ratio m/n. Besides the general point of spatial equilibrium caused by this trade-off, it is illustrative to investigate the stability of the equilibrium when a number of external influences changes the situation around this equilibrium. This is visualized in Figure 6. The location of this equilibrium and the dynamics of changes therein will be different for each product type and each market observed. In real-world practice the full spectrum I c Total Logistics Costs a T+H d b I = inventory costs T = ransport costs H = handling costs LOCAL GLOBAL FIGURE 6. CHANGES IN THE INVENTORY/TRANSPORT EQUILIBRIUM.

9 464 GROWTH AND CHANGE, FALL 2003 of solutions will be seen to occur between the two extremes. When changes in these equilibria for various industries are considered, there is a need to distinguish between circumstances that tend to increase costs (a or c) and others that will decrease its level (b or d). Examples for these categories are as follows: a) increase of transport + handling costs internalization of external costs congestion unreliability of transport systems and their related waiting times reductions in lead time and the responsiveness requirements of demanding customers b) decrease of transport + handling costs the consolidation of freight flows the design of integrated networks the improved quality and professional standards of logistics service providers the implementation of IT systems that improve efficiency c) increase of inventory costs value density of products interest rates product explosion (increase of number of product varieties) focused factories (factories that are specialized on a type of products only) d) decrease of inventory costs reduction of pipeline length reduction of inventories through reduction in the number of inventory points and reduced levels of safety stock supply chain management techniques As a result of this one can infer that the further reduction of transport costs, coinciding with increased inventory costs, will lead to a further globalization of production and inventory locations, while a increase in transport costs combined with a decrease of local inventories would result in the contrary. In general, one could argue that some of these external circumstances are not completely independent and therefore in designing scenarios one should look for plausible and consistent combinations of these circumstances (see also the section on Scenerio building: The future of global logistics networks in this article). Towards Sustainable Intermodal Transport Systems Sustainable logistics? A key question that follows from the above is whether transport systems will experience more pressure at the local level, or whether flows will be spread out over the parts of the network upstream from the consumer markets. At an abstract level, from the above it can be concluded that there is a stable relationship between trends in consumer preferences and sustainability objectives. Once the external costs of

10 EMERGING GLOBAL LOGISTICS NETWORKS 465 transport are internalized, and transport costs cease to fall, logistical structures will tend to converge towards those with a reduced dependency upon transport costs, in other words: they will tend to decentralize. Fortunately, this is in line with the main trends of increased demands upon flexibility of delivery and growing levels of product customization. From a market perspective, this appears to be a win-win situation. Transport systems will need to be able to facilitate these increasingly decentralized logistics networks. There are two key risks which may reduce the benefits in the above scenario of a move toward markets. If shippers continue to use conventional transport systems, the pressure on the environment could increase dramatically, leading to sharp increases in physical distribution costs and, eventually, in product prices. If shippers decide to use more environmentally friendly means of transport, there is a risk that potential improvements in service quality due to decentralization of inventories will be offset by a slowdown of deliveries at the final stages of the distribution chain. The way forward is through innovation via new transport technologies and intermodal systems. In general, however, a change from standard to individualized, highly responsive logistics services as pictured in Figure 4 will lead to less sustainable logistics systems. Below is the explanation of how new developments in intermodal networks cannot only maintain existing service levels in distribution using slower, more environmentally friendly modes of transport, but can even improve service levels with alternative modes of transport, while reducing total logistics costs. New forms of intermodality. The long-term evolution of production networks leads to new demands on distribution structures which can be characterized by an increased pressure on reliability, customization, and flexibility. Nowadays rapidly increasing vertical disintegration is seen within product columns, and as a result a much more specific set of agreements between the shipper and its logistic service providers. As these chains are becoming more complex, more intricate distribution structures are needed to tailor final products in all their facets to the customer s preferences. The improved interconnectivity of companies through advanced logistics information systems has opened up the way for the introduction of collaborative planning and execution of logistics operations. Connectivity and transparency are enabling factors for improved planning and scheduling of operations and for real-time adjustments to changed circumstances. Internet technology is crucial in this: Instead of time-consuming and costintensive Electronic Data Interchange (EDI) communications systems, the present systems can guarantee a fast and easy access to their Web-enabled communication systems. These developments also have a major impact on the way inter- and multimodal operations can take place. Whereas in the past these operations required lengthy and timeconsuming interactions between all parties concerned (shippers, carriers, intermediate parties [forwarders, agents, expeditors], logistic service providers, terminal operators, and so on), the new Web-based technologies enable a much quicker and more reliable management of all information flows and interaction between these parties. Current practice in multimodal environments was up until recently such that parties could only start to act as the (unexpected) events occurred. Now, through timely information exchange and

11 466 GROWTH AND CHANGE, FALL 2003 improved planning of theses operations, a large part of the unreliability of these systems can be removed and unnecessary buffers can be avoided. This has opened up the possibility for a complete reconfiguration of logistic systems. Whereas in the past many last minute requirements left no openings for slow modes of transport, nowadays the improved planning opportunities lead to possibilities for integrating slow and fast modes of transport into one integrated system that can guarantee that customer requirements are met. A recent example of such a new logistic system being developed is the Netherlands s Distrivaart inland waterways-based distribution system for Fast Moving Consumer Goods (abbreviated as FMCG, e.g., groceries with a high turnaround rate in retail such as toilet paper and beer). This system replaces a large part of existing road-based transport for the distribution of these goods by inland waterways transport. An additional advantage is the introduction of a floating stock in the system, thus saving in land-based inventory costs (Groothedde et al. 2003). Multimodality, in this example, involves the synergetic use of two modal systems: roads for shipments needing high responsiveness, and inland waterways for the steady flows. The new system is estimated to be at least equally reliable as the present system and it is projected to save more than 10 percent of distribution costs. For a more detailed description of this system the reader is referred to TNO Inro 2001 and Groothedde et al Another option is the introduction of an integrated collaborative planning system where producers, retailers, and logistic service providers work closely together through the sharing of information of production, sales, and logistics. This can lead to the reduction of safety stocks, the stabilization of physical flows and the reduction of logistics costs while improving the customer service to the clients. A nice by-product of these integrated multimodal logistic systems is that they lead to higher levels of sustainability because the slow modes of transport that are used in this relaxed logistics process use less energy than previous modes. The idea behind these optimization processes is not very complicated. It asks for a certain level of cooperation of all parties concerned and also of the vision of a central key person (sometimes called orchestrator or chain manager) who can design smart solutions for integrated logistics problems. It seems that there exist many potential possibilities for such logistics improvements and proposed research should therefore trace these possibilities and find some general tools for problem solving. Implications for transport policy analysis. It is a convenient coincidence that the autonomous trend of demand driven logistics dictates a movement toward decentralization of inventories; the internalization of external costs will according to the laws of total logistics costs support this trend and can therefore be seen as beneficial to the consumer. Innovations in intermodality are needed which are fully synchronized (or even engineered together) with logistic chains. Transport policy makers can expect an increasing demand from the sector for the support of technologically and environmentally sustainable innovations not only ICT related, but also in the area of, for example, transport and handling equipment.

12 EMERGING GLOBAL LOGISTICS NETWORKS 467 A second important category of relevant issues concerns the requirements for the evaluation of transport projects and policies. Logistic chains cross many borders and intermediary support activities like storage are spread out globally. For a full cost-benefit analysis (CBA), where indirect economic impacts are counted as well, it is important to know how these chains move geographically. On the one hand, benefits of, say, improved infrastructure may to a large part accumulate in countries other than those where goods are consumed for example, at intermediate points of storage or in the regions where producers of goods are located. On the other hand, however, the internalization of external costs of transport may increase the rate of decentralization of inventories, pushing the costs and benefits of improved transport infrastructure downstream in the logistic chain. This move can be explained following the impact of an increase in transport costs in Figure 6: moving the transport cost curve up (arrow a) will result in a new equilibrium where the number of depots increases and, as a consequence, the depots move closer to clients. The impacts of the trends and processes described in this paper upon spatial development are not clear. Important determinants such as interest rates and the speed of technological development in emerging economies are difficult to forecast. The outcome of these processes can be crucial for regions that depend on (or suffer from) the intensity of freight flows in the transport network (e.g., ports or new inland distribution regions). At the same time, no analytical tools were found to be available to build forecasts of worldwide goods movements. Research Challenges This paper builds upon the ideas presented in Lakshamanan and Anderson (2002) in which linkages between transport infrastructure and the wider economic system are discussed. While the Lakshamanan paper advocates an extension and unbundling of economic modeling approaches as well as their linkages to transport (network) related models, this paper takes a look into the black box of the logistics system. In their paper, Lakshamanan and Anderson provide evidence for the relevance of logistic choice behavior to estimating economic benefits of improved freight services. This paper continues from this point and proposes new research in two directions: First, the question what will happen with global logistics structures? is an integral part of a global transportation research agenda, but has remained unanswered until now. Reactions of logistics structures to changes in transport costs are well known in theory (changes in shipment sizes and frequency as well as stock sizes and locations). In practice, however, these responses and their impact on regional development will vary by sector due to the large variety in logistical needs and boundary conditions. Therefore, the expected direction and strength of these future changes is highly uncertain, yet relevant for decision makers in the area of transportation and regional development. Second, Lakshamanan and Anderson use general equilibrium and macro-economic frameworks to study the impact of freight infrastructure investments on regional growth and (regional) development. The linkages between the macro, the equilibrium, and the micro frameworks require further study, as argued in their paper. Lakshamanan and

13 468 GROWTH AND CHANGE, FALL 2003 Anderson also argue that computable general equilibrium (CGE) models are not the primary tool for this research, given their calculational complexity and huge data demands. However, based on the present authors own experiences with implementations and applications of CGE models within Europe, the argument here is to favor extending and applying such existing models for research into this topic of interest. In particular, the additional information which could be obtained with models that describe the interaction between production systems and trade involves a particular type of spatial reorganization effect that one can expect from improvements in logistics efficiency. These are factor productivity changes within firms. Productivity improvements will also lead to changes in preferences for trade partners and firm locations, as benefits are passed on throughout the production chain, eventually to arrive at the final consumer. More specifically within the context of cost-benefit analysis, spatial CGE models can yield information about possible additional economic benefits that can arise as a result of all sorts of externalities and imperfections of interconnected markets for goods and services, labor, land, and housing. In the following subsections these topics are discussed in more detail. Scenerio building: The future of global logistics networks. This discussion leads to an identification of research challenges of global interest in the field of transportation and logistics. The research challenges concern above all the analysis of logistical systems and multimodal networks on a meta level. This section lists a number of research questions that need to be answered. The next section looks at the possibility of developing new decision support instruments for policymakers, by which these issues can be explored. The key research questions for policy makers are the following: Which type of networks could benefit in particular because of the improved (real time) planning procedures? What kind of synergies can be identified in multimodal logistic networks, both for achieving economies of scale and economies of scope? In transport networks the main objective always is the improvement of the utilization of resources, but also in the redesign of logistical networks can important sources of synergy be found? What kind of effects could these logistic redesigns have for a number of relevant output indicators such as logistics cost, reliability, and customer service, as well as environmental indicators such as CO 2, pollution, and sustainability indicators? Especially increased responsiveness of logistics systems is expected to have a negative effect on the sustainability of logistics systems. Development of spatial equilibrium and logistics modeling. Part of the research would need to aim at the development of new tools to improve the understanding of the relationship between changes in logistics structures and interregional economic equilibria. Already before, but especially since the research of Venables and Gasiorek (1996), CGE modeling has arrived as a means to predict welfare effects of transport investments and policies (see e.g., Bröcker 1999). Despite the research problems which remain to be solved

14 EMERGING GLOBAL LOGISTICS NETWORKS 469 (see Lakshamanan et al. 2002; and Tavasszy et al. 2002) there is a continued move toward integrating transport models and CGE approaches into more comprehensive tools for assessment. The applications that have emerged in Europe in the last decade have moved from the early, stylized models, to more realistic (i.e., empirically validated) applications which are used for actual policy testing (e.g., Oosterhaven and Knaap 2002; IASON 2002). Beside CGE modeling, other, perhaps less complex but equally powerful approaches are being used for assessment that include dynamics, thus allowing for accounting of benefits in a full cost-benefit analysis (see the System Dynamics approach in ASTRA 1999, or the regional production function approach in the SASI model; IASON 2002). In order to sharpen the insights in future logistics structures and their relationship with economic development, the total logistic costs are proposed to be included in the CGE framework, thus giving a wider interpretation to what is now in CGE terms referred to as transport costs. The modeling of logistics structures can be done according to the lines of the SMILE model, which provides a spatially differentiated, yet sectorally aggregate picture of how logistics structures are affected by regional and product characteristics (see Tavasszy et al. 1998). The SMILE model is an aggregate freight transport model. Its most relevant feature for the issue at hand is that it seeks to describe explicitly how freight supply chains between trade relations are organized spatially. This is done by defining the location and volumes of intermediate distribution centers for all trade relations and product types within the study area. This way the traditional trade O/D matrix is rebuilt into a transport O/D matrix, where origins and destinations now include distribution centers as well. Not only are the spatial patterns of trade and transport different, but the authors argue, so also are the costs of spatial interaction. These can be assessed more accurately for the purposes of freight forecasting and policy analysis if the intermediate inventories and handling activities are taken into account. The conclusion is that by linking a spatial CGE model and a SMILE-like aggregate logistics model, this conceptual model could be made operational. Figure 7 and equations (1)-(4) provide a first rough sketch of the components of such a multiregional, spatial logistics model. The left-hand box in Figure 7 is represented by demand and supply equations (1) and (2) for the markets of goods, services, and other factors of production. The box located in p D S p(a) margin TLC p(b) I TLC T+H q A trade B FIGURE 7. SKETCH OF THE SPATIAL LOGISTICS EQUILIBRIUM MODEL.

15 470 GROWTH AND CHANGE, FALL 2003 the middle is represented by equation (3). Equation (4) formalizes the right hand box in Figure 7, resulting in the formulation of total logistic costs. These three subsystems influence each other through price and volume indicators, which implies that the volume of production and consumption in regions, the volume of trade between these regions, and logistic structures become interdependent and endogeneous. Technological, governmental, and social boundary conditions for the system (e.g., cost functions for handling, transport, and inventory holding, barriers for trade and social preferences) form the set of exogeneous assumptions that drive the system. Supply Demand Trade Total logistic costs P = f Ê y, p, t, s, d Ë rs, s rs, rrrs,, s rrrs,, rr p = f Ê P, l A, d Ë rs, rs, r rs, rrrs,, rr d rrrs,, P = f Ê Ë p rr, s rs, Â, s, A t rr,, r s t rr,, r s h S rr,, r s i C rr,, r s = + ( )+ ( ) s  rr, s ˆ ˆ ˆ (1) (2) (3) (4) P rr,s = relative price of a good sold in region rr p r,s = producer price of a good in region r, d r,rr,s = trade between regions r and rr of goods from sector s t rr,r,s = total logistic costs between sending and receiving regions s s = substitution elasticity between product varieties in sector s, y x = fixed costs of producing a variety of goods from sector s t r,rr,s = transport costs between trading regions of goods from s i r,rr,s = inventory costs between trading regions of goods from s h r,rr,s = handling costs between trading regions of goods from s A rr,s = absorption coefficient in receiving region rr for goods from s S rr,r,s = distribution structure: number and location of inventories C rr,r,s = pipeline configuration: distance between regions and throughput time for goods Conclusions This paper addresses the possible impacts of changing global logistics networks on freight transportation systems and the associated negative impacts upon the environment. It is explained that the main drivers behind changes in logistics systems increased service levels in terms of responsiveness and individualized products will result in environmentally less sustainable transport systems. Simultaneously, these global drivers will have important consequences for local regional economic growth, as supply chains will be spatially reconfigured to reach the new service levels while minimizing total logistics costs. A research agenda is proposed to improve understanding of these changes and their expected impacts. This research should build on 1) scenario-based analysis of the above

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