Value Chains and Freight Transport Systems

Value Chains and Freight Transport Systems

There is a direct relationship between the nature of value chains and how freight transportation systems are organized. The above figure provides a synthetic representation of the transport systems associated with the three main stages of a value chain:

  • Raw materials. Most raw materials are going through three major transformations. First is extraction, which is the process of gathering (harvesting, drilling, mining, cutting, depending on the nature of the natural resource) raw materials. Second, transfer is the process of collecting and storing large quantities of bulk freight, which mainly takes place at port and rail terminals. For instance, a significant share of the ton-km carried by maritime shipping is bulk cargo. Third, processing is transforming raw materials into components that can be used for manufacturing. Processing activities tend to be closer to markets with transportation modes and infrastructures specialized and of high capacity (tanker ships, pipelines, mineral or cereal bulk carriers, etc.) since economies of scale is a strong driving force. Intra-industrial linkages are related to an enterprise seeking vertical integration. For instance, a steel mill (processing) could be involved in iron and coal mining, as well as owning the transportation modes supporting its activities.
  • Semi-finished products. This stage concerns the manufacturing and assembly of parts and finished goods. Depending on the complexity of the product, a complex set of linkages and their associated flows takes place between several enterprises through the form of manufacturing clusters. Intra-industrial linkages tend to be horizontal as an enterprise seeks to control most of the stages in the manufacturing of a product or a group of products. The usage of transportation modes varies according to the products, ranging from air freight for high-value goods to containerized or less-than-truckload loads for parts. Globalization has radically modified this stage with the opportunity to use new manufacturing and assembly opportunities at low-cost locations (outsourcing and offshoring).
  • Manufactured goods. This stage is concerned with the distribution of finished products to consumer markets. The first process, distribution, involves issues such as packaging, warehousing, and transporting products to the market. Retailing is commonly the final stage of a value chain where consumers (individuals and enterprises alike) have access to a product. For most retailing activities, the consumer is responsible for transporting the product, once acquired, to its place of consumption, but several retailers are also involved in deliveries. Most flows tend to be regional in scale. Considering that a significant share of consumption occurs in urban areas, distribution and retailing flows are increasingly an urban transportation problem. As such, trucking tends to be the dominant mode of the process of distribution. E-commerce is an activity that has significantly transformed the retail and distribution sectors with home deliveries.