Location factor Transport

Why is transport an important location factor? Raw materials are unevenly-distributed Transport is essential for moving RM and products

What sort of ind. is significantly influenced by transport cost? Ind. producing large, heavy, bulky but low value goods Examples: jewellery, computer/hi-tech and high quality fashionable clothes

2 types of costs Procurement cost = cost of transporting RM to factory Distribution cost = cost of transporting finished products to market

2 elements in transport costs (Hoover) Terminal cost = cost of using terminal facilities for handling the goods and storage which is fixed. Haulage cost/line haul cost = freight rate, e.g. wages paid to drivers, fuel used in transport, insurance, etc., which vary according to the length of journey

Tapering freight rate Average transport cost falls with distance Initial steep rise But followed by gently tapering curve Long haul  cheaper ∵ TC is spread over Short haul  cost more ∵ need to pay fixed TC

Step-shaped relationship Transport cost may increase in steps e.g. MTR fareMTR fare Rate of increase↓as distance ↑ Places far away from one another are charged the same e.g. postage

Raw material-oriented industry PC rises more rapidly than DC Lower total cost near the RM So, where is the optimal location for industries?

Market-oriented industry DC rises more rapidly than PC Total transport cost is lower at M So, where is the optimal location for industries?

Break-of-bulk points When goods must be transshipped from A to B (e.g. rail to ship), additional terminal & handling costs are incurred It destroys the long-haul advantage So locating factories at the transshipment point can avoid this extra cost i.e. factories are usually located near ports/rail terminals These points are called break-of-bulk points.

How were goods transported in the past? Simple transport means like carts or boats Primitive Small carrying capacity Low reliability

Influence on ind. location High transport cost Accounts for high % of total production cost ∴ great influence on ind. location Poor technology required more RM  PC > DC ∴ RM-oriented

Means of transport nowadays Sea/land/air Mass transit Speedy Less costly More reliable Global deliveries possible

Influence on ind. location Relatively lower transport cost Accounts for very low % in production cost Less influential than other factors/other factors being more important, e.g. labour RM can be made more ubiquitous ∴ Location is not tied to RM Industrial decentralization is more than localization Products are served for global market

Transport rates TC for road is the cheapest TC for air is the highest For short haul, road transport is the cheapest For long haul, sea transport is the cheapest Zones identified

How does transport cost affect industrial location?

Locational flexibility of ind. ↑ Many inputs are made ubiquitous Availability of skilled and professional workers and IT are more important Improved highways, railway and shipping services help lower transport cost

Industrial dispersion Improvement in transport technology Population decentralization (suburbanization) Shift of labour from inner city to suburbs Efficient linkages between inner city and suburbs Cheaper land available for expansion Results in industrial dispersion e.g. industrial estates

Regional specialization of ind. Well-developed transport networks attract more industries Concentration of manufacturing ind. at nodal points The no. of factories serving isolated market areas ↓ Centralization in production Enjoy scale of economies Easy to specialize in particular kinds of production Globalization  high value operations + R&D in MDCs while low value labour operations in LDCs

Examples of regional specialization Brewing in USA – Milwaukee Automobile ind. in USA – Detroit Automobile ind. in Nagoya, Japan Ship-building around Inland Sea, Japan Electronic ind. in Silicon Valley, USA Textile ind. in Changjiang Delta, Central China Toy industry in PRD