1. THE UNIVERSITY OF BRITISH COLUMBIA Strategic Gateways and Trade Corridors: The Challenge of Shifting International Trade (Prof) David Gillen YVR Professor of Transportation Policy & Management Director, Centre for Transportation Studies Sauder School of Business University of British Columbia, Vancouver, Canada CMA Canada Supply Chain Management Speaker Series School of Business & Economics Wilfrid Laurier University, November 16, 2007

2. THE UNIVERSITY OF BRITISH COLUMBIA Changes and Challenges Amount and composition of trade –Bulk versus containers –Hubs versus ODs –Trade imbalance Impacts on infrastructure efficiency –Full versus empty –Market concentration –Sea land interface Economics of Gateways –Gateways & productivity and gateways as networks/alliances Policy/management responses –The lens of Federal policy 24/11/20152

3. THE UNIVERSITY OF BRITISH COLUMBIA Amount and Composition of Trade 24/11/20153

4. THE UNIVERSITY OF BRITISH COLUMBIA 24/11/20154

5. THE UNIVERSITY OF BRITISH COLUMBIA 24/11/20155

6. THE UNIVERSITY OF BRITISH COLUMBIA 24/11/20156 Source; Jean Paul Rodrique Vancouver Gateway Conference 2007 World’s 10 Largest Exporters and Importers, 2005

7. THE UNIVERSITY OF BRITISH COLUMBIA Pressures: Global Commerce is Expanding, Patterns are Shifting Global marketplace integration is driving the distribution of economic activity, as well as the expansion of world trade The emergence of new economic powers such as China and India is forcing all trading nations to adjust, or be left behind. Imports from China to Canada grew almost 550%, from $4.6B to $29.5B between 1995 and 2005. Partners and competitors are acting aggressively on the intersecting issues of trade, transport and security. 24/11/20157

8. THE UNIVERSITY OF BRITISH COLUMBIA Is It the Correct Target? 24/11/20158

9. THE UNIVERSITY OF BRITISH COLUMBIA Impacts on Infrastructure Efficiency 24/11/20159

10. THE UNIVERSITY OF BRITISH COLUMBIA 24/11/201510 TEU 12,500Crew: 13

11. THE UNIVERSITY OF BRITISH COLUMBIA 24/11/201511 Source; Jean Paul Rodrique Vancouver Gateway Conference 2007 Containers Handled by the Port of Los Angeles, 1995-2006 (in TEU)

12. THE UNIVERSITY OF BRITISH COLUMBIA 24/11/201512 Source; Jean Paul Rodrique Vancouver Gateway Conference 2007 Containerized Cargo Flows along Major Trade Routes, 1995-2006 (in millions of TEUs)

13. THE UNIVERSITY OF BRITISH COLUMBIA 24/11/201513 Source; Jean Paul Rodrique Vancouver Gateway Conference 2007 Maritime Freight Rates (USD per TEU), 1993-2006

14. THE UNIVERSITY OF BRITISH COLUMBIA 24/11/201514 Source; Jean Paul Rodrique Vancouver Gateway Conference 2007 Largest American Importers of Asian Goods Through Maritime Container Transport, 2004 (in TEUs)

15. THE UNIVERSITY OF BRITISH COLUMBIA Logistics and the Acceleration of Freight 24/11/201515 The velocity of freight –Shipment and transshipment. –No significant speed improvements in recent decades. –Intermodal operations; the most important element. –Logistical threshold: Time based management of distribution becomes a possibility. From push (supply based) to pull (demand based) logistics. Source; Jean Paul Rodrique Vancouver Gateway Conference 2007

16. THE UNIVERSITY OF BRITISH COLUMBIA Mounting Capacity and Time Pressures in Global Freight Distribution Time is the essence… –Surprising time underperformance: Only 63% of transpacific container vessels arrived on time at their scheduled port calls. 53% for transatlantic port calls. –The major factor behind delays is port congestion: Multidimensional concept. Physical docking capacity. Transshipment capacity. Storage capacity. Inland capacity. –Reinforce the importance of the maritime / land interface. 24/11/201516

17. THE UNIVERSITY OF BRITISH COLUMBIA 24. November 201517 Is this the Correct View?

18. THE UNIVERSITY OF BRITISH COLUMBIA Container Transport Costs from Inland China to US West Coast ($US per TEU) Source; Jean Paul Rodrique Vancouver Gateway Conference 2007 24/11/201518

19. THE UNIVERSITY OF BRITISH COLUMBIA The Economics of Gateways 24/11/201519

20. THE UNIVERSITY OF BRITISH COLUMBIA 24. November 201520 Economics of Gateways Gateways are alliances –Alliances are vertical and horizontal Gateways internalize externalities –Upstream and downstream agents recognize mutual benefit –provide platform for cooperation and competition Gateways provide agglomeration effects Gateways integrate infrastructure, service, information and human capital

21. THE UNIVERSITY OF BRITISH COLUMBIA 24. November 201521 Economics of Gateways Demand side forces favouring gateways –Accessibility/wide geographic scope/interconnectivity/intermodal access –Reliability/connecting capacity/Delivery speed –Allocating risk –Network externalities Supply side forces –Reduce transactions cost –limit horizontal and vertical boundaries –Reduce logistics costs –Economics of scale, scope and density –Internalize externalities-alliances

22. THE UNIVERSITY OF BRITISH COLUMBIA 24. November 201522 Gateways and productivity Productivity drives real income and economic welfare Profit = revenue – costs Gateways and revenue –Increases ‘willingness to pay’ with value adding services Reliability & consistent service (risk reduction) Gateways and costs –Enabler like technology (not just another factor input) Service accountability & transparency Benchmark – measure & monitor New practice Invest in network

23. THE UNIVERSITY OF BRITISH COLUMBIA 24. November 201523 Gateways are Systems Gateways are a facilitator in the global supply chain Gateways increase productivity by expanding markets, moving down the cost function and lowering costs, shifting down the cost function Gateways increase productivity by internalizing externalities of upstream and downstream agents Gateways increase productivity by allocating risk optimally

24. THE UNIVERSITY OF BRITISH COLUMBIA Current Research Undertakings Question: what institutional/policy design complements export performance? –Domestic market structure and export performance –(1) firm size and cost function, (2) product and process innovation –Examine multi-market contact in a Cournot game Question: how does gateway vertical integration between infrastructure providers and carriers differ in performance from vertical contracts? – our interest is in efficient gateway (congestion)pricing Question: How do we m easure gateway performance? –TFP= Aggregate Index of Hedonically-Adjusted Gateway Output – Aggregate Index of Nodal Infrastructure Inputs plus Strategic Investments and Initiatives –4 effects: (1) exogenous DD effect, (2) factor price effect, (3) public K effect, (4) disembodied (i.e. factor neutral) technical change effect 24/11/201524

25. THE UNIVERSITY OF BRITISH COLUMBIA Gateway Performance 24/11/201525

26. THE UNIVERSITY OF BRITISH COLUMBIA Policy and Management Responses 24/11/201526

27. THE UNIVERSITY OF BRITISH COLUMBIA Federal Response: 1.International Commerce Strategy –align major transportation systems –Logistics is about efficiency, service quality and capacity to deliver –Competition is in supply chains not individual components – therefore partnerships 24/11/201527

28. THE UNIVERSITY OF BRITISH COLUMBIA Federal Response: 2.Volumes and Values of National Significance –Strategy should have national not regional focus –Strategy should focus on volumes and values which are most important for Canada Does this focus on picking winners? Is this a ‘field of dreams’? 24/11/201528

29. THE UNIVERSITY OF BRITISH COLUMBIA Federal Response: 3.Future patterns in global trade & transportation –Emerging patterns place new demands on transportation infrastructure –performance linkage between : infrastructure and user capital (ships) Links and nodes (distribution networks) –Future patterns are not exogenous – they can be managed –Information technology shapes patterns 24/11/201529

30. THE UNIVERSITY OF BRITISH COLUMBIA Federal Response 4.Potential scope of capacity and policy measures –Systems interconnection versus integration Across modes Investment and policy Public versus private Jurisdictions and governance –How do we choose – based on what performance metric? –Who receives the rents? 24/11/201530

31. THE UNIVERSITY OF BRITISH COLUMBIA 24/11/201531 Thank you david.gillen@sauder.ubc.ca

32. THE UNIVERSITY OF BRITISH COLUMBIA Lens of National Policy 24/11/201532

33. THE UNIVERSITY OF BRITISH COLUMBIA 33 Strategies to improve gateway logistics: The shippers’ responses The shippers accept higher transport costs to achieve greater reliability of service. –Retail shippers start shipping earlier to reduce the peak. –Shippers open other routes, e.g., accelerate development of East Coast routes for South Asian trade. –Shippers add flexibility to West Coast routings through the location of distribution facilities and availability of alternate port routings. A better but more competitive gateway environment. 24/11/2015

34. THE UNIVERSITY OF BRITISH COLUMBIA 34 Strategies to improve gateway logistics: The strategies of service providers Objective – to make the [Vancouver] Gateway the best place for gateway activity [on the West Coast of North America]. Not the biggest, but the best! To achieve this a multi-pronged program needs to be continued. Overview of the program: –Pricing should play a greater role in guiding behaviour. –Leadership is essential to achieve change. –Accountability is important to relationships. –Communication is fundamental to planning and execution. –Enterprise must be shown to adjust to the future, which is now! Source: Trevor Heaver (Gateway Conference Vancouver 2007) 24/11/2015