TheDimensionsofValueAddedinGatewaysandCorridors:

AddingValuetoNationalandInternationalLogisticsSystem

DavidGillen
CenterforTransportationStudies
SauderSchool
UniversityofBritishColumbia

GrahamParsons
OrganizationforWesternEconomicCooperation
Regina,SK

BarryPrentice
TransportInstitute
AsperSchool
UniversityofManitoba

PeterWallis
President,VanHorneInstitute
UniversityofCalgary

June2008

Introduction
InMay2008CIBCreportedthattheriseintransportationcostsdrivenlargelybyoilpriceincreasesover
thepast3yearshadundone30yearsoftariffreductionsfromtradenegotiations.Ineffecttransport
costs,nottradebarriersweresaidtobethelargestbarriertoglobaltrade.Thisfollowsaperiodinwhich
decliningtransportcostswerefosteringthedevelopmentofmorecomplexglobalsupplychains.
Whetherthemovetolowcostcountrysourcingcouldbetrumpedbyhigherandincreasing
transportationcostsisworthcontemplating.TheCIBCreportsuggeststhattransportationcostscould
wellleadtoapotentialshiftofproductionfromSoutheastAsiatoMexicoandSouthAmerica.
TheCIBCreportmightbeviewedasashorttomediumrunview.Inthelongertermhigheroilpriceswill
stimulateinnovationandthedevelopmentofnewtechnologiesthatcanmitigatetheimpactofhigher
oilprices.Yettherapidriseintransportationcostscreatesuncertainty.Theemergingrelativecost
changebetweenlabourandtransportationcostsraisesafundamentalquestionoftheglobalsupply
chainenvironmentofincreasinglydisaggregatedproductionandsourcing.Traditionaltradeanalysis
focusesuponthewholefirmandgenerallythinksintermsoffinishedgoodsorinputs(commodity)trade
ratherthancomponentorassemblytrade;hencethenotionofgoodexportsandbadimports.A
modernsupplychainviewoftheworldrecognizestradeasessentialtocompetitivenessbecausetrading
partnersarebuildingproductstogether.
Theroleofgatewaysandcorridorsinatraditionaltradeviewoftheworldisoneofvolumeand
throughput.Scaleandcostefficienciesreducethefrictionoftradeandallowfirmstoexploitexisting
costadvantagesbyexpandingmarketsize.Loweringcostinonepartofthesupplychainisnoguarantee
ofbenefit.Costsavingsdependontheupstreamanddownstreammarketstructure.Ontheotherhand,
theroleofgatewaysandcorridorsinaglobalsupplychainviewoftheworldistoimprovethe
competitivenessofsupplychainsnotindividualfirms.Thefocusisnotvolumebutvalue,becausethe
objectiveistominimizethesumofsupplychaincosts.
Whatwewantistheoptimalamountoftradenotamaximumamountoftrade.Butwhatisthebasisfor
thisoptimum?Isitmaximizinggrowth,productivity,economicwelfareorassuggestedminimizingtotal
supplychaincosts?Andasimportantly,howdoweaddvalue?Valueaddedcouldmeanengagingin
moreactivitiesthatmaximizethemarginbetweeninputcostsandsales.Valueaddedcouldbeproviding
additionalservices(financial,logistics,consolidation,sorting).Abroaderviewcouldbeaddingvalue
moreintermsofinternalizingexternalitiesofupstreamanddownstreamplayersinthesupplychainto
minimizethesumofsupplychaincosts.Valuetowhoisanimportantquestioninthedefinitionof
optimaltrade.
Thisnoteexploresthedimensionsofvalueaddedingatewaysandcorridorsandisorganizedinthe
followingway.Thenextsectionprovidesabriefsummaryofwhatwelearnedfromtheseriesof
RoundtablesandInternationalConferenceheldlastyear.Followingthisisadiscussionofwhatwemean
byvalueaddingandvalueadded.Thisincludesaperspectiveonthepublicroleinvaluecreationand
thevalueofgatewaysandcorridors.Nextisabriefdiscussionofvaluecreationwithpublicprivateco
investmentsandvaluecreationunderglobalrestructuring.AcasestudyofSingaporeisbrieflydiscussed
toillustrateasuccessfulvalueaddingstrategy.Weconcludewithabriefsectiondescribing
fundamentalquestionsinshiftingfromvolumetovalue.

Background
In2007theAsiaPacificGatewayandCorridorResearchConsortium1completedthreeroundtablesin
Regina,WinnipegandCalgaryandamajorinternationalconferenceinVancouvertobetterunderstand
theroleofAsiaPacificGatewaysinCanadasdevelopmentprospects.Theseeventsbroughtbusiness,
academicsandpolicymakerstogethertoexaminetheroleofgatewaysandcorridorsinthe
developmentprocess,examinethebestinternationalpracticesandtoassesssomeoftheimplications
forCanada.Themajorfindingsfromtheconferenceandtheworkshopswerepublishedintwovolumes
entitled:CanadasAsiaPacificGatewayandCorridorInitiative,Policy,TradeandGatewayEconomics
(Vol.1)andGatewayLogistics,PortsandEnvironmentalChallenges(Vol.2)2.Thesetwovolumes
contained42paperscoveringsixresearchareas,reflectedintheirtitles.
ThefindingsfromboththePrairieforumsandtheVancouverinternationalconferencemadeitclearthat
GatewaysandCorridorsareplayinganincreasinglyimportantroleintheeconomicdevelopment
process.Whileourunderstandingsofthedevelopmentprocessmaynotbeascertainor
understandableaswemightlike,3itisconsideredthatgatewaysandcorridorcombinationscanplaya
transformationalroleinglobalvaluechainsandregionalproductivity.
Specifically,thegatewaysandcorridorsinfrastructure,systemlogisticsandcontactnetworksinto
marketsandsupplyareasareextendingtheregionaldevelopmentprocesswellbeyondtheregionand
thenationstate.Indoingso,theyenableincreasedlevelsofcompetitionfordomesticsuppliers,create
incentivesforproductivitygainandatthesametimebringforwardnewopportunitiesforinvestment
andmarketaccess.Theyincreasetheopportunityfordomesticfirmstoparticipateinglobalsupply
chains.Thetraditionalhinterlandsofcoastalportshavenowbecomelinearandglobalwithsurrounding
accesszones.Measuresofgatewayandcorridorefficiencyarenowcriticaltooverallsystemefficiency
andtotheviabilityofparticulargatewaysandcorridorscombinationswithinwiderglobalnetworks.
InhissynthesisoftheVancouverConference,Morrison(2007)providesasuccinctstatementofthe
messagescomingoutoftheroundtablesandconference.

Asof2006to2007therewasmassivecongestionandpressureongatewaysandcorridorsall
acrossNorthAmerica,drivenbythedramaticcurrentandprojectedincreasesincargoflows
emanatingfromChina.ItisnotjustaboutChinathough:India,Russia,andBrazilamongstothers
willbeanincreasingpartofthefutureequation.

Weneedmoreanalyticalmodelsoftransportationnetworkstoprovideastructured
understandingofthecomplexinterrelationshipsbetweenthenodes(gatewaysandhubs),links
(corridors)andjurisdictionalborderscombinedwithstrategiccompetitionintransportation
networks.

TheGatewayandCorridorResearchConsortiumconsistsoftheCentreforTransportationStudiesoftheSauderSchoolof
BusinessattheUniversityofBritishColumbia,theVanHorneInstituteoftheUniversityofCalgary,theOrganisationfor
WesternEconomicCooperationinReginaandtheTransportInstituteoftheAsperSchoolofBusinessattheUniversityof
Manitoba.Itsobjectivesare:tofocusnationalandinternationalacademicattentionontheconceptofinternational
transportationgatewaysandcorridors,tobringnationalandinternationalexperiencetobearontheAsiaPacificGatewayand
Corridorconceptandtoreviewtheimplicationsfortransportationandinfrastructurepoliciestorealizegatewayandcorridor
relateddevelopmentopportunities.
2
Gillen,D.,Parsons,G.,Prentice,B.,andWallis,P.,CanadasAsiaPacificGatewayandCorridorInitiative:Policy,Trade&
GatewayEconomics,VolumesI&II,GovernmentofCanada,Vancouver,2007.
3
Seeforexample,Lipsey,R.G.,Carlaw,K.I.,&Bekar,C.T.,EconomicTransformations,GeneralPurposeTechnologiesandLong
TermEconomicGrowth,OxfordUniversityPress,NewYork,2005.foranexcellentcurrentassessmentofthefactorsthat
contributetoeconomicchange.

Technology,particularlyinformationtechnology,isdrivingthevalueaddedcomponentsof
logisticsbyreducingfrictionsandincreasingreliabilityalongthesupplychain.Globalsupply
chainsareaboutvalueaddedlogisticsservicesratherthanvolumeperse.Deliveredprices
(whichincludeallfrictionalcostsinthesupplychain)arewhatmotivatesbusinessdecisions.
Currently,competingdeliveredpricesaresubjecttovariabilitywhencomparingdifferent
gatewaycorridorcombinations,sothatnoonegatewaycorridorisconsistentlypreferred.

TheCanadiantransportationnetworkcancompeteand/orcomplementthesystemofgateways
andcorridorsintheUS.TherearesignificantfrictionalcostsoncorridorswithinCanada(inter
provincialfrictions)andbetweenCanadaandtheUS.TheCanadianFederalGovernmentis
takingasystemwideapproachtothetransportationnetworkwhileUSpolicyappearstobe
moredevolvedtoindependentregionalorlocaldecisionmaking.Acontinentalpolicyiswhatis
needed.

Thereisevidencethatintheselectionoftransportationinfrastructureinvestments,costbenefit
calculationscanbesubjecttooptimismduetoinaccurateforecastsandinadequateattention
totheopportunitycostsofresourcesrequired.Afterprojectshavebeenselected,regulatory
frictioncanslowtheimplementationofinfrastructureinvestmentswhichcanresultinlost
opportunities.

Thereisnoclearcutsolutiontogovernanceandregulationrelatedtoinfrastructureinvestment
inandoperationofgatewaysandcorridors.Publicprivatepartnerships(3Ps)aresubjectto
thetransactioncoststhataccompanylargeassetspecificinvestments.Privatizationcanresultin
eitheroverorunderprovisionofinvestment,dependingontheaccompanyingregulation(cost
based,pricecap).Thereshouldbetransparencyandaccountabilityinthegovernanceof
gatewaysandcorridors.Governmentoversightshouldbecoherentandconsistentbutmustalso
allowforflexibilityincommercialdecisionmakinginordertopromotedynamiccompetitive
efficiency.

Thecurrentimpetusistoexpandthecapacityofgatewaysandcorridors,howeveradding
capacitydoesnotguaranteesocialefficiency;congestionpricingisrequired.Congestionpricing
hastobepartoftheequationifonlybecauseoftheenvironmentalimpactsofgrowingglobal
transportationnetworksthereisaneedforinternationalcoordinationhere.

Allrelevantsocialcostsshouldbeincludedwhenconsideringcapacityinvestmentsingateways,
includingsecuritycostswhicharepartofthesocialcostsofnetworkdesignandexpansion.
Internationalcomparisonsofgatewayandcorridorexpansionssuggestthatvariationsinurban
andregionalgeographicandeconomiccharacteristicswillcreateanunevendistributionofsocial
costsandcompetitiveadvantages.

Thereisevidencethatsmallinvestmentsincorridorscancausebigeffectsintheoverall
network.Thissuggeststhepossibilityofnonlinearrelationshipsintransportnetworks
(existenceofthresholdeffectsforexample)andpointstopotentialproblemsifinfrastructure
investmentsaremadeinisolation.

Measuringportperformanceandpinpointingsourcesofefficiencyisimportantforboth
commercialandgovernmentalaspectsofgateways.Thisisadifficulttaskthough:different
methodologiescanprovidedifferentindicationsofperformance.

TheresultsoftheGatewayandCorridorResearchInitiativehaveshownthatNorthAmericaisoften
laggingitsAsianandEuropeancompetitionforthetrafficthatmovesthroughGatewaysandCorridors
4

andmoresignificantlyfortheglobalsupplychainsthatexistacrosstheGatewayCorridorcombinations.
NotaddressingtheseissuesleadstoareductioninCanadascompetitivepositioninworldmarketsand
directlyaffectsourqualityoflife,incomeandemploymentexpectations.
ValueAddingandValueStreams
Globalsupplychainsemergedduringthe1990sthatcreatedadecadeofunprecedentedeconomic
growthworldwide.Thefallingcostsofoceantransportation(containerization),communicationsand
informationhavepermittedindustriesinNorthAmericatotakeadvantageoflowcostlabourinAsiaand
otherdevelopingcountries.Levinson(2006)illustratesglobalsupplychainswiththeexampleofthe
Barbiedoll.Evenasimpleproductlikeachildstoycanhaveacomplicatedvaluestreamwith
componentssourcedandvalueaddedinChina,MexicoandNorthAmerica.Thevaluestreamislikea
largeriverwithanumberoftributariesthatarejoinedbytransportationandlogisticstodeliverthat
finalproducttotheconsumer(WomackandJones,1996).
Threephysicalfunctionsaddvaluetoaproductasitisshapedanddeliveredthroughthesupplychainto
theretailshelf.Theycanbeclassifiedastimevalue,placevalueandformvalue.Formvalueforthe
BarbiedollismainlyaddedbythebusyfingerworkinAsiathatdotheassemblyandMexicothat
producesherwardrobe.Theoriginsofanyvaluestreambeginwiththebasicrawmaterials.The
componentsoftheBarbiedollmaycrossthePacificOceantwiceduringproduction,buttheunitvalueat
thispointisrelativelylow.Mostofthevalueaddedoccursastheproductnearsitsfinishedcondition
andretaildistribution.
Timevalueisaddedbythecommunicationsandinformationsystemsthatcoordinatetheassemblyand
deliveryoftheproducttothehandsoftheconsumer,whentheconsumerchoosestomaketheir
purchase.Timecanbedirectlytranslatedintomoneyinthevaluechain.Thelesstimeittakesforthe
producttomovethroughtheproductionandlogisticschannels,themoreefficientthevaluechain.
Placevalueisaddedbytransportation,butthecomponentsofvaluegobeyondsimplemovement.The
valuepropositionoftransportationhasatleastthreesubcomponents:freightcost,convenienceand
reliability.Thecostoftransportisalwaysconsideredfirst,butalowcostservicethatisunreliableor
damagesthefinalproductenroutemaydeliverlessvaluethanamoreexpensiveformoftransportthat
meetscustomerexpectations.
Thecombinationofmanufacturing(formvalue),inventorymanagement(timevalue)andtransportation
(placevalue)arethevalueaddedservicesofthesupplychainthatconvertrawmaterialsintofinished
products.Thesupplychainiscomprisedofmultipleintermediariesthatperformvalueaddedservices.
Itisalongstandingwisdominlogisticsmanagementthatanyintermediarycanbeeliminated;however
thefunctionscarriedoutbyintermediarycanonlybeshifted.Ifthefunctionscanbeperformedbetter
byadifferentintermediarythenthevalueofthesupplychaincanbeincreased.Simplymerging
intermediarieshowevermaynotreducecostsorincreasevalue.
PerspectivesonValueadded
Form,timeandplacevalueaddedservicesaccumulateasthefinishedproductnearsitspointoffinal
consumption.Themeasurementofvaluecanbeconsideredfromseveralperspectives.
Accountingperspectiveofvalue

Theaccountingapproachexaminesthevaluechainfromthecostside.Theconceptisfamiliarbecause
ofvalueaddedtaxes,suchastheGST.EachbusinesscollectsGSTonitssales,andpaysGSTonits
purchases.ThevalueaddedbythebusinessisthenetrevenuethatisliableforGSTpayment.The
5

accountingapproachmakesnoconsiderationoftheefficiencyorcompetitivenessofthevaluechain.
Accountingmerelydocumentswherecostwasaddedandassumesthatcostequatestovalue.
Marketingperspectiveofvalue

Valueisasubjectiveconceptthatliesinthehandsoftheindividualconsumer.Theartofmarketingisto
matchthepriceoftheproductwiththeconsumerswillingnesstopay.Thepricepointisvery
important,butmarketersalsorecognizethatconsumersarebuyingmorethanjusttheproductvalue.
Theyarealsopayingforthelevelofcustomerservicethatisdeliveredbythesupplychain.
Consequently,marketersareveryinterestedinthevalueaddedbythereliabilityandresponsivenessof
thesupplychain.Anemptyshelfisacustomerservicefailurethatprovidesnovalueaddedfroma
marketersperspective.
Operationsmanagementperspectiveofvalue

Theefficiencyoftheoverallsupplychaindependsonhowwellitismanagedtoproducevalue.The
intellectualbreakthroughrepresentedbyleansystemshascreatedarevolutioninthinkingabout
value.Ratherthanaskingwhatcreatesvalue,thequestionhasbeenreversedtowhatdiminishes
value.Theanswertomaximizingthevaluechainturnsouttoberelativelystraightforward:eliminate
muda,theJapanesewordforwaste.Mudaisdefinedasanyuseofanyresourcethatdoesnotadd
valuetotheproduct.Mudacanbemeasuredinsuchtermsasunproductivewaitingtime,
unnecessarymovementandproductionerrors.Thekeytoanefficientandvaluablesupplychainis
toidentifyunnecessarymudaandremoveitfromthesystem.Aleansupplychaincreatesmorevalue
addedbecausehigherefficiencyreducesthecostofdeliveringthefinalproducttotheconsumer.
Policyperspectiveofvalue

Thepublicroleinvaluechainsiscreatedbytheneedforsecurityandtheresponsibilityfortheprovision
oftransportationandcommunicationsinfrastructure.Thepolicyperspectiveplacesvalueonsuch
macroeconomicvariablesasemployment,investmentandtrade.Governmentstakeresponsibilityfor
economicgrowthintheirjurisdictions.Economicgrowthdependsoncontinuousimprovementandthe
expansionofthesupplychainssothebusinessesinthejurisdictioncancreatevalueandremain
competitivewithothersuppliers.
Transportationgatewaysandtradecorridorsarereceivingmorepolicyattentionbecausetheyare
criticalcomponentsofsupplychains.Moreover,theyalsocreateemployment,investmentandfacilitate
trade.Forsomecommoditiesthevalueaddedbytransportationandlogisticscanbegreaterthanthe
originvalueoftheproducts.Examples,ofthisarerawproductslikesulphurandgrainthatarerelatively
lowinvalueandheavy.
Thepolicyperspectiveofvaluemustalsoconsiderthebroaderimpactofpublicservicesand
infrastructureontrafficflows.Theexternalitiesofvaluechainactivities,likenoise,emissions,
congestionandaccidentsmayreducethenetvaluetosociety.
ValueDefinition
Withinthesupplychainareaseriesofservicesuppliersandcustomersthateachdefinevalueintheir
ownterms.Ultimately,itisthemassconsumermarketthatdetermineswhetheronesupplychain
deliversmorevaluethananother.Valuehastobedefinedintermsofthewholeproduct,andthefinal
arbitratoristheconsumer.Nonetheless,theindividualintermediariesconcentratetheireffortson
deliveringvaluetotheirimmediatecustomers.
6

Themyopicviewofvaluewithinthesupplychainischangingasintermediariesareforcedtorecognize
thattheiractionscanhavemorefarreachingeffects,buttheprocessisslow.Heaver(2007)observes
theactivitiesofterminalmanagersattheportsasanexampleofthisnarrowview.
Itwasnotlongagothatterminalmanagersinmostcountriesviewedwhatgoeson
beyondtheterminalgateassomeelsesconcern.Whilethatviewhasarguably
changed,terminalsdonotregardthemselvesasserviceproviderswithtwosetsof
customers,thoseatthefrontdoorandthoseatthebackdoor
Theterminalsviewtheshippinglinesastheirfrontdoorcustomerswheretheygetpaidtocreatevalue.
Itisnotclearthattheseintermediariesareconcernedaboutthecoststhattheiractionsmightimpose
onotherpartsofthesupplychain.
Itissurprisinglydifficulttodefinevalueinsupplychains.Arvisetal.(2007)createdaworldwideLogistics
PerformanceIndex(LPI)asameansofcomparingthecompetitivenessoftradeservicesofferedby
differentcountries4.Thisindexprovidesqualitativeassessmentsofvariousaspectsofefficiencyand
qualitythatareimportanttovaluecreation,butdonotdefinevalueorthevaluechain.Memedovicet
al.(2008)expandonthedriversthatincreasetheLPIsuchhardinfrastructure,transportcorridors,
businessenvironment,qualityoflogisticalservicesandtradefacilitation.TheyproposeaLogistics
CapabilityIndex(LOCAI)tocapturethesemeasurablefactorsthatexplainvaluecreation,butdonot
attempttocalculateLOCAIforanyjurisdiction.
PublicRoleinValueCreation
Publicinvestmentatgatewaysandcorridorsmaybedesirablefrommanyperspectives,butdoesnot
necessarilycreatevalueinthesupplychain.Investmentsinmeasurestoincreasesafetyandsecurity,or
reducecongestionatagatewaymaybepopularlocallyandeasytojustifyfromasocietalstandpoint.A
multimilliondollarinvestmentthatonlycuts15minutesoffatripthattakes21daystocompletedoes
notremovemuchmuda(waste)fromthevaluechain.Thevalueaddedtotheshipperorreceiverof
suchinvestmentsarenegligiblerelativetothevaluereceivedbytheneighboursthatsharethespaceof
thegatewayorcorridor.
Theservicesprovidedbygovernmentagencies,suchascustoms,maynotprovideanyvaluetothe
supplychain,butarethenecessarymudaofinternationalcommerce.Clearly,theamountofmudacan
bereducedbyimprovingtheefficiencyofsuchservices,andinthismanneraddvalue.Similarly,the
abilityofgovernmenttocreateaninvitingbusinessenvironmentcanreduceriskandlossforthe
intermediaries.Thisalsoaddsvalue.
Fromtheleanlogisticsviewpoint,governmentshavegreatdifficultyincreatingvalueinthesupply
chain.Wheregovernmentscanhaveanimportantroleisintheeliminationofwaste.Thiscanbedone
intwoways.First,thosefunctionsperformedbygovernmentagenciescanbestreamlinedtominimize
unnecessarydelayorconformitytoarbitraryrules.Second,governmentcaninfluencepricesthat
providesignalstothesupplychainintermediariesanduseregulationswherecompetitionfailsto
generateappropriatepricesignals.

Referencedin:Memedovic,O.,L.Ojala,JPRodrigueandT.Naula.FuellingtheGlobalValueChains:WhatRoleforLogistics
Capabilities?,submittedforpublicationtoTechnologicalLearning,InnovationandDevelopment,specialissueonGlobalValue
ChainsandInnovationNetworks,2008.

ValueofGatewaysandCorridors
Gatewaysandcorridorsarethelocationswherevalueaddedservicesareperformed.Nomatterthe
sophisticationimpliedbytermssuchassupplychainmanagement,thephysicalrealitiescontinueto
exist.Goodsmustbeloadedandtransloadedbetweendifferentmodesoftransport,storedand
trackedforimportandexport.Documentsmustbepreparedandsubmittedtomeetlegalandfiduciary
requirements.Attentionbecomesfocusedatgeographicchokepointslikeoceanportsbecausethisis
wherecongestionemergesandlossesinvaluebecomeeasilyidentified.
Manyvaluestreamscompeteforaccesstogatewaysandcorridors.Exportandimporttrafficviefor
spaceatthecontainerterminals.Containerizedterminalsandassociatedintermediariesrequire
physicalspaceasdobulkterminals.Railwayrightsofwaysinteractwithroadsystems.Allthese
competinginterestsareaffectedbyexternalinfluencesofweatherandseasonaltrafficdemands.
Moreover,thecommercialinterestsofthegatewaysarechallengedbytheresidentialinterestsofthe
populationthatcoexistsinthelimitedspaceavailable.Valuecreationinthegatewaysandcorridorsis
complexandrequiresstrongleadership.Developmentatthegatewaysisdrivenbymanycompeting
interests.Effectiveleadershipthatforeseesrequirementsandplansdevelopmentisnecessarytogetall
theintereststopulltogether.
ValueCreationwithPublicPrivateCoInvestments
Themultipledimensionsofvaluediscussedearlierinthispaperareconditionalupontheexistenceof
Gatewaycorridorcombinationsfinancedatlevelstoreplace,renewandexpandtheiressentialfreight
infrastructure.Forthemostpart,theseinvestmentrequirementsarewellbeyondthecapacityofany
individualgovernmenttofinance.ThisisparticularlytrueinWesternCanadawhereinfrastructure
constructioncostsarenowescalatingannuallyindoubledigits.
Itisnolongersufficientforthepublicsectortoownandoperatethegatewayandcorridorcombinations
thatformthearteriesoftheglobal,continental,nationalandprovincialfreightmovementsystems.
Theymustcreatetheregulatoryandmarketconditionstoallowforcooperativepublicprivate
infrastructureplanningandinvestment.
Inthepast,lawandregulationrequiredessentialfreightinfrastructuretobeeitherownedbythestate
(asinroads,portsandairports)orhighlyregulatedbythestate(asinrailways).Privatisationinitiatives
overthepastseveraldecadeshavestartedtoslowlyrestructuretheownershipbaseofallfourmajor
modes(rail,air,waterandroad)butthefinancingandregulatorystructureshavenotmovedatthe
samepace.
Capturingvalueforthesocietyandeconomyrequiresthatthefinancingbaseforfreightinfrastructure
keeppacewiththechangesunderwayinthemarketplace,theeconomyandsociety.Foravarietyof
contemporaneouslylegitimatereasonsthishasnothappened.Infrastructurefinancingdeficitshave
grownwhilenewfreightnetworkshavesimultaneouslydevelopedaroundtheworldtorestructure
throughgatewayandcorridornetworksthecompetitivepositionofregionsandnations.
Publicprivatecooperationhasnowbecomeanessentialandgrowingrequirementformanypartsofthe
worldtocreatetheinfrastructurenecessarytofinancethelogisticsandphysicalcapacitythatisthe
foundationforcompetitiveadvantage,transformativetechnologiesandthenewvalueadded
opportunities.
Publicfunding,inspiteofamultibilliondollarfederalinfrastructureprogram,cannotinjectthelevelsof
fundingrequiredtomeetthedemandsoflogisticsefficientandgreenfreightsystems.Newcooperative
approachesarerequired.
8

Canadahashadsomesmallprogressonpublicprivatepartnershipsformajorinfrastructure
investments.ExamplesaretobefoundintheConfederationBridge,FreightHighway407inToronto
andEdmontonsAnthonyHendayringroad.Theselevelsofdevelopment,however,remainfartoo
smallandslowtoaddressthetransformationalrequirementsnowrequiredinthesystem.
Amorecomprehensiveapproachwillberequiredtofocusthelevelsoffundingrequiredtorealizethe
fullvaluefortheCanadianeconomyandsocietyandtocompetewiththerestofthecontinentandthe
world.Preconditionstostimulatetheselevelsoffundingwouldinclude;
1. Regulatoryframeworksthatallowthepublicandprivateownersofgatewayandcorridor
infrastructureandtheirrespectivecarrierstomakemarketreturnsfromtheirinvestments.
2. Modificationstofederal/provincialEnvironmentalImpactAssessmentproceduresonmajor
projectstoprovidefortimelydecisionmakingandaffordableevaluations.
3. Publicprivatecooperationinplanningthatmeetstheneedsofthedesignbuildengineering
communityandtherequirementsofthemarketplaceratherthanthebureaucraticapproval
proceduresofgovernments.
4. Developmentofapublicenvironmentthatunderstandstherationaleforpublicprivate
cooperationininfrastructureownership,developmentandfinancing.
Investmentintransportationreformthroughsystemsofgatewaysandcorridorsisadevelopment
activitythatdirectlycontributestothecompetitivepositionsofregions,provinces,nationsand
continentsandtheirlongtermgrowthprospects.Theinfrastructureinvestmentscanbeseenasthe
foundationofthenewlogisticssystemsandanewGeneralPurposeTechnology(GPT)intheeconomy.
AsLipseynotesGPTs:willbringaboutextensivestructuralchangestosuchthingsastheorganizationof
work,managementoffirms,skillsrequirements,locationandconcentrationofindustry,andsupporting
infrastructure.5Theconditionsforpublicprivateinvestmentcanbeseenastheessentialenablerfor
societies,marketsandindustriestorealizethefullmarketvalueoftheirassetsandtoretaintheir
competitivepositioninarapidlychangingmarketplace.
ValueCreationunderGlobalReStructuring
Globalsupplychainsnowlinkthedevelopedandthedevelopedworldthroughnewhighlycompetitive
gatewaycorridornetworkcombinations.China,India,EasternEuropeandMexicoallbecome
increasinglyintegratedintoNorthAmericanmarkets,creatingimmediatevalueforbothshippersand
carriers.ForecastssuggestacontinuationofthetrendifonlytocompetewithcompetitorsinEurope
andAsiaandwillrequireagrowthinNorthAmericanfreighttrafficthroughgatewayportsandalongthe
corridorsthatconnectthegatewaystotheinlandretail,wholesaleandmanufacturingdestinations.6
Thesedevelopments,however,alsorepresentamajorrestructuringofindustrylinkedbyhighlyefficient
networksofgatewaycorridorcombinations.Thispannationalcontexthasbecometherealityforthe
newcompetitiveeconomicgeography.ForwesternCanadaitcanbeseenascontinentalandpan
Pacific.Suchnewnetworksofferimportantvaluepropositionsformanypartsoftheeconomy,but
specialchallengesforthepolicyframeworksthatenablethem.

5
6

Lipsey, R.G., et al, Op cit.(2005) pps.10 -14.

Deloitte and Touche LLP, Mastering Complexity in Global Manufacturing, London, 2003


Globalsupplychainsfoundedonincreasinglyefficienttransportationlogisticshavealreadycreated
massivevalueforthoseengagedinthemovementofthegoods,particularly,throughcontainers,but
alsofortheconsumersofthegoodsmovedfromthelowerpricesinthebigboxstores,nowlocated
throughoutNorthAmerica.Thelogisticsefficiencyand/orbottlenecksintheexistingnetworksof
gatewaysandcorridorshasalsocreatedmanynewvaluepropositionsrelatedtothedevelopmentof
newtranshipmentpointsattidewaterorinlandports.Manyofthesearereplacingtraditionalgateways
thathavebecomecloggedthroughlackofinvestmentorenvironmentaland/orsocialconflict.Thus
PortlandsupplementsVancouverforpotashmovements.KansasCitybecomesamajorinland
redistributioncentre.Canadahasyettofullyexploitthesedevelopments,althoughventuresintosmall
inlandportsarealreadyemergingthroughoutthePrairiesandmayprovidethefoundationforarangeof
relateddistribution,assemblyandevenmanufacturingactivitieswithinCanadadirectlyintegrated
withintheglobalsupplychains.
Continentalnetworkscanmateriallyincreasethelevelofcompetitionavailableforshipperswith
materialimprovementsinconditionsofservice,includingprice.Continentalnetworksofmovement
increasecompetitiveoptions.Transportpoliciesbasedonlocalorevennationaldimensionslosethis
criticaldimensionofacompetitiveeconomy.Thusclosedborderswillreducethenumberof
competitiveoptionsavailabletoshippers,whileopenborderswillincreasethem.Thusbydefinition
nationaltransportpolicieswillbelesscompetitivethancontinentaltransportpolicyframeworksthat
cancontainmorecarriersandcompetitiveroutings.Whileglobalrestructuringhasbeensystematically
ignoringborders,transportpoliciesinNorthAmericahavenotbeenabletocreatesignificantlevelsof
continentalcooperation,withdirectandadverseconsequencesforthevalueproposition.
Itisimportanttocommentonthepotentialforlostvaluethatcanaccompanyalackofattentionto
thesecontinentaltrendsinfreightmovement.TheCanadianwestcoastportsandthePrairiesarenowa
majorthroughrouteformovementstoandfromAsiaandtheU.S.MidwestdirectlycompetingwithU.S.
westcoastports.Thecontinentalthroughtrafficcan,anddoes,displacesmallvolumedomestic
CanadianmovementsformanysmallerscalePrairieshippers,particularlyintheagriculturaleconomy.
ThesePrairieaccessissuescanonlyberesolvedinthecontextofincreasedaccessandcompetition
assessedinthecontextofthewidercontinentalmovements.
Theglobalvaluepropositionmayalsoseedramaticreforminthecontextofrapidlyrisingfuelpricesthat
willincreasethecostofoverlandmovement.Whilethereremainoceaneconomiesofscalesufficientto
offsetmanyrisingenergycosts,movementsonlandwillbemoreconstrained.Longdistancemovement
fromroadtorailcanbeexpectedandwiththemacontinuedgeographicrestructuringofdistribution
sitesandrelatedmanufacturingandresupplyactivities.Thisrestructuringofactivity,combinedwith
greenhousegasreductioninitiatives,islikelytoshifttherestructuringtowardsgreenfieldsitesandareas
ofgreenenergyproduction.Therealcostsofcongestionandlogisticsinefficiencieswillhavehigher
valueinacarbonconstrainedworld.CapturingthevaluepropositionforGatewayCorridor
combinationsinglobalvaluechainswillthereforebecomecloselytiedtothefuelefficiencyofthemode
andtheredistributionlocations.

10

AnExampleoftheLEAPProgramandSuccessofSingapore7
Memodovicetal.(2008)provideaLogisticsPerformanceIndex(LPI)qualityrankingofinternational
logisticsservices.AccordingtotheLPI,Singapore,amajorglobaltransportandlogistichub,ranksfirst,
intunewithitsroleastheworld[sic]largestcontainerport.Thisisnotasurprisingoutcome,orone
basedmerelyonluckandlocation.Singaporehasearneditsleadershippositionbybeinganearly
moverinthecreationofvalueaddinggateways.ThiswasaccomplishedbyitsinnovativeLEAPprogram
thatcontainslessonsforotherglobalgateways.
Thelocallybasedenterpriseadvancementprogram[LEAP]wasdesignedtoencouragemultinational
enterprisestolocateinSingaporeandtoperformvalueaddingactivities.Theobjectiveoftheprogram
wastotransformSingaporeintoanadvancedlogistics,particularlyelogistics,centreasitsawthe
centersofmanufacturingproductionshiftingamongcountriesinSoutheastAsia.Singaporetookthe
viewthatasglobalcompetitionprogressedthelogisticsindustryinSingaporeshouldfocusoncapability
developmentparticularlyintheareasofbeingthoughtleaders,developinghumancapitalandinIT.
LEAPwasnotinitiatedinisolationandtherewereanadditionalnumberofotherprogramsincluding
IndustrialandInvestmentIncentivesProgram,InnovationDevelopmentSchemes,Accelerated
Depreciationallowances,DoubleTaxdeductionSchemes,CounterTradeSchemes,OilTraderSchemes,
InternationalTraderScheme,InternationalShippingEnterpriseSchemeandAircraftLeasingIncentive
(SeeGoh,2001).
LEAPwasdesignedtohavefourdevelopmentalmainthrusts;manpowerskillsdevelopment,business
processimprovement,technologycapabilityenhancementandinfrastructuredevelopment.Itwas
initiallylaunchedin1997withanemphasisonprivatesectorgovernmentcollaborationtocreate
programstoenhanceinasignificantwaythecompetitivenessandcapabilitiesofSingaporeslogistics
industry;thisreflectedthegoalofhasteningSingaporespositionasbeingtheleadingintegratedglobal
logisticshub.
TheLEAPprogramsusingthefundamentalframeworkofpublicprivatepartnershipsandcareful
incentivecontractinghaveprovidedsupportivegovernmentpolicieswhichcomplimentSingapores
relativeadvantageousgeographicallocation,strongtradefacilitation,qualityinfrastructure,good
connectivityoftransportmodes,andestablishedproductionbase.Withthedevelopmentoflogistics
servicesSingaporesshareofmerchandiseworldtradehasincreasedsteadilydoublinginthedecade
from1986to1997andsomewhatlessthandoublingto2006.Thetradepercapita(in$US)in2006was
$107,0008;thisextraordinaryperformancewouldseemtodependonanumberoffactorsbuttheuseof
programssuchasLEAPhasleadtocoinvestmentsbylargenumbersofmultinationalfirmsand
certainlyby3PLsandintegratedtransportationfirmssuchasFedEx,DHLandUPS.
WhatarethelessonsCanadamightlearnfromtheLEAPexperienceandsuccess?Itisalwayswithcare
thatlessonsaretakenfromcitystatessuchasSingaporewhicharepenalizedbyneitherthegeography
ofCanadanorthedistributionofresponsibilitiesundertheconstitution.Therefore,itisnotoutcomes
thatarethelessonsbutrathertheprocesses;howwasitachievedratherthanwhatwasachieved.
ExaminingtheevolutionoftheLEAPprograminacontextofgoalsandobjectivesiscentralto
understandingitsuccess.

ForthecompletereportseeGillen(2007)

See http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=SG

11

Singaporehasbuiltitssuccessonamongotherthingsitsfavourablelocationasatransshipmentcentre
inmovinggoodsoutofproductioncentersinSoutheastAsiatomarketsinEuropeandNorthAmerica.
CanadaswestcoastboastsofitsgeographicaladvantageasagatewaytoNorthAmerica;isgeography
enough?SingaporerealizedthatwiththechangingtermsoftradeinSoutheastAsiaandchangingnature
ofsupplychains,itneededtotransformitselffromtransshipmenttologisticsandspecificallytovalue
addinglogisticsin2005intraAsiancontainermovementsweregreaterthantransAtlanticandtrans
Pacificcontainermovementscombined.Lesson1geographymaybenecessarybutitisnotsufficient
forsuccess.Inaninformationintensiveworldlocationisnolongereverything,lowesttotalcosttrumps
lowlocationcosts.
TheLEAPprogramleveredgovernmentresourcesandrelationshipstoinduceinvestmentsbyprivate
sectorfirmsthroughwhatwereeffectivelypublicprivatepartnerships(PPP).Canadahascertainlybeen
activelyengagedinusingPPPsinadvancingitsowninfrastructureagendaaswellbutSingaporehas
undertakentheirPPPsinawaythatallocatesriskoptimallyandcreatestherightincentivesforco
investmentsandefficientgovernance.Singaporehasalsohadafocusoneducationandtraining.In
Canadathishasonlyrecentlyemergedasagovernmentinitiative.Lesson2applicationofthePPP
modelalsorequiresachangeingovernancetoensureexcellence;specificallythePPPmustbeableto
establishindependencetoattracthighqualityfactorsandbefreeofpublicexternalpressures(agood
exampleistheCanadaLinePPPinVancouver).
LEAP1997focusedonestablishingthecoreinfrastructureofbothcapitalaswellasknowledge.
Singaporewantedtobealogisticshubofexcellenceandtodevelopitselogisticsbusinesswhich
requiredatransformationofconventionallogisticsprocessesthroughelectronicmeansofmoving,
storingandmanipulatingdata,informationandknowledge.Asaresultprivatesectorfirmscandeliver
customerconfiguredproductsandvalueaddedservices.InordertoaccomplishthisSingaporethrough
LEAPfirstundertooktostudytheissue,establishperformancemetricsandbenchmarkstomeasure
progressandsuccessandtoputinplacethecoreinfrastructure.Lesson3successfulinvestmentand
managementrequiressuccessfulmeasurementtounderstandhowandwhereprogressisbeingmade.
Singaporeunderstoodtheproblem,theyknewthedirectiontheyhadtogoandtheycouldmeasure
performanceandoutcomesofwhattheydid.
ExaminingtheactivitiesofLEAP1999,theemphasiswasonputtinginplacetheinformation
infrastructure,establishsomestandardizationsandtocontinuetostudytheevolutionofelogistics.
Lesson4coreinfrastructureinvestmentisaprerequisitetosuccessfuldeploymentandthecorecapital
mustalignwiththegoalofinvestments.Singaporesgoalwastoincreasevalueaddingactivitiesby
buildingexcellenceinelogistics.Canadaisinvestinginroadsandbridgestospeedtransshipment.
Lesson5promotionofagatewayisessentialinestablishingpresenceandsuccessinthemarket.LEAP
1999investedinhubpromotion,ittakestimeandresourcestobuildeconomicrelationswithupstream
markets;itisnotamatterofbuilditandtheywillcome.
InLEAP2001thefocuswasonskillsdevelopmentandinformationtechnologyensuringknowledge
capitalwouldbeavailableandwoulddeveloptomeettheneedsoftheelogisticshub.Forskills
developmenttheinvestmentwasineducationandindevelopingprogramstoensureacontinualsupply
ofskilledlabour.AsecondfocuswasonputtinginplacetheITthatwascomplementarytoexpandingair
cargo,includinginvestinginanairportlogisticsport;thislatterinvestmentwasanaturalevolutionfrom
activitiesfrom1997and1999programs.Lesson6itisnotenoughtobuildroadsandbridges,
investmentinskilledlabourandeducation,includingresearch,isessentialtocreatehighvalueadded
gateways.Singaporeunderstandsthatstrategicmanpowerandeducationprogramsareessential,
Canadaisinvestinginmovingcontainers.
12

SteppingbackandlookingattheevolutionoftheLEAPinitiativesovertime,thereisalogicalprogression
frombuildingasolidfoundationofcoreinfrastructurewhichreflectsthegoalofLEAP.Therewas
coordinatedactivitywithinvestmentsthatensuredtherewouldbethedeliveryofservice.TheLEAP
programwasnotsimplyaboutgovernmentbusinesscoordinationasinconventionalPPPsbutin
collaborationwheretherecanbecoinvestments.AdecisionmadebySingaporewastochoose
winners,thatisindustriesonwhichtofocusandpromotewhichincludedchemical,biomedical,
aerospaceandcoldsupplystorage.Choosingwinnersisatrickybusiness.TheCanadianFederal
governmenthassaiditwishestofocusitsattentiononvolumesandvaluesofnationalsignificance.
However,significancetodaymaynotbesignificanttomorrow;alessonperhapsisifyouaregoingtopick
winners,youmustbenimbleandbewillingtoreinvent.
Facilitiesandfirmscanserveasstrategictoolstolinkfirmswitheachotherandtothemarketplace.
Firmscanhaveverticallinkageswhichallowvalueaddingactivitiesupanddownthesupplychain.These
activitiescanfacilitatetheflowofrawmaterials,components,partsandfinishedgoodsaswellas
information.Therefore,thekeytothesuccessofLEAPisthelogicalwayinwhichthetransformationof
thelogisticsindustryhastakenplacewithanemphasisonskillsandservicedevelopment.Inorderto
augmenttradeanddevelopvalueaddingservices,andnotsimplyhavefreightflowthroughtheport,
thelogisticssectormustreducecostandrisk.Itcanaccomplishthiswithtangiblebenefitsinwhich
servicedelivery,customerneeds,operatingcosts,incentivesandperformancecriteriaareclearly
outlined,documented,reviewedandimproved.Thelogisticssectorwillnaturallyevolvetowards3PLs
andmovebeyondtraditionalareasofwarehousing,inventorycontrolandtransportation;eachofthese
willbecomeavectorofservicesbytypetomeetmarketneeds.9FinallessonTheevolutiontoelogistics
fromconventionallogisticsrequiresthoughtleadershipandacontinualinvestmentinresearch,human
capitalandskilledmanpowerandinformation,notsimplyphysicalinfrastructure.
Conclusions
Weconcludebyofferingafewthoughtsbasedontheissuesassummarizedabove.First,theevolution
ofglobalbusinessesandsupplychainsandtherealizationthatvalueiscreatedbydevelopingreliable
andcostefficienttransportationnetworksshouldgiveuspauseforthought.Thesuccessful
developmentofgatewaycorridorhubnetworksdependscruciallyuponfocusingonthoseelementsthat
createthemostvalue(bothprivateandsocial).Manymarineportsandairportsaroundtheworldare
expandingphysicalcapacityandarepositioningthemselvestocompeteforcargoorpassengervolumes.
Itisnotclearthatthisalonewillgeneratevaluecertainlynotforallcompetitors.
Second,theinterfacebetweenmultiplelevelsofgovernmentandtheprivatesectorcreatesacomplex
problemforgovernance,regulationandoversight.Creatingtheright(social)incentivesrequires
transparency,accountabilityandmeasurement.Theobjectivesofcreatingefficienciesandcompetitive
advantagesfavoursthecommercialbusinessfocusfoundintheprivatesector.Withrespectto
gateways,thedangerliesinoverarchingregulationandtheapplicationofcommonlegislativerulesto
marineportsandairports,whichdiffersignificantlyinsize,geographicmarketboundaries.

Forexample,undertransportation,thefollowingservicesarebeingprovided:LTL,refrigeratedtransport(reefers),container
drayage(forshipping),flatbeddelivery(rail),liftgatedelivery,appointmentdelivery,freightconsolidation,EDI(billing),
dedicatedtrailers,andpooleddistribution.Inshort,thecoreservicesexpectedarecontinuallybeingaugmentedbyother
logisticsrelatedfunctions.

13

Publicinvestmentisneededtoupgradeandsustainthetransportationinfrastructureofgatewaysand
corridors.Thepinchpointsareeasilyidentified.Thechallengeistosetprioritiesandfund
improvementsthatcreatethemostvalueforthesupplychains.AtleastonepartofCanadassystem
widestrategyshouldbetodevelophumancapitalcapableofcreatingtheinformationsystemsand
computerdriventechnologiesthatwillbeinglobaldemandasthemeanstoimprovesupplychainsand
lowertransportationcosts.Toincreaseourhumancapitalinthisarearequiresaninvestmentin
educationprogramstodevelopbothtechnicalandmanagementexpertiseintransportationlogisticsand
supplychains.

FundamentalQuestionsinShiftingfocusfromVolumetoValueingatewayandcorridorpolicy.
PossibleQuestionstoberaisedatthispointare:
1. Howcanthepublicregulatoryframeworksbemodifiedinsupportofmoreefficientfreight
logisticssystems?
2. Canthe3Pmodelbestreamlinedtowidenitsapplicationacrossthetransportnetwork?
3. Arelocal,provincialandevennationaltransportpolicyframeworksstillapplicableinaneraof
continentalandglobalcorporatestructuresandfreightmovements?Attheveryleastisittime
foracontinentaltransportationpolicyframeworkunderNAFTA?
4. Cancapacityandtechnologyinvestmentsbecombinedtocreateageneralpurposefreight
movementtechnologicaladaptationoflastingbenefittotheeconomy?
5. Howcanincentivecontractsbestructuredtoinduceadjacentfirmsinthesupplychainto
internalizeexternalities?(forexample,shippinglineshavelittledirectinterestinqualityofgate
service,orinkeepingcostslow).
6. Howwillthenewgatewayandcorridorlogisticssystemsbeaffectedinacarbonconstrained
worldandthenewclimatechangeframeworks?Willtherebenewinvestmentandvalueadded
opportunitiescreated?
7. Howshouldgatewayperformancebebenchmarkedandmeasuredtodeterminewhether
sufficientvalueisbeingaddedtosustaincorridorcompetitiveness?

14


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