Freight Transport and Infrastructure Development Influences on International Trade In United Kingdom

FreightTransport and Infrastructure Development Influences on InternationalTrade In United Kingdom

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FreightTransport and Infrastructure Development Influences on InternationalTrade In United Kingdom

ExecutiveSummary

TheUnited Kingdom has faced numerous challenges in the last two decadesespecially in areas of international trade. However, it has alsoexperienced growth as exports and imports have increased coupled withadvanced infrastructural frameworks. In this regards, it isimperative to exemplify the foremost trends that the country hasexperienced. Although the United Kingdom remains a net importer asexemplified by a deficit of over £80 billion in 2011, it is one ofthe leading global trader (BSIS, 2012 Sorrell et al., 2012). Theinfrastructure framework of the country has played an imperative rolein advancing international trade. The country’s freight transporthas seen an increase of billions of tonne kilometres from 2009 todate, which has greatly influenced international trade. On the otherhand, the country saw decreased levels of freight transport andinfrastructure development perhaps due to the financial crisis andeconomic recessions of 2008, but from 2009, the country has seen asteady rise in freight and infrastructure. In this regards, it isessential to offer a discourse on the key trends that the country hasexperienced in its freight transport in the last 20 years.

Keytrends in international trade in the United Kingdom for the lasttwenty years

Therehave been significant trends in the participation of the UnitedKingdom on international trade. The first significant aspect ofinternational trend that experienced changes in the United Kingdom isthe position of individual firms in exporting goods and services(Department for Business, Innovation, &amp Skills, 2012). A surveyconducted by the United Kingdom trade and Investment (UKTI) in 2010showed that individuals firms were more willing to export goods andservices if the Sterling was devalued. Most of these firms were alsoproducers of goods and services with a considerable share of theirbusiness activities committed to overseas transactions. The sterlingexperienced a decline in value and only 27% of individual firmsviewed that as beneficial to overseas exports. Comparatively, moreindividual firms reduced the amount of goods and services they exportto overseas countries due to the decline in the value of the Sterlingpound. Before the decline in the value of the sterling began in early2000s, UK exporters had a larger share of exports on the globaltrading scene because it was possible to cut back on profits withouthurting the ability of individual firms to maintain the market ofshare of exports to overseas countries (European Commission, 2006).The weak pound, however, has provided the opportunity for individualUK exporters to increase profits margins to stabilize their balancesheets. Nonetheless, the weak pound has not significantly affectedthe export prices of UK producers that decided to increase profitsmargins on exported products.

Theperformance of the United Kingdom on the Commodity Export Market

Between1998 and 2008, the United Kingdom experienced phenomenal growth onthe commodity export market. The exports increased by 72% with goodsworth $468 million being exported. The rate of increase was similarin other western countries such as the United States, Germany,France, and the also UK’s biggest trading partner in Asia, Japan.However, the increase in the net exports of the UK was not homogenousacross trading partners. The net growth of exports to emergingmarkets in Asia, Africa, and South America declined as China took thelargest share of exports to these countries.

Graph1: Showingthe trend in the share of UK net exports on the global commoditymarket

Itis worth noting that the increase in the net exports by the UKbetween 1998 and 2008 was not at an increasing rate. This explainswhy the increase did not cause a commensurate increase in the shareof UK exports on the world exports market. Thus, the increase inexports should have matched the proportion to which other countriessuch as China increase their exports. The share of UK world exportsfell from 5.3% in 1995 to 3.1% in 2009. The same trend also occurredto the European Union where countries such as Germany and Franceincreased the amount of net exports in the same period, but failed toimprove their market share on the global export market.

Trendsin the Technological export structure of the United Kingdom

Inthe last twenty years, the composition of manufactured goods thatconstitute UK exports changed drastically towards higher technologygoods. Curran and Zigzago (2009) assert that in 1994, UK exports inmanufactured goods were worth $100 billion, but the amount increased$250 billion in 2008 and $300 billion in 2013. These statisticsillustrate the development that the country has experienced in themanufacturing industry in the last 20 years. According to findings byCurran and Zigzago (2009), the UK has higher share of exports inmanufactured goods than the EU25 average and the world average.

Graph2: Showingthe growth of UK exports in manufactured goods

Trendsin UK exports across different markets

TheEuropean Union remains the largest export destination for UK exports.56% of UK exports head to countries in the European Union. However,exports to BRIC countries increased exponentially and it continues toincrease at a high rate of 286%. By 2008, 6% of UK exports went tomembers countries of the BRIC trading bloc.

Graph3: Showingtrends in UK exports across different global market segments

Trendsin UK imports from emerging markets

Ingeneral, UK imports from China and India dropped although theabsolute value of imports from the two countries tripled in the lasttwo decades. The UK, on the hand, has the highest volume of exportsto China at $7.6 billion in 2007 and $5.9 billion to India (Allen,2012). The increase of exports to India was due to an increasingimportance of precious stones as an important component of all thecommodity exports from the UK. All the emerging powers increasedtheir imports from UK for the past two decades (Harrison and vanHoek, 2008). The countries’ growth in economy increased the demandfor foreign goods and services altogether.

UKExport of services

Between1994 and 2014, the UK increased its exports in services by 156% to$288 billion (Yarbrough and Yarbrough, 2014). However, the value ofnet services exported to different countries is comparatively lowerthan goods, but the growth rate of service exports is higher in thelatter. The UK rose to second position as the world’s biggestexporter of services.

Graph4: Showingtrends in the share of UK service exports on the global market

Theinfluence of transport infrastructure on UK’s international trade

Trendsin domestic Freight

Roadtransport is still the largest mode of transport, followed by watertransport. In the last two decades, water, rail, and pipelinetransportation registered less improvement relative to roadtransportation (Button, 2010 Sorrell et al., 2012). Road transportexperienced exponential improvements with billions of ton kilometresbeing added to the national transport grid. Between 2006 and 2009,all the transport modes in the UK decline din the number of goodstransported by them, but the trend was reversed in 2010 and recoveredin 2014 (De Ridder, n.d. Yarbrough and Yarbrough, 2014). The mostaffected was freight transported by water which dropped by almost 50%of the value of goods transported by water in 2000 (Department forTransport, 2012).

Figure5: Domestic goods transported by mode, 1990-2010 (DfT,2012b)

Freighttransported by Road

Thenumber of tons lifted by UK HGVs dropped in 2009 from the high levelsregistered in 2004 (Sorrell et al., 2012). The decline resulted fromthe global economic recession that affected the volume of thecommodities. However, the length of haw had a slight increase thatdefied the recession (Freight Transport Association, 2013). The roadnetwork in the UK has supported an increase in exports that thecountry registered in the last two decades. The UK governmentexpanded the road network that links the mainland to airports andharbours to surpass the 200,000miles network of roads that exists in the UK.

Figure6: Goods transported and hauled by British HGV (DfT, 2012a)

Themain reasons why the road network expansions increased the UK’sexport indices include:

  1. They reduce the diversion of traffic off the roads by constructing bypasses in the outskirts of major towns so that goods companies deliver to airports and harbours without time delays that increase the cost of fuel and other logistics.

  2. Road improvements created and maintained a comprehensive strategic trunk route that linked remote and less prosperous areas of the country to the national road network.

  3. All major airports and seaports became connected to the trunk network hence, made the export and import business much easier for importer and exporters.

Althoughthe UK fell behind other European countries such as Germany in termsof road connectivity there were major developments in road transportthat had a great on international trade such as: a) The constructionof the first motorway that linked England and Scotland.

Freighttransported by water

Waterbornefreight goods lifted at UK ports dropped by 20 per cent from 2004 to2011. Waterborne freight goods moved from and to U.K., ports alsofell by 27 per cent. Between 2010 and 2011, both the moved and liftedwaterborne freight goods increased by 3 per cent for the first timesince 2005 (Department for Transport, 2012b). Before the expansionoccurred in the past twenty years all seaports in the UK handles wereat 120 that were commercially active. Grimsby and Imminghamincreased its capacity to accommodate about 57.2 Mt. of traffic. TheLondon seaport also increased capacity to about 48.8 Mt. of trafficcapacity. Hence, the bulk of commodity exports and imports increasedfor the UK due to the expansion of major ports that link the countryto the EU and the rest of the world as the shown in the table below:

Port

Capacity in 1994 (Mt.)

Capacity in 2014

(Mt.)

Grimsby &ampImmingham

38.2

57.6

London

30.0

48.8

Milford Haven

26.6

48.7

Southampton

23,1

37.9

Tees and Hartlepool

20.3

35.2

Liverpool

18.5

32.7

Forth

17.1

27.9

Felixstowe

13.0

26.8

Dover

10.3

24.3

Medway

10.2

16.1

Freighttransported by Rail

Railfreight increased to the highest level in the decade in 2006, butdropped between 2007 and 2010. However, rail freight improved in2011. The main product on rail freight was coal (EuroStat, 2009).

Thedevelopment of Freight infrastructure for international trade

TheUK is part of the European Union’s ambitious plan to improvefreight infrastructure. Some of the measures the UK government andthe European Union Council have taken to improve freightinfrastructure are adopting a freight logistics plan that seeks tointegrate all the modes of transport on land, seas, and air. The UKexperienced a decline in the length of motor ways between 2000 and2008 from 3600 kilometres to 3559 kilometres. UK rail alsoexperienced a decline of length from 17,044 kilometres to 16,272kilometres in the same period (Commons Transport Select Committee,2013). Regardless of the falls in rail and road networks, the UKgovernment initiated the projects that sought to improve both roadand rail networks. For instance, the M6 tool road and the High-speed1 upgrades of the rail networks sought to improve the connectivity ofthe United Kingdom with the rest of the countries in the EU(Braithwaite, 2011). The channel tunnel experienced phenomenal growthin 2012 by registering the highest number commodities transportedacross it to about 1.5 million units (Grant, 2011 Yarbrough andYarbrough, 2014). However, channel tunnel still falls behind majorUK ports that connect to France because they still registered a highamount of freight units at 770 million units.

Figure7: Goods transported by rail (DfT, 2012a)

FreightInfrastructure for InternationalTrade

TheLondon Gateway deep-sea container

Althoughthe project is underway, its opening will enable the UK to deal withever-increasing capacity challenges. The port has multi-modalfeatures that provide access to short sea, deep-sea ports, feedervessels, dual-carriages, rail-lined terminals, and internationalairports in London (Li and Hewitt, 2008 Hesseand Rodrigue, 2004).Completion of the port will improve international trade for UKbecause of improvements in will bring on the efficiency anddistribution of containers.

Opportunitiesand Challenges in Transport that could influence international tradefor the United Kingdom

Opportunities

Consideringthat the European Union remains the largest destination and source ofUK goods and services on the international market, more opportunitieslie in creating a transportation networks that integrates UK tradeneeds with those of the European Union. The opportunities that lieahead for UK international trade are embedded in the long-terminfrastructural projects to be implemented by the EU and the UK. They include:

  1. Provision of alternatives to road freight

Thereare many opportunities concerning freight infrastructural developmentas long the UK seeks to align its policies with EU’s long-termstrategy. For instance, enhancing other means of transport such aswater and rail will increase the amount of goods being tradedinternationally between the UK and the rest of world by 30% andreduce the costly road freight by 300kilometers (Deloitte, 2012).Some projects are already underway under the European Union such asthe London Gateway Port and the rail gauge upgrade. Freightalternatives to rail and water freight needs to include competitivepricing so that traders have an incentive to use them asalternatives. The development of alternative transport as well as theimprovement on existing ones is an important opportunity for thecountry. However, these developments require investment from both thepublic and the private sector since the costs will be very high.

  1. Developing more rail networks: The current high-speed rail network in the European Union region will triple by 2050. The system will be integrated with the other transportation modes through infrastructural developments. The UK also completed the UK HS1 and plans of the HS2. The developments will free and prioritize freight by rail. The next agenda should possibly be to connect the UK’s freight network with European railway area. The result of these initiatives will be a reduced cost arising from road congestion

  2. Integrate UK environmental objectives with its transport infrastructural agenda

Asthe UK expands its freight network through an inter-modal strategy,the country is also part of the European Union’s plan to cutgreenhouse emissions from transportation vessels by 70% by 2050. TheUK intends to achieve the 50% target through two phases: 20% by 2030and follow up the subsequent targets through the following strategies(Freight Transport Association, 2012)

  1. Use more water and rail freight than road freight because the later uses more fuel and has a higher emission scale than freight transported by water and rail.

  2. Execute road charge to encourage international traders to use more water and rail freights.

  3. Provide incentives to international investors who use biofuels (McCartney and Stittle, 2013).

  4. In addition, initiate tax incentives on electric vehicles used on the export-import market.

Challenges

Althoughthe UK has a vastly effectual Custom regime and transportinfrastructure, it experiences problems in risk assessment and costimplications. In this regards, the country may not experience furthergains in the coming few years especially in the clothing and footwearsector, a sector that accounts for over 5% of UK’s external trade.The costs of complying with EU regulations and tariff and the costsof developing new transport infrastructure, may erode some of thegains the country has made. In addition, the country experiencechallenges in handling the ever-developing volume trade withresources diminishing. In this regards, the country needs to developefficient risk management processes, diversify transportinfrastructure, as well as coordinate with other countries to reducetariffs and improve the trade.

Althoughthe UK has a strong transport infrastructure, the times taken forport handling and inland transport as well as the associated costremain a hindrance to an improved international trade. In fact,Selfin and Hope (2012) assert that port handling, inland transferenceaccounts for 70% and 50% for the cost and time taken for a standardexport/import transaction while technical, and custom regulationsaccount for only 7% and 14%. This means that the country needs todevelop an efficient process for managing costs and time taken fortransport. The UK has started the development of capacities andprocesses to handle future trade, but finances and opposition remainkey challenges. For example, the London Gateway is an efficienttransport infrastructure that will enable the country to handlelarger containers than presently, but it requires huge finances.Selfin and Hope (2012) contend that experiences from the Heathrowprotests show that locals will most likely oppose huge investments,which will have significant effect on trade.

Rolesof the Government and the Private Sector in Responding toOpportunities and Challenges

Theprivate sector and the government will need to invest heavily inorder to respond effectively to the challenges and opportunities thatarise from transport development. In addition, the government willneed to proffer enhanced pricing that are competitive to encouragethe utilization and change existing practices. Efficiency will be akey element in reacting to the challenges and opportunities thus,the government will need to develop enhanced risk managementprocesses as well as cultivate approaches that will cut costs. Inaddition, the government must develop an efficient Inter-AgencyCoordination Board that will oversee and coordinate activitiesrelated to the development of transport infrastructure. The Boardwill help to diminish costs and delays at the border to boost tradeand partnership with trading partners. In addition, the governmentwill need to boost security and collaborate with the private sectorin developing efficient and multifaceted security measures.

Yarbroughand Yarbrough (2014) assert that the government should not leave theEU, as the partnership will give the government a bargaining power aswell as help it cut costs through tariff reduction. In this regards,the government will need to discuss with the EU on the best practicesas well as engage with member countries in the development ofefficient transport means across the EU. In addition, continuedpartnership with the EU will allow the private sector to invest inother countries as well as increase their exports. In this regards,it is significant for the private sector and the government todevelop mechanisms that will help reduce costs and delays such asinvestment, research, collaboration, and the employment ofcompetitive pricing.

Conclusion

Selfin and Hope (2012) forecast that in the next 6 years, China willpass USA as the dominant nation in international trade. In fact,China has overtaken the USA in some processes and elements especiallyin sea and airfreight thus, the United Kingdom will become lessdominant in the international front unless it collaborates more withChina. In this regards, the UK will have to develop its airports andseaports further to handle increased demand for goods from China. Thecountry will have to develop other ports and stop over relying on theLondon Gateway as well as develop its airports further. However,Selfin and Hope (2012) contend that the country will face numerouschallenges in advancing airfreight capacities because of financialconstraints and opposition from the locals. In this regards, thecountry needs to highlight areas of importance and develop processesthat will ensure increased infrastructural frameworks. In fact, Savyand Burnham, 2013) suggestthat the country should involve all stakeholders in advancingcomprehensive and explicit approaches, shift to green energy, combinetransport ports and hubs to reduce distance, and eliminate emptyloads. In this regards, it is essential for UK to remain open topartners as well as advance strategies that will increase thedevelopment of freight activities in the country. The trends ashighlighted in the paper show that the country will continue todevelop consistently, but with changing economic elements in tradingpartners, the country must develop a comprehensive white paper thatwill ensure external forces do not inhibit the country’s growth.

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