Download 1. Literature review

The key drivers of logistics’ employment growth
within EU15
Aleid BROUWER1, Adelheid HOLL2, Ilaria MARIOTTI 3*
Globalisation of the economy and fragmentation of the production
process have increased the flows of raw materials, intermediate goods, and
finished products, with a direct effect on the transport and logistics
industry. Transport and logistics play a key role in connecting the different
import and export markets and the vertically disaggregated components of
production system, which are widespread in the world. At the same time, in
an increasingly time based competitive environment, where an ever broader
range of products is becoming time-sensitive, logistics plays an important
role in efforts to reduce delivery times, increase reliability and flexibility in
deliveries, and customer responsiveness and to facilitate the successful
implementation of Just-in-Time (JIT) manufacturing and distribution
systems.
Within this context, the present chapter focuses on employment growth
in transport and logistics within the EU15 over the period 2000-2007, and
aims at analysing the relation of this growth to some key drivers.
Specifically, the variation in subcontracting sales and in exports and
imports can be seen as indicators in a change in the need for transport and
logistics activities (OECD, 1997; Levinson, 2006).
1
Assistant professor at the University of Groningen (The Netherlands), Urban and
Regional Studies Institute, [email protected].
2
Tenured researcher at CSIC, Institute of Public Goods and Policies, Madrid
(Spain), [email protected]
3
Assistant professor at DiAP – Politecnico di Milano (Italy),
[email protected], * corresponding author.
1
The introduction is followed by a literature review on the main
determinants fostering transport and logistics employment change. Section
three briefly describes the data. Section four presents the results of the
analysis. Section five concludes.
1. Literature review
Since the 1950s, the transportation and logistics industry has
experienced the so-called logistics revolution, which can be related to: (i)
the consumer-oriented economy; (ii) the internet-based information
systems; (iii) the substantial reductions in trade barriers, tariffs and
transportation costs; (iv) the European Traffic Policy; (v) as well as the
vertical disintegration in most industries and the globalization of the
economy (Vahrenkamp, 2010; Maggi, Mariotti, 2011).
The consumer-oriented economy, which is addressed to mass
consumption, mass production, and mass distribution of consumer goods
(Strasser, 1998), has increased the complexity of logistics processes in
production and trade. The management of such complexity has, therefore,
been feasible thanks to the Internet-based information systems, developed
in the 1990s. This has drastically simplified and cheapened the exchange of
information, and Internet-based mail order businesses have strengthened
parcel services. Besides, a key role has been played by different technology
innovations in freight moving and handling like containerization, which
have also contributed to drastically reduce transport costs (Hummels, 1999;
van Veen-Groot, Nijkamp, 1999; Levinson, 2006; Nooteboom, 2007). In
particular, over the twentieth century, the costs of moving goods have
declined by over 90% in real terms and this reduction is continuing.
Therefore, the average cost of transport a ton a mile has decreased from
18.5 cents in 1890 (in 2001 dollars) to 2.3 cents in 2004 (Glaeser,
Kohlhase, 2004).
Moreover, in Europe, the Traffic Policy, favouring the liberalization of
truck traffic, has strongly increased the truck fleet and the traffic flows in
the EU. Only in about ten years, from 1990 to 1999, the road traffic within
European member states has increased by 76% (Vahrenkamp, 2010).
Finally, a strong impact on transport and logistics has been undertaken
by the vertical disintegration of production in most industries and the
globalization of the economy. The vertical disintegration is linked to the
post-fordist paradigm, which promoted the switch from mass production
2
for standardized goods to the market-oriented production, the so-called
flexible specialization. Flexible specialisation is based on the flexible use of
general purpose machinery by skilled workers, capable of manufacturing a
wide range of products for constantly changing markets (Piore, Sabel,
1984). Increasingly segmented markets forced enterprises to follow a
strategic approach and to go for specialisation and flexibility, which
requires investments in innovation, JIT and lean production. The key
elements of flexible specialisation are: (i) multi-purpose equipment and
innovation, skilled labour with an innovative mentality, general purpose
equipment to produce whatever is in demand; (ii) clusters of enterprises or
small firm communities, the seedbed for an exchange of ideas; (iii)
interaction/networking, the whole set of subcontracting relations and
collaboration efforts between small enterprises and between smaller and
larger ones; as well as (iv) collective efficiency, the result of the physical
presence nearly of other innovative producers (Piore, Sabel, 1984).
Besides, as the literature stresses, the disintegration of production is
concerning, more and more, the multinational enterprises (MNE) (Gereffi
et al., 2005; Giunta et al., 2010), which outsource segments of the
production process to subcontractors from different countries that are
increasingly included in these firms international production networks. This
phenomenon – also called “international fragmentation of production”
(Arndt, Kierzhowsky, 2001) – generates growing shares of international
trade flows (intermediate and unfinished goods), shipped from one country
to another to combine manufacturing or services activities at home with
those performed abroad (Helg, Tajoli, 2004). As a result, the increasing
trade flows do not only include final goods, but also intermediate and
unfinished goods being transferred from one country to another in order to
be processed (Baldone et al., 2002; 2006).
Within this context, transport and logistics play a key role in connecting
the different import and export markets and the vertically disaggregated
components of production system, which can also be widespread in the
world (Yieming et al., 2002). The increasing large share of goods flows
must be managed by transport functions at the level of the manufacturing
firm or the transport providers. Manufacturing firms can decide to conduct
transport and logistics activities in-house (internalization), thus focusing on
their core-business, or they can entrust them to other firms (externalization)
– a choice analogous to a “make or buy” decision. The choice between
internalization and externalization is typically based on the relative costs
and benefits, the associated risks, and the feasibility of each option. When
externalisation is carried out, transport operators restructure themselves
3
becoming larger and changing into the so-called Third-Party Logistics
(3PLs) or Fourth Party Logistics (4PLs) Providers, by modifying their
supply from single based services into an increasing number of high valueadded services (i.e. transport, storage, inventory management, tracking and
tracing, packaging, labelling and secondary assembly of products) (Brewer
et al., 2001; Elia et al., 2011).
The need for transport and logistics services is different in various
countries. We focus on its relation to variations in subcontracting sales, as
proxy for the fragmentation of production, and on variations of exports and
imports as proxies for international trade.
2. Data
The transport and logistics employment growth in 2000-2007 within the
EU15 has been investigated by using the employment variation in the four
transport sub-industries of each country as dependent variable (Table 1).
Data about the employees are provided by the EUROSTAT database, and
refer to the category “I –Transport, warehousing, communications”.
Specifically, sectors have been disaggregated into the following categories:
(i) air transport4; (ii) land transport; (iii) water transport; (iv) auxiliary
activities.
Table 1: European countries and the NACE REV. 1 transport sub-industries
Countries
Austria
Belgium
Denmark
Finland
France
Germany*
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
4
Transport sub-industries
Land transport; transport via pipelines
Transport via railway
Auxiliary activities to transport via
railway
Transport by road
Water transport
Sea transport
Air transport
Non-scheduled air transport
Supporting and auxiliary transport
activities; activities of travel agencies
Cargo handling– Air transport
Cargo handling– Water Transport
Cargo handling– Land Transport
NACE Codes
60
60.10.1
60.10.2
60.25.0
61
61.11.0
62
62.20.0
63
63.11.1
63.11.2
63.11.3
The scheduled air transport industry (62100) has been excluded from the analysis
because it mainly concerns passenger air transport.
4
United Kingdom
Note: *including former GDR from 1991 onwards
3. Empirical Analysis
A first look at the data shows the predominance of land transport,
followed by auxiliary activities, which both present an increase in 20002007. Specifically, auxiliary activities grew more than land transport in the
period of analysis, while water transport exhibits a small increase, and air
transport even a negative change (Figure 1). Land transport is the
privileged mode within the EU even thanks to the Traffic Policy, which
favoured the liberalization of truck traffic. Besides, auxiliary activities have
faced a significant increase in the last decade because of the sophistication
of transport and logistics, which is more and more demanded by the
consumer-oriented economy, the production fragmentation and
globalisation.
Figure 1: Employment average in 2000-2007 and employment change
(2000-2007), for sub-industry
300000
250000
200000
150000
100000
50000
0
-50000
Land
Employment_2000
Aux.act.
Employment_2007
Air
Water
Empl_change
Source: authors’ elaboration on Eurostat data
The top five countries registering the largest number of employees in
the four sub-industries (in 2000-2007) are: France, Germany, Italy, Spain
5
and UK (Table 2)5. The predominance of these countries is mainly related
to their size (area and population) and GDP. The classification changes if
we consider the average employment variation in 2000-2007; indeed, while
Germany confirms its position within the first five as concerns the four subindustries, the other countries registered a high employment growth only
for some of the sub-industries (i.e. Spain for land, air transport and
auxiliary activities; France only for land and air transport; Italy for
auxiliary activities and water transport; the UK for water transport and
auxiliary activities; etc.; Tables 2 and 3 in Appendix).
Traditionally, growth in transport has been linked to developments in
GDP, but as shown in the literature review growth in transport and logistics
can also be fostered by production fragmentation and internationalisation,
where production fragmentation can be measured in terms of
subcontracting, and internationalisation as trade.
Over our period of analysis, subcontracting sales have increased by over
10% in the EU15, showing a propensity to outsource previously integrated
production processes, which is one of the key elements of flexible
specialisation.6
As concerns trade, in the period of analysis the export variation towards
EU27 is doubled if compared to the export outside EU27, thus supporting,
from one side, the strong trade among the EU countries, from the other
side, the increasing role played by extra EU countries. This trend is
confirmed by the change of import from EU27 and from extra EU
countries.
In the following, we test how transport and logistics employment
change is related to changes in GDP, product fragmentation, as well as
internationalisation. Specifically we estimate the following equation:
07
07
07
07
Δ00
Empc,s = α + + β1 Δ00
GDPc + β 2 Δ00
S cm + β 3 Δ00
XEU
m
c

07
07
07
β 4 Δ00
XexEUcm + β 5 Δ00
IEU cm + β 6 Δ00
IexEU cm + ε c,s
where s are the 4 transport sub-industries, c the 15 European countries.
5
The order changes according to the year (2000 and 2007), see Table 2 in
Appendix.
6
Data on subcontracting sales is taken from MIDEST.
6
Δ07
00 Emp c , s : is the variation of the number of employees between
2007 and 2000, in each sub-industry s and country c;
Δ07
00 GDP c : is the variation of GDP between 2000 and 2007, in each
country;
m
Δ07
00 S c : is the variation of subcontracting sales between 2000 and
2007, in each country;
m
Δ07
00 XEU c : is the variation of EU27 exports between 2000 and 2007,
in each country;
XexEU mc : is the variation of extra EU27 exports between 2000 and
2007, in each country;
m
Δ07
00 IEU c is the variation of EU27 imports between 2000 and 2007, in
each country;
m
Δ07
00 IexEU c is the variation of extra EU27 exports between 2000 and
2007, in each country.
The equation suggests that the variation of the demand for transport and
logistics workers between 2000 and 2007 within a country, is related to: (i)
the variation of country’s GDP; (ii) the variation of a country’s
subcontracting sales; (iii) the variation of a country’s EU27 exports; (iv) the
variation of a country’s extra EU27 exports; (v) the variation of a country’s
EU27 imports; and (vi) the variation of a country’s extra EU27 imports.
Finally, industry dummies have been included in order to control for
sector specific effects.
Table 4 shows the results from OLS estimations. Over the period of
analysis, GDP growth is not significantly related to the growth in
employment in the transport and logistics sector.7 This result is consistent
with McKinnon (2006) who finds for UK road freight that the traditionally
close relationship to GDP growth no longer held for the period of 1997 to
2004.
In contrast, our results show that the growth in employment in the
transport and logistics sector is more strongly related to changes in the
fragmentation of production and international trade. Specifically, we
observe that subcontracting sales’ change is positively related to the
transport and logistics employment change, and so is export variation both
for exports to other EU countries as well as countries outside the EU.
7
Note,that even if we regress GDP growth on its own on employment growth in
the transport and logistics sector, the estimated coefficient is not significant.
7
However, conditional on growth in exports and subcontracting, imports
show a negative relation to the employment growth in transport and
logistics.
The subcontracting industry, which can be considered a proxy for
fragmentation of the production process, and flexible specialisation,
increases goods flows that can be managed by logistics providers.
Similarly, export increases employment because within internationalisation
transport is needed both to reach the final market, especially in case of
export of final goods, and to reach the other affiliates or the suppliers or
distributors.
Table 4. Controlled association for transport and logistics change between 2000-2007
Log growth in employment in sector i
Log growth in GDP
Log growth in subcontracting sales
Log growth in EU exports
Log growth in extra EU exports
Log growth in EU imports
Log growth in extra EU imports
Number of observations
Adjusted R2
0.506
(0.483)
1.502**
(0.485)
0.873*
(0.443)
0.786**
(0.417)
-2.274***
(0.863)
-0.555**
(0.264)
55
0.446
Notes: .*** significant at the 1% level; ** significant at the 5% level; *significant at the 10% level.
Estimations include sector fixed effects.
Source: authors’ elaboration
The negative result about import might be related to the fact that the
imports of goods towards a country are mainly managed by foreign
suppliers, thus generating a substitution effect. The increase of import may
be partially related to a substitution of national goods with foreign goods.
Considering that national goods are mainly transported by national firms
while foreign goods are transported by foreign firms, the substitution of
national goods with foreign goods is likely to generate a decrease of labour
demand in national transport industry and an increase of labour demand in
foreign transport industries (Elia et al., 2011).
8
4. Conclusions
Today, the transport and logistics sector is not only an important
industry on its own, but it is also crucial in connecting economic actors in
other sectors across space.
In this chapter we have analysed the relationship between transport and
logistics employment growth and change in country GDP, subcontracting
sales, exports and imports. Our results indicate that employment in the
logistics sector is more strongly related to changes in the subcontracting
and trade sector than to GDP. An important limitation, however, of our
analysis is that it does not account for the two-way relation between growth
in the transport and logistics sectors and change in GDP, subcontracting,
and international trade. Specifically, transport and logistics can facilitate
production fragmentation and trade. Further research is thus required to
investigate the simultaneous nature of these variables and to establish
causal relationships.
We have analysed the growth in the transport and logistics sector among
the EU15 countries. However, within countries this growth is most likely
unevenly distributed among different regions and further research should
investigate the pattern of growth in the transport and logistics sector at the
regional level.
Finally, in an increasing globalising economy, logistics plays an
important role for international competitiveness. However, in recent years,
the issue of sustainability has gained increasing attention both at national as
well as the international level. In this context, policy needs to find solutions
to the predominance of road transport and the resulting rising congestion
and negative environmental effects. The need to reduce CO2 may have
major implications for future developments in the sector.
5. References
Arndt S.W., Kierzhowsky H. (2001). Fragmentation. New Production Patterns in the World
Economy. Oxford: Oxford University Press.
Baldone, S., Sdogati, F., and Tajoli, L. (2002). Moving to Central-Eastern Europe:
International Fragmentation of Production and Competitiveness of the European Textile
and Apparel Industry. In Baldone S., Sdogati F., and Tajoli L. (Eds), EU Enlargement to
the CEEs: Trade Competition, Delocalisation of Production, and Effects on the
Economies of the Union, pp.101-160. Milan: FrancoAngeli.
Baldone, S., Sdogati, F., and Tajoli, L. (2006). On some effects of international
fragmentation of production on comparative advantages, trade flows, and the income of
countries. CESPRI working paper, n.187, Milan.
9
Elia S., Maggi E., Mariotti I. (2011), Does the transport industry gain from manufacturing
internationalization? An empirical investigation on the Italian regions, European Transport,
n.49, pp.1-22.
Gereffi G., Humphrey J., Sturgeon T. (2005) The governance of global value chains,
Review of International Political Economy 12, 78-104.
Giunta A., Nifo A., Scalera D. (2010), Subcontracting in the Italian industry. Labour
Division, Firm Growth and the North-South Divide, MPRA Paper No. 20629.
Glaeser, E.L. , and Kohlhase, J.E. (2004). Cities, regions and the decline of transport costs.
Papers in Regional Science 83: 197–228.
Helg R., Tajoli L. (2004), Patterns of International Fragmentation of Production and
Implications for the Labor Markets, Discussion Paper No. 503, The University of
Michigan.
Hummels D., (1999) “Have International Transportation Costs Declined?” Department of
Economics Working Paper, Purdue University, (USA).
Krugman, P., Cooper, R.N. , and Srinivasan, T.N. (1995). Growing World Trade: Causes
and Consequences. Brookings Papers on Economic Activity, (1), 25th Anniversary Issue,
pp. 327-377.
Levinson, M.(2006). The Box: How the Shipping Container Made the World Smaller and
the World Economy Bigger. Princeton University Press.
Maggi E., Mariotti I. (2011), “Globalisation an the rise of logistics FDI: the case of Italy”, in
DeSare T., Caprioglio D., eds., Foreign Investment: Types, Methods and Impacts, Nova
Science Publishers, 32 pp., ISBN 978-1-61470-408-9, forthcoming.
McKinnon, A. C. (2007) Decoupling of Road Freight Transport and Economic Growth
Trends in the UK: An Exploratory Analysis. Transport Reviews 27 (1): 37-64.
Nooteboom, T. (2007). Strategic challenges to container ports in a changing market
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Transportation Economics 17: 29–52.
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York: Basic Books.
Strasser, S. (1998). Getting and spending: European and American consumer societies in the
twentieth century. Cambridge: Cambridge Univ. Press.
Yieming, Z., Han Swee, L. , and Seah Kiat, K. (2002). The Third-Party Logistics Services
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European Transport, n.45, pp.1-14.
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10
APPENDIX
Table 2: Top five countries, by sub-industry
Land
France
Germany
United Kingdom
Italy
Spain
France
Germany
United Kingdom
Spain
Italy
France
Spain
Germany
Portugal
United Kingdom
Aux.Act.
Water
Air
Employment 2000
Germany
Italy
United Kingdom
United Kingdom
Germany
France
France
United Kingdom
Germany
Italy
Greece
Spain
Spain
France
Italy
Employment 2007
Germany
Germany
United Kingdom
United Kingdom
Italy
France
Italy
France
Germany
France
Greece
Spain
Spain
United Kingdom
Italy
Employment change 2000-2007 (average)
Germany
Germany
Germany
Italy
Italy
France
Spain
Denmark
Spain
United Kingdom
France
Luxembourg
Austria
Finland
Austria
Tot.
France
United Kingdom
Germany
Italy
Spain
Germany
Spain
France
Italy
UnitedKingdom
Source: authors’ elaboration on Eurostat data
Table 3: Employment change in 2000-2007, for sub-industry and country
Country
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
UnitedKingdom
Tot
Land
-19638
-33794
-3044
7007
146950
100633
-23443
8920
3908
3907
4257
26098
113593
4111
15148
354613
Water
186
682
2664
1291
2419
19302
723
Air
893
-8223
-5676
-2643
5979
19349
-9910
8266
-2889
1094
554
667
-683
-999
35072
-1255
1648
-6720
-9994
-18347
Source: authors’ elaboration on Eurostat data
11
Auxiliary
act.
27486
12531
4428
6728
19308
195817
11457
5959
102795
764
14108
9670
86300
6484
55454
559288
Tot
8927
-28804
-1628
12383
174656
335101
-21173
14879
112080
5765
18365
35067
202208
3192
59609
930626