services linked to intermodal transportation

PAPERS IN REGIONAL SCIENCE: The Journal of the RSAI 75, 3:253-263 �9 1996 by Regional Science Association International

SERVICES LINKED TO I N T E R M O D A L T R A N S P O R T A T I O N

Brian Slack Concordia University

Montreal, H3G 1M8

Canada

ABSTRACT The evolving intermodal transportation network of North America is result- ing in a concentration of traffic at a number of inland load centers. A wide range of services are involved in the organization and transfer of unitized freight, and it is postulated that the traffic concentration has been particularly favorable to the growth of services in the hub cities. This paper examines the way in which services have responded to the evolving intermodal system. It reports on a survey of producer services undertaken in Toronto, Winnipeg, Calgary, Columbus and Memphis. It reveals that despite the recent recession, producer services linked to intermodal transportation have been growing, but that the growth has come mainly from enterprises with a relatively small labor force. Many are branch offices of large national and multi-national corporations that are themselves directing the intermodal revolution. The evidence suggests that the vertical disinte- gration taking place in the broader service economy is not being repeated in the transport sector.

1. INTRODUCTION As research into producer services deepens, it becomes clear that the char-

acter and behavior of service firms is more complex than the patterns dis- played by financial services that have occupied much of the earlier geographic research agenda. This paper, which focuses on the businesses linked to intermodal transportation, examines a sub-sector that has characteristics that differ from m a n y other producer services. To some extent, therefore, this is a case s tudy that is suggestive of the complexity of the producer services as a whole.

This research was under taken in the context of trying to unders tand how specialized producer services have reacted to recent developments in the struc- ture of intermodal traffic in Nor th America. Intermodal traffic is defined as unitized loads (containers, trailers) that are transferred from one mode to another. Significant changes precipitated by deregulation and technological change have occurred over the last decade in the rail intermodal freight business in Canada and the U.S. Formerly, freight handling was characterized by an extensive distribution network, in which a very large number of terminals were involved. In 1978 for example, there were 1,176 terminals in the U.S. with intermodal handl ing capacity. This network has changed dramatically since the late 1980s. Traffic is being concentrated at a relatively small number of load centers. There are now only 79 inland rail hubs in Canada and the U.S. which act as collection and distribution centers for truck transport. These hubs serve tributary areas of approximately 200 miles radius (Slack 1990).

Deregulation of the railways in 1980, with the Staggers Act, and of maritime shipping in 1984, with the Shipping Act, created opportunit ies for car-

254 PAPERS IN REGIONAL SCIENCE, VOL. 75, NO. 3, 1996

riers and others to organize trade flows across different modes, and establish 'seamless' transportation systems (Mahoney 1985). The goal of marketing door- to-door services became a possibility. An important factor in the development of this new network is the international maritime container, which is rev- olutionizing the rail business almost to the degree to which it had previously transformed maritime transportation. As 'container on flat car' (COFC) and its recent double stack (DS) adaptation, the container has given the opportunity to the railways to compete with long-haul trucking (Manalytics 1990). These new systems and networks have an effect beyond the transformation of traffic flows. There has been an impact on the businesses that organize and serve the transportation industry. In a few major hubs new business opportunities have been created. The purpose of this paper is to examine the changes that have occurred in the transportation service sector in a sample of intermodal hubs that have experienced traffic concentration. Services activities in these cities may have benefited from the enhanced traffic. The extent and character of the changes will be compared with the larger transport service sectors of established centers.

2. SERVICES LINKED TO TRANSPORT While many general studies of the service economy have indicated that

transportation and distribution services are one of the largest clusters, they have been largely ignored by the growing literature in the field (Daniels 1985). The businesses that comprise the transport service sector are engaged in a range of activities that include the provision of transport service, such as shipping lines and trucking companies; producer services that organize or facilitate freight movements, such as freight forwarders, insurance, factoring, and customs brokers; the provision of specialized services, such as container leasing, and equipment suppliers; and, the offices of firms involved in cargo handling, such as warehousing.

This sector has been shown to be a specialized subset of the general service industry of major transportation cities. In Dunning and Morgan's (1971) factor analytical study of business linkages in London, services including shipping lines, forwarding, marine insurance, and the shipping exchanges, that were loosely called 'trading' services, were shown to be one of the most distinctive functional clusters of the City. O'Connor (1987) demonstrated the relationship between a number of businesses in the transportation service industry and the profile of the urban system in Australia and the U.S. as a whole. Both producer services in general, and transportation services in particular, were disproportionately concentrated in Sydney and New York. He postulated close linkages between the shipping lines attd banking. This association was con- firmed by Wong (1982) for Hong Kong. The linkage between transportation services and the banks (and one might add other institutions such as the mercantile exchanges and customs houses) helps produce another, and perhaps most distinctive, features of the industry: its pattern of extreme intra-urban concentration. Slack (1989) has collected examples of the remarkable spatial agglomerations of transportation services in many major cities (for an example, see Figure 1), and has traced the stability of such concentrations in the case of Montreal for a period of 150 years (Slack 1986).

SLACK: SERVICES LINKED TO INTERMODAL TKANSPORTATION 255

N "\~ (/I.. -~ / % �9 ~ �9 ,

-- ~ Tei ~ . I 0 L N I / / ~-o'oool : . ,' /

she.e, \ I / /

A'. !,,, ,,-' h'7 . . ,; " ~ (( | I i I I " , , u ~ .~ '~ ', d . ; I v

Tsitr~lSh~ Tt~ui ~ -

~ . , L - "

~ / / S ' Sheung Wane q l l l l ~ . % ~ / l ~ C e n t r a l District) t '~ ~"~'~'-----~/

�9 ~ - . ~ - - - - - ~ v ~: : :ow. : . : - i " ~ 1 ~ . ~1"~ - - W a n thai -- ~ e ~ l ~ .~ (Causewa~u~Bay)

" - - " - - A L ' ~ _ , . - , T - - " " HONG KONG �9 e.

I 0 1 Km L I

LEGEND

Number of Businesses

: �9 �9 �9 2-5 6-9 10 & more

. . . . . Major Road

Source: Hong Kong Gov't, Lands Dept. St Survey Div.,Tth ed. 1984.

FIGURE 1. Shipping Companies in Hong Kong and Kowloon


The transport service sector has several distinctive features structurally. In Montreal it has been shown to be characterized by many small firms (median size 15 employees) that occupy relatively small premises (median 303m2). Managers account for one fifth of the labor force, while clerical staff represent nearly two-thirds (Slack 1989). Studies in many parts of the world confirm these features, as well as the high turnover of firms. Many types of services, such as forwarding, do not have high capital requirements, thus entry thresholds are low. As a result, most firms lack capital resources, and are frequently swept away by fluctuations in the business cycle (Seah 1984). Busi- ness longevity is rare.

It is much more difficult to determine how the volume of business is dis- tributed. While the sector is dominated numerically by small firms, their rel- ative share of business activity is probably small. A relatively small number of firms with international links, such as Kuhn & Nagel, Danzas, Sea-Land etc. appear to dominate the market. Confirmation may be obtained from a few detailed surveys. For example, Seah (1984) determined that 48% of businesses in Singapore generated less than $50,000 in receipts, while 5% generated over $2 million, and Baxter and Allera (1980) indicated that 3% of forwarders in Britain account for 37% of all profits.

3. SERVICES LINKED TO INTERMODAL TRANSPORTATION To what extent do the services that have taken advantage of the recent

concentration of intermodal transport in North America mirror features of the industry elsewhere? Do they repeat the patterns of spatial concentration found in the established transportation centers? Who has taken advantage of the growth of traffic - locally-based firms or outsiders? These are some of the questions this paper addresses.

One of the great difficulties in researching the transportation services sector is the lack of data. Many of the business types are too specific to be rec- ognized in census tabulations. Business directories provide a partial solution, but frequently are incomplete and inconsistent from one year to the next. The Transportation Tickler of the Journal of Commerce, for example, provides a fairly comprehensive listing for major cities, but does not provide a classified break- down, which was deemed necessary for this study. Here, tabulations were drawn from the Yellow Pages, a source that offers a fairly comprehensive, if rather generalized, coverage. Data were drawn for three Canadian hubs: Cal- gary, Toronto, and Winnipeg. These Canadian centers are the major inland intermodal centers in the networks of Canadian National and Canadian Pacific railway companies. In order to provide some comparison from the U.S., Mem- phis and Columbus were selected as comparable in size to the Canadian hubs. It should be noted that there are no published data on the traffic of individual facilities. The comparability was determined by assessments based on handling equipment and published reports in the trade journals. The probable rank order of the centers in terms of traffic (from largest to smallest) is Toronto, Memphis, Columbus, Calgary and Winnipeg. All have developed as intermodal hubs over the last 10 years.

Numbers of firms in three broad groups of services were collected from the 1992 Yellow Pages for each of the cities. The first group was made up of

SLACK: SERVICES LINKED TO INTERMODAL TIGa.NSPORTATION 257

customs brokers, freight agencies, and freight forwarders; the second group comprised steamship agencies and steamship companies; and the third group was drawn from trucking, warehouse, and container leasing businesses. Table 1 contains the overall totals for each city. The totals would appear to cor- respond to the rank order of intermodal traffic of the cities.

Clearly, however, not all these transport service companies appearing in the lists drawn from such a general source as the Yellow Pages are implicated in intermodal transportation. It would have been expensive and potentially redundant to have contacted all firms directly in order to determine which are involved in intermodal transportation. Instead, a full list of businesses for each city was sent to the managers of the various intermodal terminals in each of the cities. They were asked to check off which of the firms, to their knowledge, were implicated in intermodal business. They were also invited to add the names of firms that were not listed. Since there are at least two terminals in each of the cities, a fairly accurate picture of involvement was obtained. The results indicate that a relatively small proportion of the firms are involved with intermodat transport. This is particularly evident for Mem- phis and Columbus. In Canada, it would appear intermodal business involves a broader spectrum of the transport service industry than in the U.S. This may be a reflection of the generally longer tradition of intermodal activity by Canadian railroads.

A questionnaire was administered by mail to the firms identified by the rail terminal managers as being involved in intermodal transportation. It was designed to determine the character of the firms, including their involvement in intermodal business (as measured by the proportion of revenues derived from rail intermodal business); the length of time the firm has occupied the present address (and details on earlier locations if appropriate); where was the head office of the company; and, details on the labor force and recent changes. Because of the large numbers of firms in Toronto, and because of budgetary restrictions, a sample of firms were targeted (see Table 1). The questionnaire was administered during the summer of 1992.

Fifty-nine responses were obtained, representing a very modest 17.1% rate of reply. The distribution of the replies by sector revealed no bias, with all types of businesses being represented. However, there was considerable vari- ation in the rates of reply by city, ranging from 9% for Columbus to 35% for Memphis. In order to facilitate statistical comparisons, Columbus and

TABLE 1. Intermodal Service Industry

Calgary Winnipeg Toronto Memphis Columbus

Total of firms 282 193 328 335 280

total Intermodal 105 61 217 37 55

Number of 105 61 82 37 55 questionnaires

Questionnaires 12 16 13 5 11 received


Memphis responses were joined as a 'U.S.' group, and Calgary, Toronto and Winnipeg as a 'Canadian' group.

Some preliminary observations from the survey reveal a bi-polar distribution of firms regarding their degree of involvement with intermodal transport. Thirty five percent of the firms derived less than 20% of their revenues from intermodal activity, while an equal number of firms obtained in excess of 80% of their revenues from intermodal business. This comparable with results obtained from surveys of the broader transportation service industry which have indicated that firms are either deeply involved in transportation, or are only marginally dependent.

The survey indicates that 53% of the businesses had been in their current premises for less than 5 years, that 44% of the firms had relocated at least once in the city. Twenty per cent were firms that had estabhshed themselves in the respective cities in the last 5 years. The latter were labelled 'new', but only in the sense that they did not operate before in the city - they could be branches of well-established firms elsewhere. These results are once again comparable with other surveys of the broader transport services industry, which have revealed high locational mobility and significant turnover of companies. For those firms that had relocated, most cited cheaper rents as the determining factor, and it was significant that when the former addresses were located, a large majority had moved out from a downtown location to more peripheral office sites. For 58% of the firms their present office was the head office of the company. The pattern of city affiliations for the 42% of firms headquartered elsewhere is very broad, with New York (5), Toronto (3), Chi- cago (2), and San Francisco (2) being the only cities with multiple citings.

The median number of people employed in the firms in the sample was 19, which is higher than the industry in general. However, the overall size profile of the sector is comparable, with many smaller firms, and a few larger enterprises. The mean number of employees per firm was 32.

As hypothesized, the services linked to intermodal transportation is a growth sector. Twenty percent were new firms in the city (as defined above). Forty-nine per cent of the firms had increased their labor force over the three previous years, and a further 27% had maintained their labor force at the level of 1989. Considering these three years (1989-1992) coincided with a period of recession in North America, one that was very severe in the service sector, the fact that three quarters of the firms surveyed had resisted the overall trend in the economy, points to the important benefits brought about by the restructuring of intermodal transportation.

Figure 2 displays the geographical distribution of transportation services in the largest centre, Toronto. Both the industry in general (obtained from the Yellow Pages and shown in open circles), and the firms identified by the terminal managers as having a business involvement with rail intermodal transportation (shown in dark circles), fail to conform to the pattern of marked agglomeration found in Montreal, London or Hong Kong. Certainly, there is an important cluster of firms in the downtown core, but the greatest agglomeration occurs at the airport. It may be noted that CP's Obico intermodal terminal appears to have exerted influence on some office locations. In general, the intermodally oriented firms exhibit a locational pattern that is somewhat

SLACK: SERVICES LINKED TO ENTERMODAL TRANSPORTATION 259

0 0

0

LEOENO

oOo00

O o

O

o

o O

|

o

�9 o

o o

O

H

Q -

O

O

O

FIGURE 2. Transportation Services in Toronto

more concentrated than the overall transport service industry, but falls far short of being an agglomeration. Similar tendencies were noted for the other cities, such as Winnipeg and Calgary

A cross tabulation of the responses was undertaken to investigate rela- tionships between the variables. The Chi-square test was employed to identify associations that departed from the expected distributions.

Several statistically significant associations at the .05% level are evident. There is a relationship between the size of the firms (based on the number


of employees) and their age. This is founded on the tendency for the most recently established firms to be small. Age was also significantly related to head office location. The longer established firms tended to be local, whereas the more recently established businesses tended to be branch offices. Type of business provides a further statistically significant relationship with the age of the firms. Shipping companies/agencies tend to be amongst the youngest firms, while trucking-warehousing tend to be amongst the oldest established businesses in the sample cities. These associations are reinforced by the link between head office and functional type, in which shipping companies/agencies tended to be headquartered elsewhere. Again truck/warehousing firms tended to be locally-based.

The only other relationship that is statistically significant is that between the cities and the degree of intermodal business. Here, firms in the U.S. cities tend to be more oriented towards intermodal activity than those in Canada. It is worth noting the lack of any significant association between growth and other variables. Employment increases appear to have occurred across industry types and size.

4. INTERPRETATION This cluster of associations confirms an important feature of recent inter-

modal business that has been reported in the trade literature (Bowman 1992, Crichton 1992, Jacobs 1993). The degree of involvement of the shipping lines in the container business is strengthening. Many of the largest lines, such as American President Line, Sea-Land, K-Line, and Maersk, are transforming themselves into logistics companies that are global in scale. They are seeking to extend their operations beyond the ports, right into the main market areas, in order to provide door-to-door service globally. Whereas in the past 'third parties', independent forwarders and freight agents, were central in the organization of trade and in the provision of service to clients, today the lines themselves are attempting to place all freight movements under their own direct physical and organizational control. Increasingly they are being referred to as 'fourth parties'. While cost factors are involved here, the decision to dis- pense with the traditional 'third party' producer services is predicated more on being able to adapt to 'Just in Time' production systems, and the imperative of ensuring a quality of service and reliability that such systems demand. It is argued that by providing the service directly, higher levels of customer satisfaction can be obtained. Poor quality of service has been seen for some time as one of the weaknesses of traditional rail service. Not only are the shipping lines operating trains, managing terminals, but they are attempting to deal directly with the customers. The offices fourth parties are opening in the inland hubs are a major component of this development, a trend that this survey confirms.

Although part of the recent invigoration of the transport service sector in inland load centers has come from firms headquartered elsewhere, no relationship between recent growth and whether the firms are locally based was observed. Locally based firms appear to have enjoyed recent business growth as much as branch offices. What this suggests is that, although there has been an influx of offices from the shipping lines, sufficient new business has been

SLACK: SERVICES LINKED TO INTERMODAL TRANSPORTATION 261

generated that locally-based firms, such as truckers and freight agencies, have been able to profit, at least in the short run.

Although a relatively large number of businesses were branch operations, the diffused pattern of head office locations is supportive of recent research in the larger service economy. In the broader sector, head offices, which at one time were highly concentrated in the uppermost tier of cities in the national system, are now tending to disperse down into regional centers (Sem- pie and Phipps 1982). The diffused distribution of head offices of firms in the intermodal transportation sector appears to be a reflection of this, since many of the industry leaders are headquartered in smaller centers. Sea-Land, for example, the largest container shipping line in the world, has progressively moved from headquarter locations in Greater New York, to outer New Jersey suburbs, and recently to Charlotte, NC.

The influence of branch offices, however, implies that researchers must be cautious in implying small size to office activities in particular cities. They may be local representatives of very large enterprises. Furthermore, the decision by many shipping lines to take on producer service functions themselves raises both practical and theoretical questions. On a practical level, one may wonder how long the independent enterprises will be able to continue to ben- efit from the success of intermodal transportation when fourth party interests establish themselves more fully. Although, this survey has indicated that local firms have taken part in business growth, the policy goals of the mega carriers would appear to cast shadows over their continued involvement. This is the conclusion of a recent study of forwarders in Holland which has shown they must adapt or perish (Erasmus University 1994), and confirms the fears expressed about the independent agencies in the trade literature (Crichton 1992).

The trend reported above appears to go against the findings of research in other areas. The dynamism of other producer service complexes has been associated with vertical disaggregation, where companies contract out certain functions to small specialist service firms. This is seen as an essential feature of the process of economic restructuring which favors the creation of more flexible forms of organization (Scott 1988, Coffey 1992). This does not appear to be occurring here, however. Indeed, the trend in intermodal systems seems to be going in the opposite direction, as the fourth parties extend their direct control over the entire transportation chain. The differences raise doubts about the nature of economic restructuring and its presumed post-Fordist organizational character (Sayer 1989). Transportation multi-nationals are putting for- ward powerful reasons for expanded vertical integration. Re-focusing on service criteria, abetted by new technologies, such as double-stacking and Elec- tronic Data Interchange (EDI), and exploiting JIT economies, carriers are inte- grating their structures while globally extending their spatial reach.

The evidence drawn from the Canadian cities (detailed locational analysis for Memphis and Columbus still has to be completed) suggests that the intermodal services are not agglomerating to the same extent as transport service complexes elsewhere. The former locational determinants of customs houses, banking nodes and mercantile exchanges are no longer relevant, because EDI and other electronic communication systems provide firms with accessibility


wi thout the need for spatial proximity. In this respect, in te rmodal services appea r have as w idesp read locational pa t terns as m a n y types of office functions in general. There is n o w extensive evidence in the l i terature of an office sector that is established increasingly outside the CBD in a range of per iphera l locations (Daniels 1985). However , it should be noted that the distr ibution of in te rmodal services in Toronto does not replicate the f indings of a recent s tudy of offices in that city, in which the impor tance of single-use parks and mul t i -purpose centers is cited (Mat thew 1993). It is p robab ly too ear ly to detect whether the new in te rmodal terminals will serve as at tractions to businesses to the same degree as airports.

5. C O N C L U S I O N T h e es tabl ishment of new traffic hubs tied to in te rmodal t ranspor ta t ion

has been shown to have opened up oppor tuni t ies that t ranspor t service f irms are exploiting. While the impe tus for deve lopmen t has come f rom the sh ipping companies open ing branch offices, the g rowth has been fairly b road ly based, and this in a per iod of significant recession in the wider service economy. Some similarities wi th t ranspor t services e lsewhere include the small size of the offices and the tu rnover and locational mobility. Yet there are significant differences. In t ra -urban locational pat terns appea r to be dispersed, and the rail hubs themselves do not yet appea r to have exerted m u c h locational attrac- tion as yet.

Al though the evidence presented in this pape r is f ragmentary , it is sug- gest ive of some of the effects of the economic res t ruc tur ing of giant corporations. Far r e m o v e d f rom the ocean arenas over which the sh ipping lines tradit ionally have domina ted , inland centers are being b rough t into ne tworks that are global in scope. In this sense, the services exploit ing these development s can be seen as amongs t the vangua rd of a still evolving service econ- o m y that is becoming ever more extensive spatially, bu t more concentra ted perhaps. Economic res t ructur ing in the in te rmodal indust ry does not replicate the vertical dis integrat ion repor ted in other sectors of the service economy.

A C K N O W L E D G M E N T

This research was funded by the Social Science and Humanities Research Council of Canada. I am grateful for the insightful comments of two anonymous reviewers.

REFERENCES

Baxter R.E. and Allera S.V. 1980. Freight transport: shippers and forwarders. Transport and the Challenge of Structural Change. OECD, Paris, 459-501.

Bowman, R.J. 1992. Shippers to Carriers: Add value or Die. World Trade, 5: 70-73. Coffey, W.J. 1992. The Role of Producer Services in Systems of Flexible Production. In Ernste H.

and Meir V. (eds), Regional Development and Contemporary Industrial Response. Bellhaven Press, London, 133-146.

Crichton, J. 1992. The End of the Line?. Containerisation International. March, 30-34. Daniels, P.W. 1985. Service Industries. Methuen, London. Dunning J.H. and Morgan E.V. (eds.). 1971. An Economic Study of the City of London. George Allen &

Unwin, London. Erasmus University 1994. "Companies in the Port of Rotterdam Should Contemplate the Future".

International Newsletter Erasmus, No. 14, p. 13.

SLACK: SERVICES LINKED TO INTERMODAL TRANSPORTATION 263

Jacobs, J. 1993. Fast forwarding. International Business, 6: 29-32. Mahoney, J.H. 1985. Intermodal Freight Transportation. Eno Foundation, Westport. Manalytics Inc. 1990. Double Stack Container Systems: impacts for US Railroads and Ports. U.S.

Department of Commerce, Washington. Matthew M.R. 1993. The suburbanisation of Toronto Offices. The Canadian Geographer, 37:293 -306 O'Connor, K. 198Z The Location of Services Involved With Trade. Environment and Planning A. 19:

687-700. Sayer, A. 1989. Postfordism in question. International Journal of Urban and Regional Research. 13:

666-695 Scott, A.J. 1988. "Flexible Production Systems and Regional Development". International Journal of

Urban and Regional Research. 12: 171-186. Seah, C. M. 1984. Freight Forwarding in Singapore. Singapore University Press, Singapore. Semple, R.K. and Phipps, A.G. 1985. The Spatial Evolution of Corporate Headquarters within an

Urban System. Urban Geography, 3: 258-279. Slack B. 1986. Persistence and Change in the port service industry in Ports et Mers J. Charlier (ed),

Paradigme, Caen Slack B. 1989. The Port Service Industry in an Environment of Change. Geoforum. 20:447-457. Slack B. 1990. Intermodal Transportation in North America and the Development of Inland Load

Centre. Professional Geographer. 42: 236-243. Wong, K.L. 1982. Office Location Study of Shipping Companies. Undergraduate thesis, Department of

Geography, University of Hong Kong.

services linked to intermodal transportation

Documents