Impact of Transportation on Trading

Impact of Transportation on Trading

The presentation on Marie and her husband revealed important details regarding transportation. The choice to break the routine and stop trading locally by moving goods to another location is rewarding. The nature and quantity of the benefits highly depend on a range of factors. For instance, the mode of transport utilized along the journey where many risks are involved often leads to higher rewards, while the reverse is also true. Transportation influences trade at local and international levels, which leads to the question of its role, especially in facilitating or limiting trade. Research suggests that transport affects the development of business, locally and internationally. One of the evident traits of transportation in trading is the involved costs, which can foster or inhibit the business.

Transportation Costs

The role of transportation cost on trading is evident. The cost of using a particular mode of transport has emerged as a unique variable that affects the development of trade. For example, if a given means of transportation contains hidden charges, traders are likely to avoid it. Besides, within a short distance, such as the one involving local trading, a single mode of transport can be advantageous. However, when trade extends beyond national borders, it becomes necessary to adopt multiple modes of transportation through a multimodal approach. Transportation advancements, primarily through a multimodal approach, facilitate further trading by reducing the associated costs. The related value is noted in the freedom to shift low-value products from one region to another, especially across vast distances, with minimal impact on the prices. The significance of such advancements is notable in the transportation revolution in the 19th century (Ślusarczyk 186). As transportation advanced from simple to complex, it became easier to trade and ship products across vast distances, shifting trading from local through regional to international.

High transportation costs limit trade for cheap and averagely priced commodities, with only the expensive products having the license to trade. Such is evident in the initial revolution of transportation from the 16th to 18th centuries, where the enormous cost of shipping restricted trading (Ślusarczyk 187). Improvement in existing structures is likely to lower the overall transportation cost, which facilitates trade between regions through increased trade flows and local specialization. However, the dependency on the mobility of the market and production factors should not be underestimated (Verhoef et al. 9). In such a case, the role of economies of scale is noted where transportation costs are likely to affect an area producing goods in high quantities compared to one that deals in a low volume of the same commodity.

Transportation as Derived Demand

Approaching transportation as a model of derived demand shows how transportation costs vary based on market dynamics. The cost of shipping may depend on the available shippers to a given region. A low elastic in-demand product often leads to higher transportation costs, while the inverse is also true (Hummels et al. 5). The observation aligns with the laws of demand and supply, where a reduced amount is likely to increase the price of the commodity. In contrast, a high amount ultimately lowers the price. For instance, the deregulation of such families, as evident in France and Mexico, reduces transportation prices due to increased market entry (Teravaninthorn and Raballand 21). However, the elevated costs of investing in transportation limit the number of participants, which means that composition in some segments is almost non-existent.

Structural Capacities

The cost of transporting commodities also influences the capacities of such infrastructure. Transportation affects trade based on the capabilities of the existing structures. As Marie’s case shows, the family and the villagers transport their trade commodities using carts, which have limited storage and mobility. Therefore, the group’s ability to participate in substantial and beneficial trading was limited. Considering the evolution of transportation structure in history shows a similar observation on the impact of structural capabilities. Before the third revolution of transportation technology from the 50s onwards, the merchant ships were limited in sizes (Ślusarczyk 187). The effect of cost on the transportation capabilities was evident; small scale transportation is expensive compared to large scale transportation based on the factor of economies of scale. The merchants, faced with the challenge of the added cost, focused on increasing their ships’ capacity to transport more goods through a bulk approach to benefit from economies of scale.

The Nature of Available Structure

The existence of transportation facilities is not adequate to facilitate trade. The structures must be in excellent condition to foster trading. If the structures, for example, roads, are weak, they increase the cost of trading over both short and long distances. For instance, in underdeveloped regions, such as that noted in Marie’s case, the residents still have to rely on poor and high-risk transportation infrastructure, which increases trade risk and limits their ability to trade. Facing the dangers associated with the trade routes would prohibit the inhabitants from engaging in trading over long distances. The situation would force them to retreat to their local monopolistic buyer who limited them in terms of varieties and prices of commodities. In developing areas, such as Africa, the lack of competition increases the general transportation costs (Donaldson et al.). Therefore, transportation facilities should be well developed and regularly maintained to ensure the competitiveness of a region from a trading perspective.

Choice of Modes of Transport

The cost of transporting commodities also affects the selection of available methods. The choice of the existing modes of transportation oscillates between the value of the product, the speed of delivery, and the transportation costs (Behar and Venables 9). Most bulk and odd-shaped commodities are likely to be transported through ships, especially over long distances, to save on transportation costs. However, such products may not arrive faster than when other modes of transportation are used. Road transportation favors medium-sized and regular shaped commodities to be transported over shorter distances, which offers average speed of delivery. However, the road is limited by the capacity and other factors such as weather patterns and the condition of roads. On the other hand, valuable products are transported by air as noted by the growth of the mode of transport in accommodating such commodities (Hummels 140). The means offer a decent speed of delivery. However, the involved transportation costs are high, which limits its ability to transfer low and averaged priced commodities.

Conclusion

Transportation is influential in trading, and the cost emerges as crucial in the process, given its subsequent impact on the business. Viewing transportation as an element of derived demand explains how its costing often varies. Reduced transportation costs often facilitate trading by directly or indirectly affecting relevant dynamics such as structural capabilities, nature of transportation, and the choice of the existing mode of transportation.