1. Logistics Intensive Clusters Yossi Sheffi Elisha Gray II Professor of Engineering Systems, MIT Director, MIT Center for Transportation and Logistics Head, MIT Engineering Systems Division

2. Clusters Silicon Valley Hollywood Wall Street Napa and Sonoma Valleys “Bio-Cambridge” 2

3. Literature Alfred Marshal, Principles of Economics (1920): “Positive externalities of co-location.” Knowledge sharing Supply base Labor pool Michael Porter,Economics of Competition, Harvard Business review (1998) Increased productivity Increased pace of innovation High pace of new business formation 3

4. Types of Relationships Customer Company Competitor Complement Supplier 4

5. Types of Relationships Customer Company Competitor Complement Supplier 5

6. Economists are Asking: Why cluster? Isn’t EDI, video-conferencing, visibility software, etc, enough for communications? (remember Tom Friedman?) If this is not enough, why don’t companies in a cluster acquire each other more than we see? 6

7. Why Clusters? Trust Tacit knowledge exchange Collaboration Research and education Supply base/customer base Are clusters an optimal point between slow behemoths with scale and nimble competitors with not enough resources? 7

8. Logistics Clusters Singapore Holland Zaragoza Memphis Louisville Panama Jolliet 8

9. Logistics Clusters Classification Modal orientation Air (Memphis, Schiphol, Changi…) Port (Rotterdam, LA/Long Beach, Singapore…) Rail/Intermodal (Chicago, Dallas, Kansas City…) Trucking Scope-based International Regional Urban distribution Functional classification FTZ/ Bonded/ Export processing Single commodity logistics parks (food, electronics, chemicals…) Special services (Haz Mat; Bulk distribution; Temp-controlled…) 9

10. Success factors:Operational Advantages Transportation: Economies of scope (I/B – O/B; containers) Economies of scale (capacity utilization; larger conveyances; direct LTL) Economies of density Economies of frequency Resource sharing Transportation capacity; warehouse space; equipment Changing providers Expansion capabilities 10

11. Example: and 11

12. Success factors:Natural Environment - Geography Singapore Holland Zaragoza Memphis Panama Chicago 12

14. In Kazakhastan: 93 days

15. In Mali: 67 days

16. In Sweden: 6 days

17. A typical export transaction requires:

18. In Democratic Republic of Congo: 42 approval signatures

19. In Nigeria: 39 approval signatures

20. In Australia, Austria, Canada: 2 approval signatures

21. In Germany: 1 approval signature13

22. Independent, business-oriented management Tax advantages (FTZ, tax deferments, bilateral trade agreements) Other investments, educational institutions, business development Support for cluster-wide IT applications Success factors:Government and Regulations World Bank’s Logistics Performance Index 14

23. Value Added Activities Postponement/customization Return and repair Outsourcing Medical “rental” Related competencies Logistics clusters enable new multi-company offerings and operations 15

24. Impact - 31.2 Million ft2 of distribution space (by 2008) 28,000 jobs were created in the park (in addition to the 1,710 construction jobs) 63,388 indirect jobs total economic impact from 1990 through 2008 at $36.4 Billion Investment: $387 million from public sources Return:11% though 2008; 19% of current trends continue 16

25. ? Thank you ? ? ? ? Yossi Sheffi SHEFFI@MIT.EDU 17