Transport Economics

Transport economics

Is the study of the movement of people and goods, focusing on the economic principles and policies that influence transportation systems and services.

Derived demand

Is when the demand for a product or service depends on the demand for another product or service.
Example: nobody is going to use transport, without a reason.

Demand for goods

The quantity of a good or service that customers are willing and able to buy at various prices, it must be backed by purchasing power. When prices fall, demand rises.

Consumer surplus

The financial gain a consumer feels when they purchase a product for less than the maximum price they are willing to pay.

Producer surplus

Is the extra benefit a seller makes by selling a product for a higher price than the minimum they are willing to pay.

Equilibrium

The same amount of produce as that there will be sold.

Demand curve

A graph showing the relationship between a product’s price and the quantity consumers are willing to buy. It reflects the willingness to pay for the product.

Demand for goods

The quantity of a good or service that consumers are willing and able to buy at various prices during a specific time.

Infrastructure

Fixed capital goods: government or private investors invest money in infrastructure.
Example: tunnels, airports, seaports, etc.

Means of transport

Mobile capital goods. These means can, and mostly, be moved.
Example: trams, aircraft, ships, car, bus, etc.

Traffic performance

The efficiency of a transport network in moving people or goods.

Private individual type of load

Car, bike, motorbike

Private and common type of load

School buses, coach services

Public and individual type of load

Taxi

Public and common type of load

Train, tram, bus, underground

Bulk cargo

Goods that are transported in large quantities without packaging.
Example: iron ore, coal, grain, oil, chemicals

General cargo

Goods that are shipped per item or package.
Example: bags, boxes, unloaded on pallets (steel products, heavy machinery)

Passenger transport

Important criteria: price, comfort, accessibility.

Freight transport

Valuable goods, perishable goods, and fragile goods will often be transported within the continent, using the roads and rails.

Scheduled transport

Public transport and scheduled airline flight.

Non-schduled transportation

Not operating according to a fixed schedule.

Own account service provider

A company that transports its own goods using its own vehicles and personnel, rather than hiring a third-party carrier.

Third-party service provider

Is an external company that handles specialized logistic functions, transportation, warehousing, and fulfillment for another business.

Skm

Full capacity x distance in km

Pkm

Passengers x distance in km

Third-party transportation

Transportation costs are the carrier’s rates.

Own account transportation

Fixed costs, variable costs, overhead costs, and optimal replacement policy.

Handling costs

Costs for loading and unloading goods

Inventory costs

These are the costs of keeping goods in storage, not selling them yet.

Depreciation of goods

Goods lose value over time.

Warehousing costs

Costs for storing goods.

Cycle stock

The normal inventory you use between two deliveries.

Saw-tooth profile

The shape that your inventory level makes over time.

In-transit inventory

Goods that are being transported. This has costs, but no storage costs.

Safety stock

Extra inventory held on top of cycle stock.

Speculative stock

Extra inventory bought in advance

Dead stock

The inventory is no longer useful or sellable.

Stock out costs

Losses when you run out of stock.

Packaging costs

Costs of preparing goods for transport.

Other costs

Costs falling outside of the division of time vs distance costs (port dues, tolls, commissions).

Yearly cycle stock costs

Cycle stock costs depend on order size and frequency

Economic Order Quantity (EOQ)

The order quantity that minimizes total annual cost.

Square root law

Optimal order quantity = √(2 x annual demand x fixed cost per order) / holding cost per unit per year

Stock consolidation

Combining shipments from multiple suppliers or locations reduces total costs.

Direct labour costs

Costs directly related to transportation action by the crew. Driving from A to B, unloading the goods.

Fixed costs

Costs to maintain a certain transport capacity (annual insurance premium, depreciation costs, etc.) Fixed costs you always have.

Distance costs

Only arise when the vehicle is moving: fuel costs, regular maintenance costs, certain damage liabilities, road pricing, half of depreciation costs etc.)

Maintenance costs

The money is needed to keep vehicles in good working condition.

Economies of scale

If a vessel can carry more cargo, the cost per unit goes down.

Sunk costs

Money already spent and you cannot get it back.

Variable costs

Costs that only happen if you do extra work (extra fuel trip, extra maintenance, etc.)

Short-term decisions

Focuses on variable costs

Long-term contracts

Must include fixed costs too, other wise you loose money.

Joint production

One transport service creates output for multiple customers at the same time.

Differential costs

The extra costs caused by one specific customer.

Common costs

The rest of the costs that are shared (basic costs of running on the route anyway).

Market power

Some customers may pay more or less depending on competition, negotiation strength, and importance to the transport company.

Peak time

Many customers want transport.

Off-peak time

Few customers.

Costing

What it costs to run transport.

Pricing

What customers are willing to pay.

Optimal size of the fleet

How many vehicles should the company have.

Composition of the fleet

What type of vehicle you should use.

Queuing theory

If you have more trucks, jobs are handled faster. Waiting time for customers decreases.

Routing

Planing the routes.

Optimal replacement age

You decide on a fixed ‘best age’ to replace a vehicle. Replacement depends on time/age, not condition.

Repair limit

You replace the vehicle when it becomes too expensive to repair. Replacement depends on the condition and repair costs.

Costs that are not affected by age

These do not depend on whether the vehicle is old or new (wages, insurance, fuel, parking).

Inflation/ future prices

Costs in the future may be higher, so calculations become uncertain.

Different vehicle types in the future

You might replace the truck with a different type.

External costs

Costs caused by someone, but paid by other people.

Private costs

What the user pays (fuel, ticket, etc).

Market distortion

When not all costs are included, the market does not work properly.

User pays principle

The person who causes the cost should pay for it.
Example: if driving becomes more expensive, people may: drive less, use public transport, choose cleaner options.

Internalising external costs

Including external costs (like pollution, noise) in the price the user pays.

Purpose of user pays principle

The goal is not to make money; the real goal is to discourage harmful behaviour.

Marginal

The cost of one exra user (or one extra car).

Marginal external costs

The extra cost one additional user causes to society.

Marginal congestion costs

When one extra user enters traffic, this causes delays for others.

Marginal infrastructure costs

Extra use of infrastructure causes wear and tear. Including maintenance and operation.

Marginal environmental costs

Transport harms the environment (noise, air pollution, water pollution, soil pollution, climate change).

Marginal accident costs

Focus is on costs to others, not yourself (medial costs, damage to others).

Survey of taxation methods

Different ways governments charge people for using transport.

Ammount of traffic

This refers to vehicle movement, regardless of passengers.

Amount of transportation

This refers to what is actually transported.

Efficiency of the system (load factor)

This shows how well capacity is used.

Inventory cost during transit

(Inventory costs per year / 365) x transit time

Cycle stock cost

Inventory cost per year per TEU (€) x number of containers / 2 / annual demandFix

Fixed order cost

Order cost per consignment / shipment size

Total cost

Transport + transit + warehouse + order

Depreciation cost (time)

new vehicle/years vehicle is going to be used/ hours per year / 2

Hourly cost coefficient

All time costs per hour x hours used

Maintenance costs

Annual maintenance costs/number of vehicles/ 2

Common and differential costs - distance costs

Total km x km coefficient

Common and differential costs - time costs

Total hours x hour coefficient

Common and differential costs - full route cost

distance costs + time costs

Common costs

Full route costs - all differential costs

Allocation costs

Customers differential costs / total differential costs x common costs

Cumulate demand

potential demand cumulated 1 + potential demand 2

Potential margin revenue

Gross margin per vehice hour x potential demand