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October 23, 2015


"Good transportation systems connect people to the jobs, education, and
community supports that enable them to prosper and advance
economically." CLASP
Transport cost is the expenses a company incurs when it transfers its
inventory or other assets to another location. 1 They come as fixed and
variable costs, depending on a variety of conditions relation to geography,
infrastructure, administrative barriers, energy, and on how passengers and
freight are carried.2 How transportation is measured affects planning and
evaluating decisions. Consumers and merchants investigate all costs and
benefits before transacting in business and the need an accurate and
comprehensive information on all significant impacts when making
transport/travel policy and planning decisions.3
Transport costs have significant impacts on the structure of economic
activities as well as on international trade. Raising transport costs by 10%
reduces trade volumes by more than 20% and that the general quality of
transport infrastructure can account for half of the variation in transport
costs. In a competitive environment where transportation is a service that
can be bided on, transport costs are influenced by the respective rates of
transport companies, the portion of the transport costs charged to users. It is
thus common for public transit systems to have rates that are lower than
costs and targeted at subsidizing the mobility of social groups such as
students, the elderly or people on welfare.4
Transportation costs can be categorized by several attributes such as:
a. distribution which can be both internal and external impacts. Internal
impact, also called user, are borne or accrue directly by a goods consumer
2 Transport Costs and Rates by Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom, (
3 Transportation Cost and Benefit Analysis, Todd Alexander Litman (Victoria Transport Policy Institute)
4 Transport Costs and Rates by Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom, (

while external impacts are borne or accrue by others; b. variable and fixed
attributes. Variable costs increase with consumption while fixed costs do not;
c. market or non-market, market costs involve goods that are traded in a
competitive market, such as vehicles, land and fuel, while non-market costs
involve good that are not regularly traded in markets, such as clean air and
crash injuries; d. Perceived or Actual, motorists tend to perceive immediate
costs such as travel time, stress, parking fees, fuel and transit fares, while
costs that are paid infrequently, such as insurance, depreciation,
maintenance, repairs and residential parking, are often underestimated; and
e. Price which refers to what consumer pays in exchange for a particular
good, or perceived-internal-variable cost. In general, a market is most
efficient if prices reflect marginal costs.5
Planners often measure transport system performance based on
vehicle traffic conditions (e.g. average vehicle speed, roadway Level of
Service, congestion delay). This tends to skew planning decisions to favor
automobile travel improvements For example, wider roads, higher traffic
speeds and larger parking facilities benefit motorists, but tend to create land
use patterns less suited for transit, cycling and walking. If the benefits to
motorists are measured, but disbenefits to other modes are not, transport
planning decisions will tend to favor automobile travel at the expense of
other modes.6 Transport as mobility (measured as person-miles or persontrips) acknowledges that other modes (transit, ridesharing, bicycling and
walking) also provide access. Only if transport is evaluated in terms of access
can strategies that reduce the need for travel, such as telework and more
efficient land use, be considered as solutions to transport problems.
Increased mobility may simply indicate an overall reduction in access.7
Transportation offers a spectrum of costs and level of services, which
results in substantial differences across the world. The price of a transport
service does not only include the direct out-of-the-pocket money costs to the
user but also includes time costs and costs related to possible inefficiencies,
discomfort and risk (e.g. unexpected delays). However, economic actors
often base their choice of a transport mode or route on only part of the total
transport price. Many shippers or freight forwarders are primarily guided by
direct money costs when considering the price factor in modal choice. The
narrow focus on direct money costs is to some extent attributable to the fact
that time costs and costs related to possible inefficiencies are harder to
5 Transportation Costs and Benefits, Resource for measuring transportation costs and benefits (
7 John Whiteleg, 1993, Time Pollution, (

calculate and often can only be fully assessed after the cargo has arrived.
Among the most significant conditions affecting transport costs and thus
transport rates are geography because it mainly involves distance and
accessibility; type of product being delivered which requires packaging,
special handling, in bulk or perishable; economic of scale as the larger the
quantities is transported, the lower the unit cost; energy is also a factor
because transport activities are large consumers of energy, especially oil.
About 60% of all the global oil consumption is attributed to transport
activities and transport typically account for about 25% of all the energy
consumption of an economy; trade imbalance also affects transportation
costs between imports and exports especially in the case for container
transportation since trade imbalances imply the repositioning of empty
containers that have to be taken into account in the total transportation
costs; infrastructures as to the efficiency and capacity of transportation
modes and terminals has a direct impact on transport costs. Poor
infrastructures imply higher transport costs, delays and negative economic
consequences. More developed transport systems tend to have lower
transport costs since they are more reliable and can handle more
movements; mode is also a basis since each has its own capacity limitations
and operational conditions. When two or more modes are directly competing
for the same market, the outcome often results in lower transport costs.
Containerized transportation permitted a significant reduction in freight
transport rates around the world; Competition and regulation as it concerns
the complex competitive and regulatory environment in which transportation
takes place. Transport services taking place over highly competitive
segments tend to be of lower cost than on segments with limited
competition; surcharges, it refers to an array of fees, often set in an
arbitrary fashion, to reflect temporary conditions that may impact on costs
assumed by the transporter. The most common are fuel surcharges, security
fees, geopolitical risk premiums and additional baggage fees. The passenger
transport industry, particularly airlines, has become dependent on a wide
array of surcharges as a source of revenue.8
Transportation provides tremendous benefits, and various techniques
can be used to measure these benefits.9 These are so large that it is difficult
to calculate the total benefits of all transportation activities. However, even if
such a number would be calculated it would have little practical use. The
important factor is the marginal benefits provided by a particular policy or
project compared with a base case. 10 How transportation is measured affects
planning and evaluation decision. Traffic, mobility and accessibility are often
9 Goodwin and Persson, 1999

used to measure transportation. Mobility is used to measure the movement

of people and goods, measured in terms of travel distance and speed. The
ultimate goal of most transport is accessibility. The ability to reach desired
goods, services, activities and destinations. 11 At the international level,
doubling of transport costs can reduce trade flows by more than 80%. The
more affordable mobility is, the more frequent the movements and the more
likely they will take place over longer distances. A wide variety of transport
costs can be considered:
a. Terminal costs. Costs that are related to the loading, transshipment
and unloading. Two major terminal costs can be considered; loading
and unloading at the origin and destination, which are unavoidable,
and intermediate (transshipment) costs that can be avoided. For
complex transport terminals, such as ports and airports, terminal costs
can involve a wide array of components.
b. Linehaul costs. Costs that are a function of the distance over which a
unit of freight or passenger is carried. Weight is also a cost function
when freight is involved. They include labor and fuel and commonly
exclude transshipment costs.
c. Capital costs. Costs applying to the physical assets of transportation
mainly infrastructures, terminals and vehicles. They include the
purchase or major enhancement of fixed assets, which can often be a
one-time event. Since physical assets tend to depreciate over time,
capital investments are required on a regular basis for maintenance.12
d. Travel time costs. Travel time is one of the largest transport costs, and
travel time savings are often the greatest potential benefit of transport
improvement. Various studies have calculated travel time values
relative to wage rates based on traveler behavior, and several time
value schedules have been developed based on such studies 13. Many
specific attributes of travel, such as comfort, safety and prestige, can
be reflected in travel time costs.14
e. Congestion costs. It consist of the incremental delay, stress, vehicle
operating costs and pollution that results from each additional vehicle
10 Transportation Costs and Benefits, Resource for measuring transportation costs and benefits (
11 Special Issue on Methodological Issues in Accessibility: Journal of Transportation and Statistics, (
13 Wardman 1998; Small, et al. 1999

added to the traffic stream. It is an externality in terms of economic

efficiency, and to some degree in terms of equity due to differences in
the cost per passenger-mile imposed by different modes.15
f. Environmental Costs. These include air, noise and water pollution,
waste disposal and the environmental impacts associated with
transportation facilities, such as loss of wildlife habitat. 16
g. Fuel production and consumption cost. It can impose various external
costs, including national security risks and macroeconomic impacts on
individual economies that import fuel, depletion of non-renewable
resources, various financial subsidies, and environmental damages
(including greenhouse gas emissions). Put another way, there may be
benefits to society from increased energy efficiency and
Transportation activities have a wide range of economic impacts.
Numerous studies have investigated these benefits and costs. There are
different formulas used to measure transport costs, however, these costs are
currently either fixed or external. Special consideration is needed when
comparing different modes, since their costs can vary depending on travel
conditions, personal preferences, and analysis assumptions. 18 The
requirements of international trade gave rise to the development
of specialized and intermediary firms providing transport services. Our trade
system and laws evolves and changes from time to time as much as it
affects transportation of passengers and goods and its costs. The costing
method may be helpful as a guide to determine transport costs generated in
trade domestic or abroad. We spend on transportation in order for us to do
our business, trade and work as a daily basis, it is what the transport
provider must pay to produce transportation services we enjoy today.

15 Ibid
16 ibid
17 ibid
18 Transportation Cost and Benefit Analysis II Transportation Cost Implications