Chapter 5.pdf - 141 Transportation Economics Chapter 5...

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Transportation Economics 141 Chapter 5 Transportation Economics
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Transportation Economics 142 Topics: History, Definition and Scope of Transportation Economics, Importance of Transportation Economics in Transportation Systems Evaluation, Transportation Demand and Supply, Cost Analysis For Transportation Systems, Case Studies in Transportation Economics 5.1 HISTORY, DEFINITION AND SCOPE OF TRANSPORTATION ECONOMICS 5.1.1 Historical Context Up to the 18 th century, the most important commercial cities in the world were maritime cities due to the relatively low costs of water transportation. However, the invention of the steam engine in the eighteenth century marked a watershed in the history of transportation by allowing for greater economy in transportation of goods and passengers, and therefore shifted the balance in favor of land transportation. After World War II, advancements in road construction technology and mass production of the automobile led to increasing use of highways for land transportation. Currently, highway transportation accounts for approximately 30% of all ton- miles (representing 90% of all overall value) of freight transportation, and over 95% of passenger transportation in terms of person-miles (BTS, 2001). Such modal shifts that have been observed over the years arose from improvements in transportation technology, and resulted in the reductions in transportation costs and time. Reductions in transportation cost and time have in turn led to increased availability of goods, lower prices of goods and services, price stabilization and equalization, changes in land values, urbanization, and equity (Locklin, D.P., 1960). In recent years, certain developments have greatly influenced the economics of the various modes of transportation. These include the deregulation of the transportation industry (1977-1980), which enabled shippers and carriers to negotiate the best mutually beneficial rates and service packages, and Just-in-Time logistics systems, which reduced the need for inventory and therefore lowered the holding costs of goods. The other developments are increasing demands of customers for improved quality of service (which includes ensuring that a product is transported to a destination when it is needed, in the right quantities and in undamaged condition), and globalization of business, as companies are increasingly seeking to purchase their production inputs or market their products regardless of global location (Wood and Johnson, 1996). 5.1.2 Definition Economics has been defined as “the study of how people and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternative uses to produce various commodities and distribute them for consumption, now and in the future, among various persons and groups in society. It analyzes the costs and benefits of improving patterns of resource allocation” (Samuelson, 1976).
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