Chapter 6: The Role of Transportation in Economic Geography Transport Eras Transport Rates World Transportation Patterns Summary.

Chapter 6: The Role of Transportation in Economic Geography

• Transport Eras

• Transport Rates

• World Transportation Patterns

• Summary

Transport Eras - Taaffe’s Schema

• Local era: pre-railroad and prior to opening of the Erie Canal in 1825

• Trans-Appalachian era: canals and railroads up to ca. 1860 (Figure 6.1)

• Era of railroad dominance (ca. 1860 to World War II) Rise of gateway cities

• Competitive era: multi-modal

Composition of Intercity Freight Traffic

0% 10% 20% 30% 40% 50%

Rail

Trucks

Water

Oil Pipeline

Air

2001

Text

Freight Outlays (Shares of total)

0 0.2 0.4 0.6 0.8 1

Rail

Motor Truck

Oil Pipeline

Water

Air

2001

Text

Revenue Per Ton-Mile

0 10 20 30 40 50

Air

Rail

Motor Truck

Oil Pipeline

Water

1997

Text

Fixed & Variable (Operating) Costs

Mode Fixed/Capital Costs Operating CostsRail or Highway Land, Construction,

Rolling StockMaintenance, Labor, Fuel

Pipeline Land, Construction Maintenance, EnergyAir Land, Field & Terminal

Construction, AircraftMaintenance, Fuel, Labor

Sea Land for Port Terminals,Cargo HandlingEquipment, Ships

Maintenance, Labor, Fuel

Pedestrian/Bikeway Land, Construction Maintenance

The Structure of Transport Costs

Terminal Costs versus Line Haul Costs

- buildings, docks, handling

Distance

Tra

nsp

ort

Cos

t / M

ile

Terminal Cost $5Line Haul Cost $.25/ton-mile

$5.25

1 100

$.30

Tot

al T

ran

spor

t C

ost/

Uni

t W

eigh

t

Distance

Linear

O

T

Tapering

Variations in Transport Costs Among Modes

Distance

Tra

nsp

ort

Cos

t/U

nit

Wei

ght

Truck

Rail

ShipPipeline

Air

T R S

Factors Influencing Transport Rates1. Grouping freight rates into zones (fig 3.14)

2. Variations due to commodity characteristics

(a) Differences in cost of service related to:

(1) Loading characteristics

(2) Size of shipment

(3) Perishability and risk of damage

(b) Elasticity of Demand for Transportation (Box3-1)

3. Variations due to traffic characteristics

(a) intermodal competition

(b) traffic density

(c) direction of haul

Freight Rate Zones

Demand Elasticity$

Q

Elastic

$

Q

PerfectlyInelastic

Q

$ PerfectlyElastic

General Relationship Between Distance and Unit Cost

Distance

Quantity

$

Tapered Freight Rates Can Alter Market Areas

A BM M* M**

Freight Rates Can Create Overlapping Market Boundaries:

Demand Cones from Places A & B

Place A Place BS T

Transport Costs for Inputs and Products

M S

Combined tr. Cost onProduct and Factor

Cost of movingFactor

Cost of movingproduct

Scenario assumes all other costs are spatially invariant

Transport Costs for Inputs and Products With Terminal Costs

M S

Combined tr. Cost onProduct and Factor plus terminal costs

Cost of movingFactor

Cost of movingproduct

Scenario assumes all other costs are spatially invariant

Effects on the Location of Production

General Tendency to Pull Away from Intermediate Locations

Market Material

S

TX

Y

GH

Impact on spacing of isotims – concept coming

Tapered Transport Costs Pull Mfg. towards markets or

materials--But:1. Intermodal “break of bulk” locations

2. In-transit privileges - lower rate for long haul granted to raw and processed materials

Material MarketTransshipmentLocation

MaterialTr. Cost

Product Tr. Cost

Isotims and Isodapanes

Smith’s Space-Cost Model

Spatial Pricing Policies

A. FOB - Free On Board - Consumer pays full cost of transport

B. Discriminatory

(1) Uniform delivered pricing (CIF)

(2) Basing point

(3) Spatially discriminatory pricing

(market segmentation)

(4) dumping

Typical F.O.B. Market

X YB B*

T

A R

S

Basing Point Pricing

PBasing Point

R

S

T

X

A

BC

Phantom Freight

M

Distance

O

General Pricing Principle

• Producers choose location to maximize

profit

• Profit = Total Revenue – Total Costs

• Total Revenue = sum of revenues from various geographic markets

• Total Costs = sum of costs for all input factors and transportation costs

Hypothetical Example Total, Average & Marginal Cost Relations

Production/ Sales

QuantityCOST

MarginalCOST Total

COST Average

REVENUE Marginal

REVENUE Total

REVENUE Average Profit

1 10 10 10 12 12 12 22 8 18 9 11 23 11.5 53 6 24 8 10 33 11 94 5 29 7.25 9 42 10.5 135 4 33 6.6 8 50 10 176 5 38 6.33 7 57 9.5 197 6 44 6.29 6 63 9 198 7 51 6.38 5 68 8.5 179 8 59 6.56 4 72 8 13

10 9 68 6.8 3 75 7.5 7

Graph of Hypothetical Example

0

2

4

6

8

10

12

14

1 2 3 4 5 6 7 8 9 10

Quantity

$

COST Marginal

COST Average

REVENUEMarginal

REVENUEAverage

Po

Qo

Market Segmentation & Dumping

$

Q

ACMC

ARMR

ARA

P

Q*

MRA

QA

PA

ARBMRB

QB

PB