Transport Economics

Most Individual have basic need to travel as good & services that lie
outside the immediate vicinity of the home.

Requirement:- To gain Access to employment, education, Personal care/

health services as well as access to retail outlets for thousand goods such as
food, clothing, electrical goods, books CD’s & so on.

- This link is further re ected in transport level’s & economic growth.

- In the past this link has been very strong

- As both passenger & Freight transport play a vital role in the Function of
the economy with strong growth normally associated with Innovative
transport solution.

Transport Issues that Economics can shed right on

1. Congestion & role of road pricing.

2. Impact of tra c on environment

3. The organisation of public transport service.

4. Rise of low cost airline

5. The capacity of the Rail Network, or Indeed problems of the railway’s &
so on.

Change In transport (In recent years)

1. Introduction of e ective ways in tackling congestion.

2. Transport & Movement bring with it a considerable Impact in terms of air-

pollution, noise & visual intrusion

3. Regulatory change & Reduction in state ownership



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 Transport Economics:-
Economics is one of the social sciences, concerns the study
of the people and their actions.

It is therefore about production, distribution and use of

society’s goods and Meyer.

• It deals with allocation of resources within transport sector.

• Movement of people over space and time

Scarcity [ Choice & Opportunity cost]

• Main economic problem and apply both to the third world economies or
advanced economies.

In simple term:- Human (Individuals) can not get everything they want because
there is a nite limit on the resources that can be used to satisfy these “wants”

• Any resource is therefore scarce, therefore choices need’s to be made, which

involves cost.

• This will always be the next best alternative that could have had been selected
when as Opportunity cost of that action. (Not assessed using nancial criteria)

Economic Characteristics of Transport:-

People wish in general to travel so that some bene t can be obtained at nal
destination.

Trip itself is to be short as possible, & The demand for transport is a derived demand.
Demand is not spread evenly throughout the network. This uneven demand can cause
tra c congestion.

Transport is often divided into xed & mobile component, the xed component consist
of Infrastructure and the mobile component of vehicles & operation.

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 Importance of transport in Economic development:-

Transport by itself is not su cient condition for development ; However lack of

transport can be seen as a constraining factor on development.

Development of transport increases travelling & trade, especially in agricultural

product. This contributed to the development of cities & ports.

Role in Production

It enables entrepreneur to assemble more easily the raw material & labour input
needed to make speci c product.

The same transportation system moves Intermediate goods to other producers for
subsequent use in their production process, and it moves Finished goods to
Consumer’s.

An e cient transport system enables Just In TIME (JIT) production technique.

Components are delivered when needed, reducing a rms stock levels hence unit
costs.

Employment Opportunity:-
1.Through Job creation

2. Both Direct & Indirect

Driver <—> Insurance

Geographical Specialization:-

1. Increased e ciency

2. Substantial economies of scale have been achieved and these have resulted in
reduced per unit production costs.

Trade :-
Developed comparative advantage

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 Tourism:-
Airline contributed to growth in tourism Industry & car rental also increased

Time Utility:-
E cient transportation creates time utility by ensuring that product are at proper location
when needed.

Reduction in transportation cost between points A & B gives a

commodity a place utility.

Quantity utility:- Through the Assurance that the Goods will arrive
without damage .

Quantity Demanded —> Quantity Delivered

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 Introduction
At the end of day every business works on maximising the pro ts be it transporta-
tion sector

Motivation :-

1
High Cost. &. Poor productivity


Escalators has Loading/ Un-

Trains in USA — capacity for loading site

because other peak loads so Limits on ve-

means of transport generally it goes hicle size /
are more produc- unused due to Weights not
tive there low tra c fre- used with its
quency & more full potential
energy con-
sumption

* How can we improve cost & productivity?

1. By increasing the connectivity

2. By tailoring services to demand -> Initiating the process where

its demand is more & later evolve step by step

3. “Manual —> Automated”- Information & control is done

through computer

4. Increasing vehicle size/ weight/ trailers

* Duality of costs & productivity

The ultimate/ Ideal aim is optimisation by minimising the cost & maximising the
output/ productivity

Economist lay the track & engineer run the train

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 Perspectives of Engineers & Economist on Economics

1. How to improve Production?

Economist Engineer
Assume this is They constantly try to improve pro-
know or try to ductivity by nding better ways to
estimate rough use resources to produce better
model based on goods & services.
actual stats.

2. How to improve cost?

Economist & Engineers both use total, avg. , variable & marginal cost.

Note: Engineer goes in much detail then economist

i) Economist see cost function on basis of volume & prices

ii) Engineers focus on cost & capacity.


In the end Duality of production &

cost function matter

i.e low cost & more productivity

Using Average & Marginal Costs

1. What is average cost?

Avg cost = sum of total cost of goods

Total no. of goods

——> it is also known as unit cost

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 2. What is marginal cost?

Marginal cost = Change in total cost

Change



3. For pro tability / Subsidy requirement

We see average cost & revenue i.e avg rev-

enue- avg . Cost

4. For pro tability of a particular marginal cost & rev-

enue are seen

5. For e cient working

Price = mc (atleast)

Price > MC (Pro t)

6. If the value of product is declining by time then com-

pany have strategies for it too

Fixed costs VS Variable cost

Fixed entities like ma- Cost vary with time for eg. cost of
chinery raw materials labour, electricity, fuel

For maintenance of machinery the added

cost comes under Incremental cost
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 Total cost = Fixed cost + f(u)

Avg. cost = Fixed cost + f(u)



U u

Incremental cost = f(u1) - (u O)

Final - Initial

Marginal cost = d (total cost)

Du

Can we a ord higher xed costs in order to get lower

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 Special characteristics of transportation cost

1. Infrastructure and equipment last a long time

 life cycle cost

design --->construct---> expand---> operate---> decommission

 space is crucial
2. Net present value (NPV)
 estimate of the current value of future net benefits.
3. Annuity
 sequence of equal payments over a period of time.

4. Network considerations
 how best to structure the network

eg. KAROL BAG; CANAUGHT PLACE --> heart of delhi

because the are connected to all /strong network.
• congestion factor

5. Economies of scale
eg. of USA
 average cost may decline and market expands if the network is larger.
6. Economies of density
 if density is high then you have to make proper flow for a smooth functioning
 for example for Indians, the density of people is very high at morning hours (8am to
10am) so design should be in such a way that only cannot hamper the flow.

7. Economies of scope
it is it cheaper to provide facilities for multiple services then to provide separate facilities.

Highways serve -->auto

-->bus
-->truck
-->fibre optics
-->other services

8. Output is complex
different measures are—
 cost per trip ?
 cost per passenger or Per ton ?
 cost per vehicle-mile ?
 cost per passenger-mile or tone-mile ?
All are useful
9. Methods of estimating
 Econometric cost
 Accounting costs
 Engineering costs

Accounting cost
 To keep track of expenses(detailed)
 Allocated to various activities
 No equipment
 Terminal movement
 Vehicle miles
3We get rough idea of average cost
4.Refinement include
  Fixed cost
 Variable cost

Engineering cost
• Knowledge/cost of new technologies and operations capabilities
• To include some science in cost model
• To go to any required level of detail(as long as evidence is curable)
• Researchers work with engineering models

Econometric cost
• Deals with complex problem by a simplified and aggregate model.
• Calibrate using available data
• Parameter of structure linked

10.Vehicle cost
*Estimating cost per trip or shipment
*Economic cost/hour. best alternative

11.Vehicle cost and design issues

 Larger vehicles have lower cost per unit of capacity

 Light weight materials increase payload and reduce operating cost.

*Route cost
Factor influencing cost
 Traffic
 Quality of components
 Technology
*Fleet management
*crew cost (Efficiency)
Crew cost inversely proportional to expected load
*Terminal cost
Cost of capacity or cost of delay
Delhi has 16 terminals
Capacity is important

Summary
Transportation cost and productive
 Important
 Complex
 Interesting
 Overview of carrier operations.

#Motor carriers
A motor carrier transports passengers or property for compensation e.g.-trucks,buses etc.
Objective:-To avoid accidents and damage ,it is very important to load the truck correctly.
Therefore ,it is necessary to learn something about lashing systems.It is also important to know
something about fundamental trucks and the transportation system.
NOTE:-What is container lashing? When a container is loaded over ships ,it is secured to the
ship’s structure and to the container placed below it by means of lashing rods,turnbuckles,twist
locks etc. This prevents the container from to move from their places or fall off into the sea
during rough weather or heavy winds.
● In most cases of road transport,motor carrier transport is used.
● The motor carrier is very much a part of any transport chain.
● Almost every logistics operation utilizes the motor truck-from the smallest pick up truck
to the largest tractor-semitrailer combination in some capacity.The motor carrier industry
consists of for-hire and private carrier.
● Private motor carriers transport freight that is owned by the firm that owns/leasews and
operates the trucks.
● The logistics manager must consider the relatively high cost of using a motor carrier.The
average truck revenue per ton-mile is higher than that of rail and water.

Types of motor carriers-

Motor carriers are classified in different types.There are smallest pickup truck and also
large truck-semi-trailer combnation.
By weight-
● 7.5 t class
● 12 t class
● 18 t class
● 40 t class

Task of transportation
● Fuel
● Gas
● Containers
● Sand
● General goods
For –hire motor carriers
● Provides services to the public and charges a fee for the service.
● Local vs intercity operators
 =>Local carriers pick up and deliver freight within the commercial zone of a city.
=>Intercity carriers operate between specifically defined commercial znes.
=>The two often work in conjuction.
Private carriers
● Provides a service to the industry company that owns or leases the vehicles, but does not
charge a fee.
● May transport commodities for hire in this capacity,the private carrier is really an exempt
for-hire carrier

=>Exempt carriers
● Specfically exempt from economic regulation.
● Gains this status by-

->Type of commodity hauled(agricultural commodties)

->Nature of its operations(incidental to air transportation)
=>Common carriers
● Required to serve the general public upon demand ,at reasonable rates and without
discrimination.

=>Contract carriers-
● Serve specific shippers with whom the carriers have a continuing contract thus
● Typically not available for public use.

=>Truckload (TL)carrier
● Provide service to shippers who lender sufficient vlume to meet the minimum weights
required forna fall truckload shipment and TL rate (or who will pay the required amount)

=>Less than truckload (LTL) Carrier

● Provide service to shippers who lender shipments lower than minimum truckloas
quantities, such as 50 to 10,000 lbs
● Consolidate numerous smaller shipments into TL quantities for intercity transport.
● Disaggregate TL shipments at destination for delivery in smaller quantities.
Industry structure

#Types of special commodities:-

● Household goods
● Heavy machinery
● Petroleum products
● Refrigerated liquids
● Dump tracking
● Agricultural commodities
● Motor vehicles
● Armored truck service
● Building materials
● Films and associated commodities
● Forest products
● Mine ores
● Retail source delivery
● Hazardous materials
● others
 Types of vehicles

● Line Haul Trucks-

1. Tractor-Trailer combination of 3 or more axles.

2. Capacity depends on size(length) and state maximum weight limits.
3. Capacity is also affected by the density of the freight.

● City Trucks-
1. Normally smaller than line haulers are single units.
2. Typically 20-25 feet long with a cargo unit 15 to 20 feet long.
3. There is growing use of small trailers that are 20 to 28 feet long.

Special Vehicles-

● Drug Van- Standard trailer or straight truck with all sides enclosed.

● Open Top- Trailer top is open to permit loading of add sized freight through the top.

● Flatbed- Trailer has no tops or sides, used extensively to haul steel, lumber etc.

● Tank Trailers- Cylinder trailer used to haul liquids.

● High Cube Trailer- Cargo units with controlled temperatures.

● High Cube Trailer- Cargo unit has drop-frame design or is higher than normal to
increase cubic capacity.

● Special- Vehicle with a unique design to haul a special commodity, such as liquified
gas or automobiles.

TERMINALS-

Pick Up and Delivery (PUD) Terminals-

● Freight is collected from shippers and brought to the PUD terminal where it is
consolidated with other loads going in the same direction or to the same destination.

● Consolidated shipments loaded onto a line hauler for transport to the destination terminal.

● At the destination terminal, line hauler is emptied & the combined shipments are
separated and reloaded into city trucks. City trucks then deliver the shipments to the
ultimate consignee.

PUD’s are also used for-

● Sales, billing & claim handling
● Limited vehicle maintenance
● Change freight from one carrier to another

PUD’s are also called end-of-line terminals.

Break-Bulk Terminals-

● Basic function is the separation of combined shipments.

● Freight is unloaded from consolidated trucks loads, sorted by destination and reloaded for
dispatch to destination.

● Generally, Break-Bulk terminals are centrally located within the carriers operating scope
and junction pof major east-west & north-south highways.

● Provides greater efficiency.

Relay Terminals-

● Unlike PUD’s & Break-Bulk terminals, the freight is never touched at a relay terminal.

● Necessity by the maximum hours of service regulation that is imposed on drivers.

10 hours maximum driving after 8 hours consecutive hours off duty.

● At the reay terminal, one driver substitutes for another(hence, the term “slip seat” that is
also used for relay terminals).
 ● Relay terminals are normally located within a maximum of 10 hours driving time from
the point of origin.

● Alternative to the relay terminal is the sleeper team-2 drivers.

Cost Structure-
● Approx. 70 to 90% of motor carrier cost are variable.

● Allows the carrier to increase/decrease the number of vehicles used in short periods of
time & in small increments of capacity.

Low Fixed costs due to-

● Public financing of the highway system.

● Terminals are less expensive than those used by other modes.

● Bulk of the carrier’s cost is associated with daily operating costs- fuels, wages &
maintenance.

In 1995, the average total cost to operate a tractor-trailer was 130.2 cents per mile. (70% of
which was variable costs).

Operating Cost- operating cost or operational costs are the expenses which are related to
the operation of a business, or to the operation of a device, component, piece of equipment or
facility.

Operating Ratio

Operating Cost= Operating expenses *1

Operating revenues

• Measure of operating efficiency used by motor carriers.

 • Function of operating expenses and operating.

Operating expenses are those expenses directly associated with the transportation of
freight, excluding non-transportation expenses and interest costs.

Operating revenues are total operating revenues generated from freight transportation
services.
• The closer the ratio is 100, the more indicative of the possible need to raise rates to
increase total revenues.
● For example, an operating ratio of 94 means that 94 cents of every operating revenue
dollar is consumed by operating expenses.
● This only leaves 6 cents to cover interest cost and provide a return to the owner.
● Operating ratio for most motor carriers generally range between 93 and 96.

RAILWAYS

Introduction :
● Rail : Dominant mode from 1850's to the 2nd World war.

a Superior in both price and service quality to road transport for most of this
period.
b Superior in service quality to water transport.

● Development facilitated by standardisation of track gauge and rolling stack.

● Pivotal role in US economic development.
● Great expansion in track mileage, post 1870's.
● Financed by private capital.
● Too much track mileage relative to demand.
● Domination begins to wane after 1920.

# 1929 : Rail carried 75% of freight ton - miles.

# Today : Carried about 43% of freight ton - miles.
# Some reasons for relative decline :
- Large scale government construction programs for roads and inland waterways.
- Private financed construction for the oil pipeline.
- Government also helped develop air transport that provided superior service for
passengers and mail.
- Economy and shipping service- related needs change.
# NOTE : Total rail ton - miles continue to grow.

Railroads remain a vital part of the US economy.

● Industry revenue about 0.4% of GDP.
 ● Industry revenue is about 12.7% of total expenditure for freight transport service in the
US.
● Railroads employees about 1,87,000 people.
● Railroads invested over $117 billion in new plant and equipment in 2007.

Industry Overview - Number of Carriers.

Industry structure :
● Concentrated : Small number (565) dominated by a few large (class1) carries.
- 7 class 1 railroads.
- Rest are regional or local (short line) carriers.

Total Rail System Mileage :

● Reached peak in 1916( 254,251 miles of roads)
● Today : about 94,440 miles of road.

# Reasons for decline

Industry Overview - Competition

1 Intensity changed during the 2nd half of the 20th century.
2 Intramodal (between railroads) competition.
2.a Current industry structure is a differentiated oligopoly.
- Small number of large carriers.
- Few places served by multiple railroads.

b. Intermodal (between modes) competition

● Very intense for non- bulk traffic.
● Some modes offer service advantages over railroads.
● Other modes offer price advantages.

# Staggers Rail Act

● Helped railroads to become more price competitive.
● Helped railroads to develop more customized responses to customers level of service
needs.

Mergers

# Motivation
● Early mergers made to expand capacity, create EOS.
● Side-by-side mergers done to strengthen financial position and reduce duplication.
● End-to-end mergers done to improve competitive position, first vs. other RR's, then Vs
other modes, and service levels via fewer interchanges between railroads.

# Consequences : Small number of carriers own majority of track and carry majority of rail
freight.

#Abandonment of rail lines

 ● Context : Early over expansion followed by increased competition between modes.
● Most abandonment involve duplicate track or track serving small markets with little rail
freight.
● Some tracks taken over by smaller railroads.
● Alternative uses of land.
● Rails-to-trails conservancy.
● Rail-banking program.

Operating and Service Characteristics

General Service Characteristics :

# Characteristics of Principal Commodities

- Railroads carry a wide variety of products.
- But 83% of total 2007 rail carloadings concentrated in low-value-to-weight(bulk)
products.

# Strength of Railroads :
● Large carrying capacity (few size or weight constraints) enable low average cost
operations.
● Capable of handling almost any type of cargo.
● Railroads assume liability for loss and damage.
● Railroads tend to have higher damage claims.
● Recent emphasis on equipment, technology- innovation and quality programs.
- Improved suspension; end-of-car cushioning devices and in-car force
instrumentation packages.
- Duality Certification Program (M-1003)

● Intermodal services
● Double-stack services: Greatly improve productivity.
● Terminal improvement, equipment redesign,and right-of-way improvements
designed to reduce intransit delays.

● Microprocessors for communications and signalling.

● Quality certification program (M-1003)

● INTERMODAL SERVICES:-
● Double- stock services- greatly improve productivity
● Terminal improvements, equipment redesign, and right- of- way improvements designed
to reduce in- transit delays.

● EQUIPMENT:-
● Microprocessors for communications and signaling.
 ● Carload:- basic unit of measure:
● Car loadings declining due to increasing average car size, improving carload
productivity.

● Average carload in 2007: 99.5 tons and growing.

● Standard gross vehicle weight: 263 K LBS.
● May rise to 286 K, bridge and track constraints.

● RRs own and maintain 42% of rolling stock

● Non- railroad companies own 58%, growing trend.

● Composition of rail car fleet has changed over time to meet changing shipper
requirements.
● Historically, standard box car was most numerous cars in fleet- used for hauling general
manufacturing goods.

● Today, fleet contains many specialized rail car types.

● Cars custom designed to accommodate different types of bulk products or shipper need.
● More than 85% of car fleet designed for transport of bulk products and raw materials.

● SERVICE INNOVATIONS:-
● Piggyback service: intermodal service directed to non- bulk, manufactured products.
c Includes both container- on- flatcar (COFC) and trailer- on- flatcar
(TOFC) services.

NOTE: -
CONTAINER- ON- FLATCAR (COFC) :- -COFC is a combination of two things a container,
which is a medal box, that store goods for transportation and can be used for any mode and
flatcar, which is a freight car without sides or a ceiling commonly used for railway and trucking.
TRAILER-ON- FLATCAR (TOFC) : - -TOFC is the intermodal practice of loading an over the
road trailer onto a specialized railway flatcar for transportation.
d Accounts for second highest number of car loadings.

e Competes directing with truckload (TL) service

- However, some TL carriers are also major customers of piggybank service.

● Competitive advantage of piggyback service.

- Combines cost efficiency of RR long haul with flexibility of truck pick- up and delivery.

● Principal disadvantage of piggyback service

 - Transit time and on- time delivery performance.

● To counter service disadvantage

- RRs create dedicated intermodal trains.
- Trains runs on regularly scheduled departures and priority operating scheduled.

● COFC: component of international trade :

3 Land- bridge operations.
● Substitutes rail for portion of ocean voyage.
4 Double- stack container trains
● Greatly, improves rail equipment and train productivity.

● Unit trains: specialized, one commodity trains.

5 Direct origin to destination movement.

● Run on priority service schedules.
● No stops in- transit.

6 Used frequently for coal and grain shipments.

7 Shippers often own rail cars.
8 Disadvantage: empty backhauls.

● Computer and communication systems:

● Management control and shipment monitoring.
● Car tracing, ordering and billing simplified.

COST STRUCTURE:-
● FIXED COSTS:-
● Railroads have high % of indirect fixed costs in short run.

● Short run: means that capacity remains constant.

● Estimated 30% of costs do not vary with volume due to high % of long- lived (durable)
assets.

● RRs own and maintain networks (rights- of- way) and terminals (freight yards).
- Geographically fixed, impedes responsiveness to changes in demand.

● Equipment: locomotives and rolling stock

 ● $ Billions in annual capital expenditures.

● SEMI- VARIABLE & VARIABLE COSTS:-

● Semi- variable costs: over 40% of total costs.

● Includes maintenance of rights- of- way, structures and equipment.

● Often deferred during financially difficult periods.

● Variable costs:-
 Labor: Largest component of variable costs.
 26.4% of each revenue dollar.
 Unionized work force, 14 craft unions.
 Work rules: productivity challenges and issues.

 Fuel: 2nd largest component of variable costs.

 Locomotives: increasingly productive and fuel efficient.

● ECONOMIES OF SCALE (EOS):-

 Means falling average costs ($/ ton) as scale or capacity increase, assuming capacity
utilized.

 Economies of density or utilization.

 Falling average costs as volume carried increases, assuming capacity remains
constant.
 Large among RRs due to high fixed costs.

● CURRENT ISSUES:-
 Alcohol and drug abuse:
 Effect of and on work environment.

 Rail: more energy- efficient than truck:

 Lower environmental impact.

 Technology:
 Train, yard control systems, “smart” equipment

 Future role of smaller railroads:

 Customer service:

 Drayage for intermodal service:

 Water Carriers and Pipelines

Introduction

 Domestic water and pipeline carriers

 Both account for substantial shares of intercity freight

Volume

 For some commodities, one or both are the dominant modes

 Most freight carried tends to be high volume, low value, and of limited variety

 Chapter includes

 Types of carriers, market structure, competition

 Operating and service characteristics, equipment and cost structure

 Current issues
Brief History: Water Transport

 First principal form of long distance freight and people transport

 Important contributor to early U.S. economic and social development

 Linked initial population/industrial concentrations along coast and rivers

 Waterways are natural ways

 Public expenditure for improvements occasionally necessary

Water Transport Industry Overview

Significance of Water Transport

 A primary transporter of dry bulk commodities

 bulk petroleum, petroleum products and chemicals

 13% of intercity freight ton-miles in 2005

 Market share decline since 1980s due to

 Economy changing from manufacturing to service- based

 Supply chain orientation emphasizes faster modes

Water Transport Industry Overview

Types of Carriers

Classification by legal form of carriage

 Private carriers

 Own the freight transported

 Own or lease the vessels

 May transport exempt commodities on a for-hire basis

 Excluded from federal economic regulation

 Three or fewer commodities transported in the same

Barge unit also exempt from economic regulation

Water Transport Industry Overview

Types of Carriers

 For-hire water carriers are carriers that charge a fee for services. Includes
 Exempt carriers

 Excluded from federal econ. Regulation adm. By STB

 Carriers are exempt when transporting dry or liquid bulk commodities

 Most goods transported by water are bulk commodities, thus most for-hire carriers are
exempt from economic regulations

 Regulated common carriers

 Common carriers

 Contract carriers

Water Transport Industry Overview

Types of Carriers

 Classification by waterway used

 Internal or inland carriers

 Operate barges and towboats on principal U.S. rivers

 Most found on river systems flowing north to south

Through central U.S.

 Great Lakes carriers

 Provide services between ports on Great Lakes

 Lake ships tend to remain on lakes

 Some lake ships access Atlantic and Gulf coast ports via St.

Lawrence Seaway

Water Transport Industry Overview

Types of Carriers

 Coastal carriers

 Operate ocean-going ships and barges along Atlantic,

Pacific and Gulf of Mexico coasts

 Moves large quantities of crude oil from Alaska ports to refineries along Pacific Coast

 Intercoastal carriers

 Operate ocean going ships and barges between coasts

 Moves large quantities of oil from Gulf to Atlantic ports

 Water Transport Industry Overview

Number and Categories of Carriers

 Relatively small number of small firms

 Approx. 680 domestic for-hire carriers in 2006

 Number of carriers rapidly declining since 2000

 Inland carriers earn highest share of revenues

 Inland carrier revenues flat over last decade

 Coastal carriers earn next highest share

 Great Lakes carrier revenues are growing due to increase in higher valued freight

Water Transport Industry Overview

Competition

 Moderate intramodal competition

 Small number of carriers on each waterway system

 Intense intermodal competition

 With rail for dry bulk commodities (grain, ores, coal)

 Competition focused around central U.S. river system and the Great Lakes

 With pipelines for oil and petroleum products

 Competition focused along coasts and Mississippi River system

Water Transport Industry Overview

Operating and Service Characteristics

 Principal competitive advantages

 Low cost transport service for large volumes over medium to long distances

 Average cost = $.72 per ton-mile

 Average shipment distances

 400 miles for inland carriers

 1,500 miles for coastal carriers

 Relatively large carrying capacity

 Barges: 1,500-3,000 tons per barge (50-100 truckloads)

 Lake vessels: 20,000 tons

 Fuel efficient

Water Transport Industry Overview

Operating and Service Characteristics

 Principal competitive disadvantages

 Speed of service

 Slowest mode for dry cargoes

 Weather-related service disruptions

 Vulnerable to ice, flood, and drought conditions

 Accessibility limitations

 Packaging requirements for high-value goods

 Service disadvantages may add cost for user and create tradeoffs with low rate advantage
 Water Transport Industry Overview

Operating and Service Characteristics

 Commodities hauled

 Water carriers well suited for low value-to-weight cargoes where transport rates are
significant part of total delivered cost

 Distribution of waterborne traffic (2007)

 Coal and coke 29.3%

 Petroleum 26.5%

 Crude materials 17.6%

 Food and farm products 12.5%

 Chemicals 8.2%

 Mfg. goods and equipment 5.7%

Water Transport Industry Overview

Equipment

 Vessels

 Have large openings into cargo holds to facilitate cargo loading and unloading

 Watertight walls divide holds enabling carrying of

Multiple types of commodities

 Largest vessel: tanker 18K – 500K ton capacity

 Used largely to transport petroleum

 Barges – powerless vessel towed by towboat

 Used largely on inland waterways

 Low marginal cost to add barge to a tow

Water Transport Industry Overview

Terminals

 Functions

 Facilitate intermodal transfers

 Provide temporary storage in port area

 Require significant capital investment

 Facilities include ship loading/unloading equipment, land for storage, road and rail access

 Most are publicly provided and operated

 Some are owned by large bulk commodity shippers

 Recent improvements focus on mechanization

Water Transport Industry Overview

Cost Structure

 Relatively high variable, low fixed costs

 Fixed costs: about 15% of total operating costs

 Nature provides ways

 Governments provide for improvements to rivers, canals,

Channels, locks, dams, terminals and ports

 Variable costs: about 85% of total

 Water transport is not labor intensive

 In 1997, 2.72 million ton-miles per water carrier employee

(note – rail and pipelines are even less labor intensive)

 Carriers pay user charges for portion of publicly provided improvements

Water Transport Industry Overview

Current Issues

 Drug and alcohol abuse

 Random and pre-certification testing

 Port development challenges

 Economic vs. environmental tradeoffs

 Appropriation of port revenues

 Inter-port competition

 Impact of “mega-ship” emergence

Brief History of Pipelines

(Focus on Oil Pipelines)

 Highly specialized mode, hauling small variety of products

 Initial role, late 1800’s – move crude oil from wells to other modes

 Early 1900s – pipelines owned, operated by large oil companies

 After WWII – Chaplin Oil Case: pipelines ordered to operate as common carriers

Pipelines Industry Overview

Significance of Pipelines

 Carry 20% of intercity ton-miles (2005)

 Crude oil and petroleum products represent 66% of ton-miles, natural gas 33%

 Earn 4% of total intercity transportation revenues

 Reflects efficiency of pipeline transport and low value per ton of products transported

 About 160,000 miles in oil pipeline network

 1,478,000 in natural gas pipeline network

 Pipelines Industry Overview

Types of Carriers and Ownership

 90% of carriers operate as common carriers

 Individual, vertically integrated oil companies own and operate most oil pipelines

 Some lines are joint ventures of two or more oil pipeline companies

 Other types of ownership

 Railroads

 Independent oil companies

 Other types of industrial companies

Pipelines Industry Overview

Number of Carriers (Market Structure)

 Small number of large carriers: 2,297 (2006)

 Industry tends toward oligopoly

 20 integrated oil companies control 66% of crude oil mileage

 Entry costs are high: capital intensity, obtaining rights- of-way

 Significant economies of scale in investment and operation

 Capacity rises more than proportionally with increase in line diameter. Thus, investment
cost per ton-mile and operating cost per barrel both decline as size increases.

Pipeline Operating and Service Characteristics

 Commodities carried – 4 principal products

 Oil and oil products

 Natural gas

 Coal and coal products

 Moves in pulverized form as slurry

 Requires large quantities of water – very few such lines

 Chemicals

 Primarily anhydrous ammonia (used in fertilizer)

 Propylene (used to manufacturer detergents)

 Ethylene (used to make antifreeze)

Pipeline Operating and Service

Characteristics

 Relative advantages

 Low rates

 Low loss and damage rates

 Warehousing function (3-5 mph)

 High delivery dependability

 Relative disadvantages

 Slow speed limits responsiveness

 Limited geographic flexibility

 Limited variety of products carried

Pipeline Competitive Conditions

 Very little intramodal competition

 Small number of carriers

 High capital costs and scale economies

 Procedural requirements for entry

 Ownership by large oil companies

 Limited intermodal competition

 Difficult for other modes to match rates

 Water carriers are principal competitors

Pipeline Equipment

Oil Pipeline Network

 Includes system of

 Gathering lines and stations

 Crude oil and product trunk lines

 Pumping stations, refineries, and terminals

 Gathering lines

 Move oil from wells to gathering stations

 Relatively short distance movement

 Small diameter, laid on ground surface

Pipeline Equipment

Oil Pipeline Network

 Crude oil trunk lines

 Move crude oil from gathering stations to refineries

 Long distance movement

 Shipments average 800 miles, may move 1,000s of miles

 Large diameter lines laid underground

 Pumping stations provide power

 Capacity determined by line diameter and pumping station power

Pipeline Equipment

Oil Pipeline Network

 Finished product trunk lines

 Move product from refineries to market area terminals

 Long distance movement

 Shipments average 400 miles, may move 1,000s of miles

 Large diameter lines laid underground

 15 grades of finished product, including kerosene, jet fuel and gasoline

 Final delivery to customer usually by truck

Pipeline Cost Structure

 High % of fixed costs

 Pipeline owners provide right-of-way

 Capital invested in

 Rights-of-way, pumping stations, terminal facilities

 Significant economies of scale

 Helps explain joint ownership

 Very low labor costs

 Pipeline industry employs 8,000

 Motor carriers employ 10 million to move comparable ton-miles

Pipeline Cost Structure

 Rates

 Freight classification is not necessary due to small number of products

 Conditions are not conducive to differential pricing

 One-way movement, limited geographic coverage, limited variety of products

 Rates quoted on a per barrel basis

 Typically point-to-point or zone-to-zone

 Minimum shipment sizes (tenders) required

 AIRLINES

Prediction and previous stats represent the importance of air travel in commercial and non-
commercial sectors. There is a drastic increase in the both business and tourism sector that are using
flights for travelling. The below stats will give you a brief estimate of airline industry progress in
India.

India is set to surpass UK and become the third

largest aviation market around 2024.

By 2020, passenger traffic at Indian Airports is

expected to increase to 421 million from 308.75
million in 2017-18.

This all is enough to tell the importance of Air

travel in coming future. All these is stats are just
for the reference to understand the topic, and there
is no need to mug up all this.

Advantage India

# Robust Demand

• Rising working group and widening middle class demography is expected to boost up.

• India plans to increase the number of airports to 250 by 2030 to cater to growing leisure and
business travel.

• The country will become third largest aviation market in terms of passenger by 2024.
# Opportunities in MRO (Maintenance Repair Operations)

• Growth in aviation accentuating demand for MRO facilities

• Expenditure in MRO accounts for 12-15 percent of total revenues; it is the second highest
expense after fuel cost

• By 2028, the MRO industry is likely to grow over US$ 2.4 billion from US$ 800 million in
2018.

# Increasing Investments

• This will ultimately leads to the PPP (Public Private Partnership) model enhancement.

• Larger investments are obvious because of the expanding market or public demand by both
public and private bodies.

# Policy Support

• The government has been encouraging the PPP model.

• Foreign investment has up to 49 percent is allowed under automatic route scheduled flights.

Evolution of Indian Aviation

In FY18 India witnessed the domestic passenger traffic as 243.26 million people and investment of
US$ 6 billion is expected in the country’s airport sector in 5 years. In service fleet Indian Airlines
stood at 588 aeroplanes, as of May 2018, and expected to grow to 1,100 planes by 2027.

.
 Airports and airstrips

There are total 464 airports and airstrips in India According to FY18

125 339
Operated by AAI Non-AAI aiports and
(Aiport Authority airstrips I.e operated by
of India) military

90 26
9
Operational Civil
Non-
Enclave
operational

66 7 17
Domestic Custom International
Airports Airports
A comparison between different airliners operating in India on the basis of market share and
passenger traffic.

Market Share – It is the percentage of total civil aviation financial value in the market of a
company.

Passenger load traffic – It the percentage of total seat occupied by passengers in a single flight of a
particular airliner. (work on averages)
 Airliner Demand and Utilisation of capacity

• capacity should always kept higher than the demand

• Nothing is rigid, as the graph show us. Because of some tension and crises it has dropped
down at certain places.

Key Public and private Sectors in operations and developments

• Before 2013, AAI was a key player in developing and maintaining the airports, but now
private players has come.

• Government of India has invested 27,000 Crore and given approval to 19 out of 7 are going
to be developed by the public private partnership. And key private partners are given above.
Below photographs are just facts, just need to summarise.

Notable change in Airlines today

Strategies adopted
.