REYNALDO ROSS D. SUCGANG IV INTERNATIONAL TRADE LAW2013-0644 ATTY. EVER HIGUITOctober 23, 2015

TRANSPORT COST

"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 good’s consumer 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

1 www.freedictionary.com2 Transport Costs and Rates by Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom, (https://people.hofstra.edu)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, (https://people.hofstra.edu)

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 person-trips) 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 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 5 Transportation Costs and Benefits, Resource for measuring transportation costs and benefits (www.vtpi.org)6 www.vtpi.org7 John Whiteleg, 1993, Time Pollution, (www.theecologist.org)

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 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

8 https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/ch7c3en.html9 Goodwin and Persson, 199910 Transportation Costs and Benefits, Resource for measuring transportation costs and benefits (www.vtpi.org)11 Special Issue on Methodological Issues in Accessibility: Journal of Transportation and Statistics, (www.bts.gov)12 https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/ch7c3en.html

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 studies13. 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 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 conservation.17

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.

13 Wardman 1998; Small, et al. 199914 http://www.vtpi.org/15 Ibid16 ibid17 ibid18 Transportation Cost and Benefit Analysis II – Transportation Cost Implications