Transport Economics Matters

Applying Economic Principles to Transportation in Great Britain

David J. Spurling, John Spurling and Mengqiu Cao

• Publisher: BrownWalker Press
• Year: 2019
• eBook ISBN: 9781627347105
• Topic: Business
• Subtopic: Transportation Industry
• Index: Business

This book reveals and discusses existing and potential problems derived from the transport economics domain in relation to their environment, and the social, political and economic impacts, with reference to a wide range of transport modes. It is suitable

CHAPTER 1

Introduction

Importance of Transport Economics

In this book, you will learn how to apply economic principles to transport. This will not only help you if you wish to study the subject for its own sake or if you work in the transport industry and wish to improve your knowledge of the subject, but will also help you if you are taking examinations. In addition, this book will also be beneficial for someone who is interested in the subject of transport economics, but has not studied economics, statistics or mathematics.

Transport is an important subject since motoring alone accounted for 14.4% of household expenditure in 2017 (ONS, 20181). Of this, 36.6% was spent on purchasing vehicles, 11% on spares, accessories, repairs and servicing, 26.1% on petrol, diesel and other motor oils, 3.5% was spent on other motoring costs, 7.4% on transport fares and 15.4% on air and other travel in Great Britain (DfT, 20172). The aggregated expenditure associated with motoring, such as petrol/diesel, maintenance, insurance and MOT fees, may be even higher than the cost of the vehicle itself, something which is often overlooked when purchasing a car. In car manufacturing, the aggregated costs of bulk buying materials used in the manufacturing process such as steel, account for a substantial part of the total costs, while a smaller proportion is spent on the production of high value, low bulk items such as the CPU and engine. Transport economics is therefore important since transport constitutes a major sector of the economy in most countries.

Finance and the General Economy

Like any other branch of economics, it deals with the allocation of scarce resources. These scarce resources may be vast, such as the capital required for major projects or schemes such as the Channel Tunnel, on which over £10 billion was spent before it opened in 1994. Another example is the railway tunnel through the Brenner Pass, linking Austria and Italy, which has recently reopened at a cost of several billion pounds. However, in other cases, the costs can be small, as with many road haulage firms that operate using a single van and family members as drivers and part-time bookkeepers.

Employment and the Transport Industry

Transport economists will consider the amount of labour that the transport industry uses. During the period after the regrouping of the railways in 1923 but before the Second World War, the London Midland Scottish Railway (LMS) was the largest employer in the UK. Employment patterns have changed but currently the transport sector is a major employer in the UK, particularly the road haulage sector. The wages paid may also be an important factor. Similarly, for those who work in the airline industry, the effects of strikes or stoppages on their wages can be significant. Until the 1960s and the container revolution, the ports were a major source of employment in many areas, including Tilbury in Essex, Liverpool in North West England and Glasgow on the West coast of Scotland. Whilst the ports are still important they employ far less labour as roll-on roll-off ferries tend to be used which enable vehicles to drive straight on to the ships, and containerisation, palletisation and many forms of mechanisation have all contributed to replacing the vast numbers of workers.

Land and the Transport Industry

The land required for transport use may be considerable. For example in Los Angeles, it has been estimated that about 70% of the land space is used for vehicles, both for roads and parking. In nineteenth century, the railway occupied about 30% of the land which was used for the passenger station, as well as freight lines and sidings. Landowners in the nineteenth century often resisted the efforts of the railway companies to go through their land. This altered both the location of the railways and the total costs of the original railways. Even today, it still affects some of the variable costs associated with railways, as well as the demand for rail travel.

Allocating land for transport purposes is a major problem. Massive amounts of land can be used for additional runways or terminals at airports. It is important to consider carefully where they should be constructed, since once they are built, it is difficult to find alternative sites. Transport space may be comprised of small pieces of land, which cumulatively will add up to a considerable amount. Planning regulations usually specify that houses must have garages, although the evidence suggests that often garages are not used for their original purpose. Therefore, a large amount of land is used inefficiently. In the United Kingdom both in urban areas and suburban areas, there are often complaints about allocating land for new housing, but more land is used for the provision of roads, than for the houses themselves. In Valencia in Spain, a town with a population of about 750,000, all new garages for residential properties have to be built underground. This reduces the volume of land space needed to accommodate the car and other vehicles.

Airport Location

Modern airports are often massive and the problem of land is one which generally arouses strong feelings, although this is nothing new. The proposed third runway for Heathrow, announced in November 2007, is a case in point, sparking considerable controversy. In July 2016, Theresa May’s new Conservative government postponed the announcement of a decision about which airport would have expanded capacity to cater for the expected increase in traffic. Subsequently it announced that Heathrow expansion was the preferred option and would go ahead. The Conservative government had previously appointed Lord Adonis a former Labour Cabinet minister, to head the infrastructure commission to speed up large-scale projects. After the 2017 general election, the minority Conservative government announced that it still favoured Heathrow expansion.

Port Location

The location of ports is often subject to limitation, but once the location has been determined, the sunk costs are important. Sunk costs are costs which cannot be recovered. Because of the considerable size of modern ships, most ports have moved downstream. This means that they have generally moved nearer to the sea than they were originally.

Irreversibility of Infrastructure Decisions

Transport infrastructure projects are often irreversible without major capital expenditure. However, there have been a few new ports created, such as Thames Haven in Essex, which is located on the site of a former oil refinery.

The problems of land allocation such as trying to preserve the trackbeds of railways, in case they might be used in the future or for roads, have not been satisfactorily resolved. The pricing policy for parking and roads also causes a significant number of problems, including how land is allocated for roads and whether there should be toll roads, and congestion charges.

Donald Trump and the Environment

The US president Donald Trump has vowed to abolish many environmental policies that have been introduced and has publicly stated that he does not believe in climate change, often referred to as global warming. In 2017, the US withdrew from the COP21 Paris Climate Agreement. However, not all senior members of the US Republican Party agree with Donald Trump.

Fuel and the Transport Industry

The amount of fuel required has been a problem for many non-oil producing countries, particularly since the oil price rises from Oil Petroleum Export Countries (OPEC) following the Iranian revolution in 1979. This has led many people to speculate on how far we can move away from fossil fuels. In 2015, the price of oil halved unexpectedly. Even in the USA, former president George Bush Junior had spoken about the need for Americans to reduce their dependence upon foreign oil. Barack Obama, president from 2008 to 2016, had been more receptive to the need to pay attention to climate change. There are currently many developments taking place in the use of renewable energy for transport. Lord Deben a former Conservative cabinet minister (probably better known by his original name, Selwyn Gummer) stated at a climate change conference in 2014 that whilst he was agnostic about the types of fuel used, renewable fuel prices were continuing to fall, whilst this is not true of fossil fuels.

Climate Change Convention

In September 2016, both the US and China signed the climate change convention. These two countries between them accounted for more than 40% of the total global emissions produced. The climate change convention needed 55% of countries that produce emissions to sign up in order for the agreement to be ratified. The 28 countries of the European Union also signed up to the agreement.

Social Costs

More attention has been paid to the social costs or external effects of the transport industry. The increase in the number of air journeys has caused concern and most countries signed up to the Kyoto agreement in 1997, which aimed to limit the amount of pollution, greenhouse gas emissions (GHGs), etc. produced globally.

Importance of Social Costs and Their Definition

Social costs are the total costs to the community and therefore include both private costs and external costs. External costs are costs which are not borne by the consumer or producer of goods or services. An example of this is the costs arising if a ship sinks, such as in the case of the MSC Napoli near Branscombe in Devon in January 2007. It was carrying several thousand containers and caused considerable pollution. On 13th January 2012, the luxury cruise ship Costa Concordia suffered an accident caused by t...

Table of contents

• Cover Page
• Half Title
• Full Title
• Copyright
• Table of Contents
• About the Authors
• Acknowledgements
• List of Figures and Tables
• Chapter 1 - Introduction
• Chapter 2 - Demand for Passenger Transport
• Chapter 3 - Demand for Freight Transport
• Chapter 4 - Cost Structures
• Chapter 5 - Forms of Competition
• Chapter 6 - Pricing Policy
• Chapter 7 - Railways
• Chapter 8 - Reasons for Government Intervention
• Chapter 9 - Road Passenger Transport – Buses, Coaches, Taxis and Cars
• Chapter 10 - The Way
• Chapter 11 - Shipping, Ports and Inland Waterways
• Chapter 12 - Airports
• Chapter 13 - Aviation
• Chapter 14 - Safety
• Chapter 15 - Coordination of Transport
• Chapter 16 - The Public Sector
• Chapter 17 - Cost Benefit Analysis
• Chapter 18 - Local Transport
• Chapter 19 - Measures of Efficiency
• Chapter 20 - Transport Investment
• Chapter 21 - Economies of Scale
• Chapter 22 - Problems of the Peak
• Chapter 23 - Rural Transport
• Chapter 24 - The Demand for International Transport
• Chapter 25 - Developing Countries
• Chapter 26 - Recent Developments and Future of Transport by Mode
• Glossary of Transport Economics
• Index