The essential fact of economic geography is the need to overcome distance in order to sustain economic activity.
Relevant factors of production (workers, materials, equipment) are seldom in exactly the same place, and centralized production is only possible if there is a distribution system to get goods to their markets (or to get clients to the services).
Thus, transportation is required to make an economy run.  This lecture will address three questions:
1) How does transportation “work”?
2) How does transportation affect competition?
3) How can we describe transportation modes and systems?
 

COMPARING  MODES  OF  TRANSPORTATION

Economically, the basic modes of transportation (ship, rail, truck, pipeline, air) are distinguished according to three factors:

• speed
• fixed costs
• variable costs

• For perishable commodities, the opportunity cost is low until we approach the time-limit of the commodity, at which point the opportunity cost  equals the value of the commodity:  the commodity is worthless if it arrives after its useful life is over.
• For valuable commodities, the opportunity cost is the alternative use of the financial capital that was spent to produce or buy the commodity:  while in transit, the commodity is not providing an economic rent.
• For people, the opportunity cost is the value of the best use of their time if they weren’t in transit.  For a wage-earner, this is assumed to be the wage rate.  For a parent, it might be the cost of child care.

• Ocean and inland-water transport have moderate equipment costs (the costs of ships, ferries, or barges, divided by their capacity) and facility costs (docks, warehousing), and very inexpensive rights of way (only the dredging at ports and sometimes of inland waterways, generally paid for by the public)
• Pipelines have moderate facility costs (for loading and unloading);  the equipment and right-of-way are the same, but moderately expensive.
• Railroads have moderate equipment costs (rolling stock) , relatively low facility costs (a rail siding and unloading facilities), and fairly expensive right-of-way costs (it's expensive to acquire land, grade it, and build rail, especially since trains can't travel on steep slopes or sharp curves).
• Trucking and automobiles have fairly high equipment costs (per unit of weight carried), but low facility costs (a parking space and a loading dock (or walkway for passengers));  the right-of-way costs are moderate and generally borne by the public.
• Air transport has very high equipment costs (aircraft), moderate facility costs (airports:  runways, terminals, and cargo handling), and near-zero right-of-way costs (the air is free;  the air traffic control system might be considered a right-of-way cost).

• pipeline to
• waterborne to
• rail to
• truck/ automobile to
• airborne transport.

Curvilinear freight rates
Because the fixed costs are incurred regardless of how heavy or distant the shipment, longer or heavier shipments have to bear less of these fixed costs per ton-mile.  For most modes and shipments, the cost of transportation per ton-mile falls as a shipment is heavier and/or is shipped a longer distance.  Another way to say the same thing is that transportation costs increase with weight and distance carried, but at a declining rate.

As a result, transport pricing schedules (price charged to the client, as a function of distance or weight of the shipment) are often stepped or curvilinear:  the price charged rises with distance and weight, but at a declining rate of increase.
 

GEOGRAPHIC  COMPETITION  FOR  MARKETS

See Hanink Fig. 6.11 & 6.12;  S&deS Fig. 4.11 - 4.13, showing delivered cost as a function of production costs, terminal costs, and line-haul costs (transparencies shown in class).  If the products of the two producers are identical, the division of the market between the producers is determined by the intersection of the delivered-cost curves:  you’ll procure the product from the nearest producer.  Even the producer with higher production costs will have some market.

This analysis assumed that the purchaser pays the cost of transport.  For bulky, commodity items, this is often the case.

However, for consumer goods, the producer generally pays the cost of transport, folding it into the wholesale price.

• Under freight-on-board (FOB) pricing, the base price includes packaging and loading on a transport vehicle from the plant.  The buyer pays from shipping separately.
• Under cost, insurance, and freight (CIF) pricing, the price includes shipping costs to the buyer.  Under strict CIF pricing, the price charged to the buyer includes the precise costs of freight and insurance, so the end result is the same as FOB pricing (see upper portions of S&deS Figure 4.13;  transparency shown in class).
• Under uniform delivered pricing, the product carries the same price regardless of the market location.  Nearby markets “subsidize” the shipment of the product to more distant markets.  In this case, the producers compete for market based on characteristics other than proximity — price, reputation, service, etc.  Note, however, that the producers’ profit levels will vary with how well located they are relative to their markets.

DESCRIBING  TRANSPORT  SYSTEMS

Since the purpose of a transportation system is to connect points, we can compare very different transport systems by comparing how completely they connect points.

See S&deS Figures 4.15 & 4.16 (transparencies shown in class).  The top figure (a) shows a “map” of a transport system, e.g., a road system.  We can draw a schematic diagram of this map, (b), in which each place (each possible origin or destination) is called a vertex and each connection (direct link) is called an edge.

We can define a variable beta, that describes the number of connections, or edges, per points, or vertices:  b = e/v
Figure 4.16 shows how b increases as the connectivity of the system increases.

Note that beta is not accurately described as a index, as it can easily have values greater than 1.0.   A better measure would vary from 0 to 1.0, so that when we knew the value, we would know just how well-served the system was by edges (e.g., roads).  The gamma index is the ratio between the actual number of edges and the maximum number of edges:

The formula above is for a planar network:  a network in which any intersection of edges creates a vertex (like in a basic road system;  all the roads are in the same plane).

For a nonplanar network (such as an airline system, or perhaps a system of limited-access highways), in which we edges or routes don't intersect unless we make them intersect and create a vertex,

We can also compare the connection by looking at the degree of duplication of possible routes.  S&deS Figure 4.19 (transparency shown in class) shows five network graphs, each with five vertices.

• (a) and (d) are minimally connected networks.  If any edge were cut or disrupted, we would have two separate networks instead of one.  If the right-of-way costs are very high relative to total transport demand (e.g., freeways in a fairly poor country or region), this might be the best network structure.
• (e) is a minimal circuit network:  there are two ways to get from each vertex to each vertex.
• (c) shows a strict hierarchy, in which all connections go through a central vertex;  this inhibits interaction among the peripheral places (e.g., hub and spoke airline routes;  transport patterns in a country with a primate city).
• (b) is a maximally connected network:  this is not uncommon in a system where the right-of-way costs are very low compared to the total transport demand and resources available (e.g., a secondary-road system in a wealthy economy, or airline routes among major cities in a wealthy country).