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Freight Transportation Modes - Part Two

Posted on Thursday, March 5th by Pallet2ship logo

In the modern age, the ultimate goal in terms of transportation is to achieve maximum flexibility, a goal which is addressed by the concept of integrated transportation systems. This is where modal competition begins, a competition based on costs, speed, convenience, safety and frequency, among many others.

We speak of complementary modes of transportation when a number of three conditions are met. First of all, they must operate on different geographical markets. Thus, a continuous flow is achieved regardless of the scale. However, this kind of transfer requires a gateway, an interconnection. Second of all, the transport markets must differ. The opposition between passenger transportation and freight transportation is often a complementarity marker. However, accessibility plays an essential role in this equation, some modes of transportation being more effective than others in a particular context. Finally, the levels of service must be different. Most often, the terms of comparison are time and money.

In other words, the principle behind modal competition is to cover a wider range of geographical and transport markets, as well as a wider range of services. One of the key factors lies in the costs. Each mode of transportation comes with a particular price-performance scheme and this scheme is based on a number of variables, which include distance, volume or value. Thus, maritime transportation, for instance, is an ideal solution for shipping small quantities of goods over short distances, while road transportation is often the most competitive solution. While these costs are variable, there are also fixed costs to be taken into consideration, namely the terminal costs, which involve the loading and unloading of goods alone and are not influenced by the shipping distance.

As the income levels have increased, the travel demand has increased too, both as far as passengers and goods are concerned. However, it has not increased equally in all transportation sectors, with time effectiveness acting as the decisive criterion. In terms of passenger travel, road transportation appears to be the top choice for short-distance needs, whereas air transportation is commonly preferred for long-distance ones. In terms of freight transportation, road and air transportation have gained quite some popularity with high value goods, pipeline, maritime and rail transportation still being preferred with large-volume such cargos though.

Indeed, modal competition has led to the transport opportunities being much more numerous today, but it has also caused the competition between shipping companies to be fierce. The supply chain competition addresses three main aspects, namely modal usage - where distance plays a key role, followed by costs, time effectiveness and convenience -, infrastructure usage and market area usage (hinterland and terminal expansion or relocation).

According to the general opinion, modal competition should be based on modal equality, on the comparison of similar characteristics. However, this is a goal that cannot be achieved in a context where different modes of transportation fall under different jurisdictions and have different sources of funding. At present, modal competition is based on public policy, which creates a favourable context for certain modes of transportation to come across as more advantageous than others. The regulations and the funding of infrastructure are two very important factors in this respect. In the United States, for example, the funding ratio with a highway project is 80% (Federal Government) to 20% (state government), with public transit, it is 50%-50%, whereas with rail transportation for passenger travel purposes, it is 0%-100%. Of course, the progress made in the technological area creates a favourable context for improving the infrastructures to address the transport needs more efficiently.

As long as the principle of modal equality remains theoretical, modal shifts are inevitable. These involve particular modes of transportation gaining popularity over others based on the costs involved, reliability, speed or convenience levels or the demand for several modes of transportation increasing at once. As far as passenger travel is concerned, the increasing income levels have led to a shift towards individual modes of transportation. As far as freight transportation is concerned, they have led to a shift towards trucking and air transportation, which are characterised by high flexibility levels and higher speed.

Geographical variables also have a direct impact on modal competition as revealed by the availability of transport networks and infrastructures. The transport opportunities will be much more numerous in areas where several modes of transportation are available and can be combined to cover a wider range of services. North America, for instance, provides more rail freight transport solutions than the EU, but fewer passenger transport ones. It should be noted, also, that some modes of transportation are simply non-existent in some areas. As expected, this very low accessibility forces people to settle for less effective alternatives to meet their mobility needs. This is where the tie with the economic framework lies. People's mobility needs can easily be met in developed areas where a variety of modes are available.

The increasing price and increasing volatility of fuel have had a great impact on the transport industry with customers being the ones to bear the costs. These may reflect in higher freight rates or they may be charged indirectly as do airlines for their fuel surcharges. Whichever the case, these costs are tightly connected to the concepts of trade, mobility and modal splits. Higher rates mean higher friction of distance and lower mobility as they force people to change their usual transport activity and therefore companies to change their supply and distribution policies. Moreover, increases in fuel costs impact different modes of transportation in different ways, which leads to modal shifts. Thus, air and road transportation are bound to be affected by them to a greater extent than maritime or rail transportation, which is likely to cause a shift towards the last two. Finally, this phenomenon will determine a lower consumption of fuel within the transportation industry, which can be achieved through lower speeds, among others. However, this is bound to force companies to adjust their supply policies so as to keep providing just-in-time delivery solutions for their customers.

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