Transport covers a strategic role for the development of trade and is a key element in people’s lives. Transport system has become indispensable for our survival, and important is the study of its costs to win the competition in the business world, to make efficient our movements and to reduce the waste of resources. Below, the main drivers affecting the transport costs and their changes will be analysed with a focus on transport of goods.

1. ANIELLO ESPOSITO
DRIVERS INFLUENCING THE TRANSPORT COSTS
TLO-25016 Transport in International Context
Individual assignment
Date: 15th February 2016

2. i
CONTENTS
1. INTRODUCTION ....................................................................................................1
2. DRIVERS INFLUENCING THE TRANSPORT COSTS.......................................2
2.1 Mode of transport...........................................................................................2
2.2 Fuel cost .........................................................................................................3
2.3 Government policies ......................................................................................4
2.4 Infrastructures.................................................................................................4
2.5 Labour cost.....................................................................................................4
2.6 Technology.....................................................................................................5
2.7 Congestion......................................................................................................5
2.8 Trade imbalances............................................................................................6
3. CONCLUSIONS.......................................................................................................7
REFERENCES..................................................................................................................8

3. 1
1. INTRODUCTION
Transport covers a strategic role for the development of trade and is a key element in
people’s lives. Transport system has become indispensable for our survival, and im-
portant is the study of its costs to win the competition in the business world, to make
efficient our movements and to reduce the waste of resources.
Below, the main drivers affecting the transport costs and their changes will be analysed
with a focus on transport of goods.
The top eight drivers affecting the transport costs are:
 Mode of transport
 Fuel cost
 Government policies
 Infrastructures
 Labour Cost
 Technology
 Congestion
 Trade imbalances

4. 2
2. DRIVERS INFLUENCING THE TRANSPORT
COSTS
2.1 Mode of transport
The mode of transport has a key role in logistics. Typically, in selecting the mode of
transportation companies must consider the transit time and the shipping cost. There is an
inverse relationship between these two variables: decreasing the transit time required in-
creases the cost and vice versa.
There are different solutions of transport according to the requirements:
 Air: used for goods not heavy, not voluminous and with high specific value per
unit weight.
 Express Courier: used for goods not too voluminous and which must be deliv-
ered early.
 Road: This allows reaching all the sampling point and destination.
 Rail: used for large quantities of products, low-value, heavy, not time-sensitive
and for long distances.
 Ship: used for large quantities and high distances. It is an inexpensive solution
but with long travel times.
 Pipeline
 Intermodal transport: It combines different solutions. (Jacobs and Chase, 2013)
Figure 1 Relationship between costs and performance of transport modes (People.hof-
stra.edu, 2016)

5. 3
Figure 2 Relationship between costs, capacity and transport modes (adapted from
Global Insight, Inc., TRANSEARCH database, and U.S. Department of Transportation
Freight Analysis Framework data.)
2.2 Fuel cost
The cost of fuel has a significant effect on the total cost of transport. Obviously, the per-
centage impact of fuel cost depends on the selected mode of transport. In recent years,
the price of oil is collapsed (Knoema, 2016).
This reduction of the oil cost may upset the transport system and reshape the criteria of
the choice of the most convenient alternatives. In most cases, lowering oil prices does not
lead to a reduction of the transport cost in the short term but leads to an improvement of
quality of service. Therefore, air companies as they increase their margins can increase
the routes enabling to reach many places in the world in less time. For railways, however,
lowering oil prices is a threat because it reduces its benefit over the trucking. Vice versa,
for the trucking there are significant benefits that result from this phenomenon, because
it is easier to lower the cost of transport depending on fuel. (Andrew Tipping, 2015)
Figure 3 The cost of shipping goods by truck and rail in 2008. (C2es.org, 2016)

6. 4
2.3 Government policies
The Government policies can change the equilibrium of transport modes with policies
that may favour one mode rather than another. In fact the European policy “seeks to help
our transport systems meet the major challenges facing them: congestion, oil dependency,
greenhouse gas emissions, infrastructure quality, and competition. Thanks to EU policy,
the last 20 years have seen considerable progress in Europe’s transport sector, leading to:
safer skies, seas and roads; decent working hours for people working; more transport
choices; less pollution; technological progress.” (Europa.eu, 2016) In addition, govern-
ment policies determine the tax rates (charges and taxes) for the movement of goods.
2.4 Infrastructures
The quality of infrastructure is indirectly proportional to the cost of transport: a low qual-
ity of infrastructure leads to a greater cost of transport. Quality of infrastructure has a big
impact on the problems of congestion and the service time, that generate a costs’ increase.
(Rodrigue, 2016)
2.5 Labour cost
Typically, the labour costs represent the 27.7% of freight costs (C. Ray Goff, 2016)
among the total transport costs. Therefore, increases or decreases of wages can affect the
cost of transport. The salary depends on economic and legislative factors. In fact, in US
after the shortage of drivers, labour costs have risen. Consequently, the transport compa-
nies need to increase wages to recruit new drivers.
Figure 4 Driver shortages hamper trucking capacity (Bmoharris.com, 2016)

7. 5
2.6 Technology
Technological development has had a major impact in the transport system. Its develop-
ment has improved the equipment and vehicles as well as developing support systems and
information systems. Some results of this development are data interchange (EDI), auto-
mated equipment identification (AEI), applications of Intelligent Transportation Systems
(ITS) to commercial vehicle operations, global positioning systems, and cargo / container
tracking and routing systems. All this development has allowed streamlining their opera-
tions, optimizing service and increasing the efficiency of travel, thus generating a reduc-
tion in costs. (Tongji.edu.cn, 2016)
Figure 5 Converging forces transforming the future evolution of automotive transporta-
tion and mobility (Deloitte University Press, 2016)
2.7 Congestion
Congestion is a factor that primarily concerns on truck transport. In fact, in many urban
areas, increasing highway congestion is affecting the cost and efficiency of the truck
transport. The effects of this problem are increasing the number of driver hours, vehicles
required, wasted fuel and more possibilities to have accidents (Tongji.edu.cn, 2016).
These facts carry a considerable increase of transport costs.

8. 6
Figure 6 Costs of Congestion (Hassett, 2014)
2.8 Trade imbalances
The dislocation of the many plants worldwide and the need to meet the requirements in
different countries has pushed the transport system to reinforce. However, the globaliza-
tion of the market has generated trade imbalances that affect transport prices. This hap-
pens because of imbalances between import and export in some countries. In fact, because
of the imbalances, there are empty container movements in one direction. Consequently,
if a trade balance is strongly negative (more imports than exports), transport costs for
imports tend to be higher than for exports (Rodrigue, 2016).
Figure 7 Trade imbalances in the world (People.hofstra.edu, 2016)

9. 7
3. CONCLUSIONS
The drivers that affect the cost of the transport are numerous. The eight most important
drivers have been listed and have been explained how each of top eight drivers affect the
transport costs. Each driver is able to shift the balance of the transport system and, con-
sequently, can lead to an increase or decrease of costs but especially the government pol-
icies, the oil cost and the mode of transport in the past have influenced the entire system.
Some drivers like government policies, the development of technology, and the develop-
ment of infrastructures have led to an improvement of the service and a consequent re-
duction of costs. Vice versa, other drivers like labour cost and congestion have led to an
increase of the transport costs.

10. 8
REFERENCES
Jacobs, F. and Chase, R. (2013). Operations and supply chain management, McGraw-
Hill
Knoema, (2016). Crude Oil Price Forecast: Long Term 2016 to 2025 | Data and Charts
- knoema.com. [online] Available at: http://knoema.com/yxptpab/crude-oil-price-fore-
cast-long-term-2016-to-2025-data-and-charts [Accessed 14 Feb. 2016].
Andrew Tipping, a. (2015). The Impact of Reduced Oil Prices on the Transportation Sec-
tor. [online] strategy+business. Available at: http://www.strategy-business.com/arti-
cle/00312?gko=ae404 [Accessed 14 Feb. 2016].
Europa.eu, (2016). EUROPA - Topics of the European Union - EU transport policy.
[online] Available at: http://europa.eu/pol/trans/index_en.htm [Accessed 14 Feb. 2016].
Rodrigue, D. (2016). Transportation and Economic Development. [online] People.hof-
stra.edu. Available at: https://people.hofstra.edu/ge-
otrans/eng/ch7en/conc7en/ch7c1en.html [Accessed 14 Feb. 2016].
C. Ray Goff, J. (2016). What’s Driving Freight Costs Higher?. [online] Pharmoutsourc-
ing.com. Available at: http://www.pharmoutsourcing.com/Featured-Articles/126129-
What-s-Driving-Freight-Costs-Higher/ [Accessed 14 Feb. 2016].
Tongji.edu.cn, (2016). Chapter 2 - Factors Affecting Freight Demand. [online] Available
at: http://www.tongji.edu.cn/~yangdy/quick/ch2.htm [Accessed 14 Feb. 2016].
Rodrigue, D. (2016). Transport Costs. [online] People.hofstra.edu. Available at:
https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/ch7c3en.html [Accessed 14 Feb.
2016].