The Economic Costs of Freight Transportation
Over the past 25 years, freight transportation has become cheaper for a given level of service, contributing significantly to enhanced productivity and economic growth. However, market forces, environmental concerns, rising fuel prices, and other factors will increase the cost of moving all goods in the years ahead. In addition, congestion and other issues will affect the long and often vulnerable supply chains of high-value, time-sensitive commodities. If these forces are not mitigated, then the increased cost of moving freight will be felt throughout the economy, affecting businesses and households alike.
Congestion results in enormous costs to shippers, carriers, and the economy. For example, Nike must spend an additional $4 million per week to carry an extra 7-to-14 days of inventory to compensate for shipping delays (Isbell 2006). One day of delay requires American President Line's eastbound trans- Pacific services to increase its use of containers and chassis by 1,300, which adds $4 million in costs per year (Bowe 2006). A week-long disruption to container movements through the Ports of Los Angeles and Long Beach could cost the national economy between $65 and $150 million per day (US Congress CBO 2006). The 2,110 freight bottlenecks on highways throughout the United States cause more than 243 million hours of delay to truckers annually (USDOT FHWA 2005a). At a delay cost of $26.70 per hour, the conservative value used by FHWA's Highway Economic Requirements System model for estimating national highway costs and benefits, these bottlenecks cost truckers about $6.5 billion per year.
Congestion costs are compounded by continuing increases in operating costs per mile and per hour. The cost of highway diesel fuel increased 126 percent over the decade ending in 2006 (USDOE EIA 2008). Future labor costs are projected to increase at a faster rate than in the past in response to the growing shortage of truck drivers (ATA 2005). To attract and retain more drivers and adjust to new safety regulations, carriers may reduce the number of hours drivers are on the road, which will in turn increase operating costs. Railroads also are facing labor recruitment challenges (USDOT FRA 2007). Beyond fuel and labor, truck operating costs are affected by needed repairs to damaged equipment caused by deteriorating roads, taxes and tolls to pay for repair of infrastructure, and insurance and additional equipment required to meet security, safety, and environmental requirements.
Increased costs to carriers are reflected eventually in increased prices paid for freight transportation. Between 2003 and 2006, prices increased 13 percent for truck transportation, 25 percent for rail transportation, 11 percent for scheduled air freight, 11 percent for water transportation, 9 percent for port and harbor operations, 5 percent for marine cargo handling, 22 percent for pipeline transportation of crude petroleum, and 8 percent for pipeline transportation of refined petroleum products (USDOL BLS 2007).
When the entire economy is taken into account, transportation services contribute more than 5 percent to the production of GDP (USDOT BTS 1998). For-hire and in-house trucking accounts for more than one-half of this contribution. The importance of transportation varies by economic sector. For example, $1 of final demand for agricultural products requires 14.2 cents in transportation services, compared with 9.1 cents for manufactured goods and about 8 cents for mining products. An increase in transportation cost affects lower margin bulk commodities more than high-value, time-sensitive commodities that have higher margins. In either case, an increase in transportation costs will ripple through all these industries, affecting not only the cost of goods from all economic sectors but also markets that may remain open for the goods.