Office of Operations Freight Management and Operations

Appendix A
Economic Effects of Transportation: The Freight Story
Final Report

Exhibit 9: How the Business Reorganization Effect Can be Captured Under a Benefit-Cost Framework

A demand curve reflecting the benefits the shipper gets from buying freight transportation. D0 shows a shipper's demand for freight transportation before an improvement to the freight system. The new curve, D1, shows the change in demand that follows the improvement. In the short run, the shipper makes no response and continues to buy the same number of vehicle miles of freight. The benefit to the shipper is the area A, the cost reduction with the existing volume of freight. In the next phase of response, the shipper takes advantage of the lower cost and buys more freight movement. This adds the area B to the benefit. But this still reflects the shipper’s original demand curve, D0. After managers have had time to consider the cost reduction, they may make changes in their logistics. This is when the shipper's demand for transportation would change, and there would be the new freight transportation demand curve, D1. The freight improvement's full benefit is reflected in the sum of areas A, B, and C.

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