An efficient transport system for the transit of both passengers and tangible goods is vital for a modern society with a competitive economy that wants to partake in the benefits brought about by international trade. Improvements in transport modes, systems and networks have made transformations and radical overhauls in the lifestyle and the organisation of societies possible and transport economics has sought to study the factors that make transportation systems efficient and those that forestall development.

Transport economics is the branch of economics that deals with the allocation, organisation and efficient management of resources within the transport sector. This field of study addresses areas such as externalities, modal integration, incentive mechanisms for modal use, sector value added to the rest of the economy, privatisation, nationalisation, regulation, pricing and funding in the transport sector.

Like other infrastructure-intensive economic activities, the transport sector is a significant element of the economy impacting on development, competitiveness and population welfare. At present, for example, commercial and private transport services make up 7% of the European Union’s (EU) Gross Domestic Product (GDP) and 12% of Malta’s. Moreover, six million people (4.2% of the total working population) depend on the transport sector for their livelihoods. This figure rises to 14 million if those working in the transport equipment industry and transport-related businesses are added. Investment in transport infrastructure in the EU stands at circa €70 billion every year. This represents 1% of the EU’s GDP. Furthermore, households spend an average of 14% of their annual income on transport.

Efficient transport systems provide economic and social benefits such as savings in commuting time, improved market accessibility, lower pollution, and higher employment and investment levels. This holds even in the digital era, where despite the digitisation of most things, physical transport of goods that cannot be transmitted digitally and physical movement of persons need to be provided for.

Conversely, when transport structures lack capacity, dependability or outreach, they can account for economic costs such as decreased or missed opportunities and regional underdevelopment. In addition, transport also imposes positive and negative externalities. Positive externalities may comprise, for instance, agglomeration benefits. Transport’s negative externalities, on the other hand, include pollution, climate change and safety hazards.

Transport infrastructures can be owned by the public or the private sector. Those owned publicly have the advantage of being accessible to a larger group of people at a lower cost, but are usually more costly for the government to maintain, though the internalisation of external costs might still make for good business cases in favour of publicly owned transport. On the other hand, private infrastructures are inclined to service a lower portion of the population, but to be more profitable, even though access may be guaranteed to population pockets that would otherwise be underserved or not served at all through universal service regulatory obligations funded either by government subsidies or by the profits generated in the other business areas.

Pricing issues also come up quite often in transport economics. In order to curb congestion problems, transport economics has proposed methods such as congestion pricing, road space rationing and tradable mobility credits. Differently-priced first, second and sometimes third class service levels to segregate the market also feature prominently in transport economics assignments, as do the bases for the determination of fares, licenses, fuel, parking and the like.  However, all these methods raise different concerns and contentions.

Another principal application of transport economics is the evaluation of changes in the transport network. To carry out an appraisal of whether a transport project should be undertaken, transport economics can be used to compare the project’s economic costs with its benefits. The undertaking of cost-benefit analysis is essential knowledge for decision makers as it ascribes a value to the net benefits of a project and produces benefit-cost ratios that not only indicate whether a project is worth undertaking but also what configuration of the project it would be best to undertake as well. These ratios can be used to prioritise projects when funding is limited and also to show that interventions generate the optimum value for money. In order to effectively appraise a transport project, policy and/or programme, the economic impacts resulting from these must be identified, measured and valued in monetary terms. One frequent issue of contention is the valuation of time in monetary terms as different people value time differently, and since this value is often based on one’s salary, with the time of people who are not in gainful employment not being valued at all. Another appraisal technique involves the use of any changes in the value of land and consumer benefits resulting from a transport project, rather than the calculation of benefits accruing to travellers themselves. This method, while being more complex to undertake, can give a different insight into a given project.

The funding of maintenance, improvement and expansion of transport networks is also studied in transport economics. In this respect, taxation, tolls and uniform user fees are the main fund-raising methods used. Geographical Information Systems (GIS) are heavily used for assignments requiring the understanding of problems from a geographical perspective.

Equinox Advisory provides the following services in relation to Transport Economics:Advice and analysis on project delivery and operational improvement;

  • Analysis of impacts of existing and potential policies;
  • Analysis of pricing, price waterfall, tariffing and finance issues;
  • Analysis, formulation and implementation of business solutions;
  • Evaluation of environmental effects of different transport modes;
  • Market assessments;
  • Multi-modal transport integration advice;
  • Private sector involvement and public private partnerships;
  • Project cost-benefit analysis;
  • Public policy analysis;
  • Research and advice on industry restructuring and reform;
  • Social and market research to assist with policy advice;
  • Strategic planning; and
  • Transport system modelling.

For more information about our Transport Economics services, please contact us here.