Economic Rationale of Rail Transportation

Market AreaLongest service area for inland transport (average length of 1,300 km).
Service both the passengers and freight markets.
Intermodal integration favored market segmentation and specialization.
CapacityA wagon can carry 50 to 100 tons of freight.
Economies of scale (unit trains and doublestacking).
CostsHigh construction and maintenance costs.
High operating costs: labor (60%), locomotives (16%) and fuel & equipment (24%).
Shipping costs decrease with distance and load.
Transshipment and train assembly increase costs.
Multiplier effectsAccelerated industrialization.
Support agricultural and energy supply systems.
Intermodal connecting with international trade.
RegulationConventionally highly dependent from government subsidies.
Government funding, mainly for the sake of national economic imperatives.
From regulation to deregulation.
Private ownership and operations.

The economic rationale of rail transportation can be summarized as follows:

  • Market area. Rail transportation enables to transport raw materials over long distances (paper, wood, grain, chemicals, metallic products, etc.) as well as to move passengers and freight (cars, agricultural equipment, etc.). The average length of a domestic rail freight haul was 1,300 km in the United States, compared with 700 km for trucks. Intermodal integration has favored a market segmentation and a specialization of rail transportation. Intermodal rail tends to operate on a sub-system linking major port gateways to inland centers.
  • Capacity. No other land transportation mode has the capacity of rail as a wagon can carry up to 100 tons of freight, more than three times that of a truck. Another important attribute relates to economies of scale since unit trains can be assembled and that container can be doublestacked if clearance permits.
  • Costs. Rail transportation has high construction and maintenance costs but shipping costs decrease with distance and load. Its increasing returns enable to absorb traffic peaks and growths. Transshipments (loading and unloading) and train assembly also increase costs. Rail operating costs are divided according to labor (up to 60%), locomotives (16%) and wagons, fuel, maintenance and equipment (24%).
  • Benefits. It accelerated the industrialization process, as in several countries the emergence of rail transportation was concomitant to an industrial take-off. It also accelerated economic development and human settlements, especially in North America where rail transportation was a dominant factor of territorial expansion in the late 19th and early 20th century. Furthermore, rail transportation consumes about four times less energy per ton-km or per passenger-km than road transportation. Rail transportation is an important source of employment. Industrial activities range from the construction of the rolling material, the installation of rails, the maintenance of the material, the operations of the rolling material, and management. Rail transportation also has multiplier effects on industrial activities such as steel and transportation engineering. Safety is also a fundamental attribute of the rail transport system as it is, after air transportation, the safest mode.
  • Regulation. Rail transportation used to be highly dependent from government subsidies in several countries. Governments funded most rail projects, mainly for the sake of national economic imperatives. This has created several rail monopolies with an integrated management of infrastructure, but with several imposed routes. However, many rail systems underwent deregulation with private operators.