Distance, Modal Choice and Transport Cost

Distance, Modal Choice and Transport Cost

Transportation modes have different cost functions according to the serviced distance. Using a simple linear distance effect, road, rail, and maritime transport have C1, C2, and C3 cost functions. While road transport has a lower cost for short distances, its cost increases faster than rail and maritime costs. It becomes more profitable at a distance D1 to use rail transport than road transport while from a distance D2, maritime transport becomes more advantageous. These are referred to as break-even distances. Point D1 is generally located between 500 and 750 km of the departure point, while D2 is near 1,500 km. Although the above relation is rather straightforward, it does not fit reality well, mainly for the following reasons:

  • It assumes that modal options are interchangeable. For many origins and destinations, modal options such as rail or maritime may not be present and cannot be considered an option. Therefore, a modal option with a higher cost will be used.
  • Since rail and maritime transportation are discrete networks only accessible through terminals, most locations will involve a road transportation segment, which changes the cost structure.

There are also regional differences impacting the break-even distance. For Europe, due to higher market densities, the break-even distance is in the range of 650 miles (1050 km), while in the United States, it is around 750 miles (1,200 km). For the United States, only around 5% of the intermodal rail traffic concerns distances of less than 750 miles underlining the clear dominance of trucking for such a service range. The average rail haul length is about 1,900 miles (3,050 km), with around 65% involving distances of more than 2,000 miles (3,200 km). Evidence from passenger transport also underlines a similar distance-based behavior.