Authors: Dr. Brian Slack, Dr. Jean-Paul Rodrigue and Dr. Theo Notteboom
Transport policy tries to make decisions concerning the allocation of transport resources while transport planning is their effective implementation.
1. Policy and Planning
The terms “policy” and “planning” are used very loosely and are frequently interchangeable. However, substituting one for the other is misleading. Policy and planning represent separate parts of an overall process of intervention. There are circumstances where policy may be developed without any direct planning implications, and planning is frequently undertaken outside any direct policy context. However, precise definitions are not forthcoming, and the following are suggested:
Transport policy deals with developing a set of constructs and propositions that are established to achieve specific objectives relating to social, economic, and environmental conditions, and the functioning and performance of the transport system.
Transport planning deals with the preparation and implementation of actions designed to address specific problems.
The goal of transport policy is to make effective decisions concerning the allocation of transport resources, including the management and regulation of existing transportation activities. Thus, transport policy can be concomitantly a public and private endeavor. Still, governments are often the most involved in the policy process since they either own or manage many components of the transport system and have levels of jurisdiction on all existing transportation modes. Governments also often perceive that it is their role to manage transport systems due to the essential public service they provide in addition to impose a regulatory framework.
Yet, many transport systems, such as maritime and air transportation, are privately owned with firms servicing international markets that able to set their own policy. However, there are substantial geographical variations in ownership with the United States having a history of private involvement while Europe, China, India, and Japan have more relied on public ownership and operations. The standard rule is that the public sector usually provides transport infrastructure and the regulatory framework while the private sector assumes the provision and operations of many modes and terminals.
With globalization and deregulation, the private sector has much leverage into the policy process through its asset allocation decisions, reflecting in new public transport policy paradigms.
Public policy is the means by which governments attempt to reconcile social, political, economic, and environmental goals and aspirations with reality. These goals and expectations change as the society evolves, and thus a feature of policy is its changing form and character. Policy tends to be dynamic and evolutionary.
A major distinction between planning and policy is that the latter has a much stronger relation with legislation. Policies are frequently, though not exclusively, incorporated into laws and other legal instruments that serve as a framework for developing planning interventions. Planning does not necessarily involve legislative action and is more focused on the means of achieving a particular goal, often within the existing regulatory framework.
2. The Relevance of Transport Policy
Transport policies arise because of the importance of transport in virtually every aspect of economic, social, and political activities of nation-states. Transport is taken by governments of all inclination, from those that are interventionalist to the most liberal, as a vital factor in economic development. Transport is seen as a key mechanism in promoting, developing, and shaping the national economy. Many development programs, such as the Appalachia Project in the United States and the 1960s, the Trans-European Networks (TENs) policy in the EU, and China’s Belt and Road Initiative are transport-based. Governments and international institutions such as the World Bank also seek to promote transportation infrastructure and services where private capital investment or services may not be forthcoming. Paradoxically, the links between transport and economic development are, at times, questionable.
Transport frequently is an issue in national security. Policies are developed to establish sovereignty or to ensure control over national space and borders. The Interstate Highway Act of 1956, which provided the United States with its network of expressways, was formulated on the grounds of national security. Security was at the heart of the more recent impositions regarding passengers or freight clearance taking place at the port of departure in addition to conventional clearance occurring at the port of entry.
Transport raises many questions about public safety and the environment. Issues of public safety have, for a long time, led to the development of policies requiring driving licenses, limiting the working hours of drivers, imposing equipment standards, establishing speed limits, mandating highway codes, seat belts, and other accident controls. More recently, environmental standards and control measures are being instituted, in response to the growing awareness of the environmental impacts of transport. Examples include banning leaded gasoline and mandating fuel efficiency and emission standards. More recent policy endeavors concern reducing carbon emissions by the transport sector.
Transport policy has been developed to prevent or control the inherent monopolistic tendency of many transport modes. Unrestrained competition commonly leads to market dominance by a company, thereby achieving (close to) monopoly power. Such dominance brings into question many issues affecting the public interest such as access (smaller actors prevented to access infrastructure), availability (smaller markets being less serviced, or services being discontinued) and price (the monopolist being able to charge high prices).
Other reasons for policy intervention include the desire to limit foreign ownership of such a vital industry for concerns that the system would be sidetracked to service more foreign than national interests. For example, the United States limits the amount of foreign ownership of its domestic airlines to a maximum of 49%, with a maximum of 25% control. Other countries have similar restrictions, at times forbidding foreign ownership of several transport assets altogether. This challenges the growth and expansion of transnational managers and operators of transportation assets and the large financial institutions supporting them, such as sovereign wealth funds.
In recent years, four trends had significant consequences over the context in which the transport policy takes place:
- Globalization increased interactions at the international level, both for freight and passengers. This led to the emergence of large actors managing a portfolio of modes and infrastructures across international jurisdictions and therefore dealing with a variety of transport policies and regulations.
- Deregulation and privatization have been ongoing in many transport markets. This enabled the transfer of ownership and operation of many transport modes to the private sector and favored the entry of new actors. This was particularly the case of the airline industry.
- A broader focus of policies, particularly considering intermodalism and multimodalism, as well as logistics. This has enabled better coordination of investments improving the efficiency of interconnected transportation networks and the related supply chains.
- A move towards social and political issues behind transport projects as opposed to technical and engineering issues. The policy process is becoming more responsive towards public concerns over issues such as environmental externalities and social equity. However, this has also been linked with additional costs, delays, and controversy of many large transportation projects.
3. Policy Instruments
Governments have a large number of instruments at their disposal to carry out transport policy. Some are direct, such as public ownership, but the majority are indirect, such as safety standards. The most common are:
- A vital instrument concerns public ownership. The direct control by the state of transportation infrastructure, modes, or terminals is widespread. Most common is the provision by public agencies of transport infrastructure such as roads, ports, airports, and canals. Public ownership also extends to include the operation of transport modes such as airlines, railways, ferries, and urban transit by public agencies.
- Subsidies represent an important instrument used to pursue policy goals. Many transport modes and services are capital intensive, and thus policies seeking to promote services or infrastructure that the private sector is unwilling or unable to provide may be made commercially viable with the aid of subsidies. Private railroad companies in the Nineteenth Century received large land grants and cash payments from governments anxious to promote rail services. In the United States, the Jones Act, which seeks to protect and sustain a US-flagged merchant fleet, subsidizes ship construction in US shipyards. Indirect subsidies were offered to the air carriers of many countries in the early years of commercial aviation through the awarding of mail contracts. Dredging of ship channels and the provision of other marine services such as pilotage and navigation aids are subsidies to facilitate shipping. Most public transit systems are subsidized to provide mobility since full cost recovery would make fares unaffordable to the poorer segments of the population. Both public ownership and subsidies represent instruments that require the financial involvement of governments. Revenue generation is becoming an increasingly important instrument in transport policy.
- Regulatory control represents a means of influencing the shape of transportation that is widely employed. By setting up public agencies to oversee particular sections of the transport industry, governments can influence the entire character and performance of the industry. The agencies may exert control on entry and exit, controlling which firms can offer transportation services, at what prices, to which markets. Environmental regulations are also important factors shaping the provision, construction, maintenance, and operation of transportation infrastructures. Thus, while private firms may offer the actual services, the regulator plays a determining role. Regulatory agencies in the US, such as the Civil Aeronautics Board, played a critical role in shaping the US airline industry for decades.
- Many governments are major promoters of research and development in transportation. Government research laboratories are direct products of state investments in R&D, and much university and industry R&D is sustained by government contracts and programs. The outcomes of this research are extremely important to the industry. It is a vital source for innovation and the development of new technologies. Besides, educational institutions that are commonly funded by public resources provide operators, managers, and analysts for the private transport sector.
- Labor regulations pertaining to conditions of employment, training, and certification may not be directed purposefully at influencing transport. Still, as a policy, they may exert a significant effect on the industry since it has an impact on its operating costs.
- Safety and operating standards, such as speed limits, may have a similar effect. The restrictions on limiting the number of hours a truck driver may work may be instituted for safety reasons and for enhancing the working conditions of drivers. Still, they shape the economics of truck transport. In the same fashion, speed limits help fix the distance of daily trips that one driver may undertake, thereby shaping the rate structure of the trucking industry.
A common issue concerning policy instruments is that they may have unintended consequences, particularly if they are indirect. For instance, taxation and subsidies could influence one mode to the advantage of others, even if they are more efficient.
4. Policy Development
Public policies reflect the interests of decision-makers and their approaches to solving transport problems. These interests and approaches are both place-specific (they apply to a particular area of jurisdiction) and time-specific (they are established to reflect the conditions of transport and the intended solutions at a point in time). Policies are dynamic. They change and evolve as circumstances change, and as new problems are recognized. The dynamic nature of policymaking is reflected in the way the policy instruments have been employed over the years. In the 19th Century, when many of the modern transport systems were being developed, the prevailing political economy was one of laissez-faire, in which it was believed that the private sector should be the provider of transport services and infrastructure. Historical examples of private transport provision include:
- Turnpikes. The first British modern roads in the 18th century were the outcome of private trusts aiming a deriving income from tolls on roads they built and maintained. It was likely the first massive private involvement in transport infrastructure provision.
- Canals. Many of the earliest canals were built with private capital. One of the first canals that helped spark the Industrial Revolution in Britain was the Bridgewater Canal.
- Urban transit. In most North American cities, public transit was operated by private firms. The earliest examples were horsecars that followed rail lines laid out on city streets. With electrification at the end of the 19th century, the horsecars were converted to streetcars, and the network was greatly expanded. In the 20th century, busses were introduced by private companies operating on very extensive route systems.
- Ships. Most maritime shipping companies were private family-owned enterprises, some of which became large companies, such as the Cunard Line in the UK, MSC in Switzerland, or Maersk in Denmark. The main government involvement concerns military navies and ferries.
- Railways. Railways were developed by private companies during the 19th century. In North America, this has continued to the present day. In Europe, deregulation mainly resulted in the emergence of private carriers, but the infrastructure remained publicly owned.
This situation was not entirely without public policy involvement, however. The massive subsidies that were granted to North American railroads are an example of state intervention. In the early 20th century, the overprovision of rail lines (rail manias), competition between carriers, and market failures led to a crisis in many parts of the transport industry, particularly after 1918. This led to a growing degree of government involvement in the transport industry, both to offset market failures, jurisdictional conflicts and to ensure that services could be maintained for the sake of the “public good”:
- In many cities, private bus companies were taken over by municipally controlled transit commissions in the 1930s and 1940s.
- The airline industries in many countries were placed under the control of a national public carrier, for example, Air France, Trans Canada Airlines, and British Overseas Airways Corporation. In the United States, airlines remained private but subject to a high level of regulation in terms of the condition of their service.
- The nationalization of railways in the first half of the 20th century occurred in most of Europe as well as in Canada, Russia, China, Japan, and India. This gave the opportunity to consolidate existing lines into a national system. In the United States, the system remained private but highly regulated. After the collapse of the Penn Central Railroad and several other lines in the 1970s, a publicly funded passenger system (Amtrak) was set up, and a publicly owned freight railroad was established (Conrail, which was sold to private rail companies in 1999).
Governments eventually captured many segments of the private transport sector. In addition to the public ownership of transport modes, a growing amount of regulatory control emerged. The belief in liberal markets with limited public interference was seriously reconsidered after the crash of 1929 and the economic downturn of the early 1930s. From that moment on, governments were incited to extend the scope of their responsibilities. The public sector was an important trigger for the reconstruction of Europe in the aftermath of World War II (e.g. the Marshall plan) for the modernization of the industrial structure and economic growth. Economic and social measures were directed towards the creation of the welfare state. The period from the 1940s to the 1970s was characterized by nationalization when socialist ideology was put into practice throughout the world. For example, the European transport industry saw the emergence of large national companies in public transport, freight rail, ferry services, deepsea shipping, and the airline industry. These large nationalized companies could mobilize new sources and technologies, thereby contributing to the national objectives of economic growth and full employment. Nationalization was also a common practice in newly independent nations that emerged with decolonization from the 1950s. Controlling key transportation infrastructure and economic sectors was perceived as central to sovereignty. For instance, Egypt nationalized the Suez Canal in 1956.
While centrally planned economic systems (such as the Soviet Union, Eastern Europe, and China) involved a complete control by the public sector, governments in Western Europe and North America were also major players in the market through market control systems up to the full nationalization of industries considered to be of strategic importance to economic development and external trade. The airline and the trucking industries saw entry limited by permits, and routes and rates were fixed by regulatory boards that had been set up to control the industries. At the same time, greater safety regulations were being imposed, and working conditions were increasingly being shaped by labor legislation.
By the 1960s, therefore, transportation had become under the sway of public policy initiatives that exerted an enormous influence on the industries and their spatial structures. At the same time, there was also a growing body of evidence that indicated that public ownership and regulation were not always in the public interest. Transportation costs that were fixed by the regulatory authorities were maintained at higher levels than necessary. Many regulatory boards had been “captured” by those they were supposedly regulating so that they were frequently acting to protect industries rather than the public. At the same time, there was a public finance crisis in many countries, where the costs of operating the state-owned transportation industry were seen to be unsustainable. The theory of contestability repudiated traditional economic theory concerning monopoly power by arguing that the threat of entry of a new actor was sufficient to thwart a monopolist’s ability to impose monopoly pricing. The key, therefore, was to relax entry thresholds, by allowing new firms to start up, a process that regulatory boards were impeding.
This evidence was brought into the public policy arena by politicians who espoused market-oriented views, notably President Reagan in the US and Prime Minister Thatcher in the UK. Although President Carter had initiated the first steps towards deregulation in the US in the mid-1970s, it was in the 1980s during the Reagan presidency that trucking, the airline industry, and the railways were largely deregulated. In the UK, in addition, there has been a massive move to privatize most sectors of the transport industry, including state and most municipally-owned bus companies, the national airline, trucking, the railway, airports, and most seaports.
Deregulation and privatization policies have spread unequally to many other parts of the world. New Zealand has perhaps the most open transport policy, but many others, such as Canada and Australia, have made significant steps in this direction. In the EU, the pace of deregulation and privatization is proceeding unevenly. Subsidies to state-owned transport companies have been terminated, and many airlines have been privatized. Government-owned railroads still exist in France, Germany, Italy, and Spain, but the tracks have been separated from the traction and rail service operations and have been opened to new service providers. In Latin America, most of the state-owned transport sector has been deregulated. While the former centrally planned states have had to make the furthest adjustments to a more open market economy, several, such as China, have opened large sections of the transport industry to joint ventures with foreign private enterprises. In China, many new highways and most of the major ports have been developed with private capital. Thus, at the beginning of the 21st Century, transportation is under less direct government economic control worldwide than at any period over the last 100 years.
5. Changing Nature of Policy Interventions
The trends in transport policy in recent decades have been towards liberalization and privatization. This has not necessarily weakened the role of governments and their interventions over transportation. Controls over monopoly power are still in place, and even in the most liberal of economies, there is still strong evidence of public policy intervention:
- Ownership of ports and airports. Terminals continue to be largely under State or municipal ownership, but concession agreements to private operators are common.
- Highway provision, upgrade, and maintenance remain one of the most significant and enduring commitments of public funds.
- Urban transit systems remain dominantly publicly owned and operated. Intercity transport is mostly private, which brings the question about if urban transportation would gain to be privatized.
- Mergers and acquisitions between large private or public entities in the transport sector are commonly subject to regulatory approval.
Government policy orientations have changed, however. Governments are beginning to exert greater control over environmental and security concerns, issues that are replacing former preoccupations with economic matters. For instance, because of biofuel policies aiming at ethanol production using corn, the unintended consequence was a surge of global food prices as more agricultural land was devoted to energy production instead of food production. Sustainability and the environment are becoming a significant issue for government intervention. Coastal zone legislation has made it increasingly difficult for ports to develop new sites. Air quality is a significant factor influencing the allocation of US federal funds for urban transport infrastructure. In Europe, environmental issues are having an even greater influence on transport policy. The EU Commission is promoting rail and short sea shipping as alternatives to road freight transport. Projects are assessed based on CO2 reduction. All transportation projects are subject to extensive environmental assessments, which may lead to delays and even a rejection of proposals, despite strong economic justification. As a major source of atmospheric pollution and environmental degradation, the transportation industry can anticipate further government environmental policy interventions.
Safety has always been a policy issue. Legislation imposing speed limits, mandating seat belts, and other measures have sought to make travel safer. These continue to proliferate. However, it is the area of security that the most recent set of policy initiatives have been drawn. Screening of people and freight has become a major concern since 9/11. Both the US government and such international organizations as the International Maritime Organization (IMO) and the International Civil Aviation Authority (ICAO) have instituted new measures that impact operations and represent additional costs to the transport industry.
While there may have been some reduction of policy involvement involving economic regulations, the influence of public policy on transport overall is still powerful but contentious at times. It must be acknowledged that capital investment by governments in transport infrastructure commonly follows multiple and sometimes conflicting policy goals. For instance, short terms policy goals of job creation are usually incompatible with long term goals such as economic growth and energy efficiency. The usual outcome is that projects with multiple policy goals reduce their economic benefit.
6. Logistics Policies
To better adapt to the growing complexity of the transportation system, there has been an emerging shift in transportation policy towards a set of logistics policies. They cover a wider range of activities, such as transportation modes and terminals, warehousing, and manufacturing. The emerging preponderance of logistics is challenging the scale (integrating global, regional, and local considerations) and scope (across modes) of transport policy, which needs to be expanded into a more comprehensive framework. However, this expansion must consider specific policy challenges:
- Cross-sectorial issues. Logistics brings within the realm of policy several actors outside the transport sector that policymakers are not well prepared to deal with. For instance, supply chain management involves transportation, distribution, and manufacturing aspects, which are conventionally considered as separate sectors. Thus, the cross-sectorial characteristics of logistics require new information and knowledge to support public policy.
- Cross-jurisdictional issues. Logistics brings complex relationships and linkages across several functional (such as modes) and geographical jurisdictions. Standard transport policy is commonly articulated around modes that are viewed as independent and subject to well-defined jurisdictions (e.g. specific ministries). The cross-jurisdiction characteristics of logistics require new realms of engagement and intervention of public policy.
- Transnational actors. Many actors supporting logistics have a strong transnational presence, operating in several countries and regions of the world. This is particularly the case for 3/4PLs, which are highly globalized entities. These actors often have more leverage than the public authorities they interact with, particularly when it involves setting concessions. The transnational character of logistics requires the consideration of trade and transactions as a policy issue.
Considering these challenges, logistics and public policy can interact over three main pillars, each offering a realm of potential intervention; actors (who controls and manage logistical activities?), operations (what are the logistical activities being performed?), and outcomes (how the logistics performance meet the criteria of the industry?). Each pillar underlines to what extent its components are effectively meeting national goals or the requirements of the industry. Are customs procedures effective? Is there enough capacity at terminals and connectors to meet existing and anticipated needs? Is the workforce sufficient and adequately trained to meet the need of the industry? Is the public sector able to manage effectively its regulations?
Shortcomings over any of these issues should be investigated and trigger appropriate policy response. A common observation is that logistics policy should avoid directly dealing with operational issues since these aspects should ideally be addressed by the private sector. Public policy should remain an enabler and support for logistics activities, not a provider of logistics services unless these services are substantially inadequate. Logistics policies fill an essential gap in coordinating the development of transport infrastructure and the economic activities that generate commercial and trade flows. They are mainly articulated around:
- Improving trade facilitation through the simplification, harmonization, and standardization of trade procedures and the setting of free zones.
- Improving the global interface of logistics with gateways, corridors, and hinterland accessibility strategies.
- Providing a land base for logistics infrastructures and activities with the setting of logistics zones and inland ports.
- Developing human resources in logistics by expanding labor and logistical services skills.
- Supporting digitalization such as freight portals (single windows) and port community systems.
- Developing sustainable niche logistics activities with infrastructures and services promoting unique comparative advantages, including green logistics strategies.
- Improving last-mile logistics with city logistics. Many final deliveries are taking place in a congested context with difficulties to access the final destination, including parking.
Governments are facing the challenge of coordinating logistics policies since the governance structure of many organizations focuses on specific infrastructure, modes, and locations. This can require the setting of new governance structures with a focus on logistics or the development of a consortium regrouping the key stakeholders.
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- Cost / Benefit Analysis
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