Freight Demand Moshe Ben-Akiva 1.201 / 11.545 / ESD.210 Transportation Systems Analysis: Demand & Economics Fall 2008Outline ● Background – Volumes – Types – Econometric Indicators ● Freight demand modeling – Framework – Logistics choices – Model system ● Trends and Summary ● Appendices: Extensions, Activity Systems, Model System 2Major Types of Freight ● Bulk – Coal – Oil, Gas – Ores, Minerals, Sand and Gravel – Agricultural ● General Merchandise – Supermarket grocery ● Specialized Freight – Automobile – Chemicals ● Small Package 3Bulk ● Commodity Characteristics – Cheap – Vast quantities – Transport cost is a major concern ● Relevant Modes – Rail unit train and multi-car shipments – Heavy truck – Barge and specialized ships – Pipeline 4General Merchandise ● Commodity characteristics – Higher value – Greater diversity of commodities – Many more shippers and receivers – Logistics costs are as important as transport costs ● Relevant Modes – Rail general service freight car – Intermodal – Truckload – LTL (Less-than-Truckload) 5Specialized Freight ● Commodity Characteristics – Large volumes, relatively few customers – Specialized requirements to reduce risk of loss and damage – High value (can afford special treatment) ● Relevant Modes – Specialized rail (multi-levels, tank cars, heavy duty flats) – Specialized trucks (auto carriers, tank trucks, moving vans) – Air freight 6Small Package ● Commodity Characteristics – Very high value – Logistics costs are more important than transport costs – Deliveries to small businesses or consumers ● Relevant Modes – LTL – Small packages services – Express services – Air freight 7Growth in US Domestic Freight Ton-Miles by Mode: 1996 - 2005 SOURCE: U.S. Department of Transportation, Research and Innovative Technology Administration, Bureau of Transportation Statistics. BTS Special Report: A Decade of Growth in Domestic Freight, Table 1 (July 2007). 8Freight Demand ● Freight transport demand is a derived demand – Related to the volumes of goods produced and consumed – Location of suppliers and consumers is critical – Freight flows shift with • New sources of and uses for materials • New locations for manufacturers and retailers • New products and specialized transport 9Freight Elasticities Model, elasticity type Elasticity estimates Rail Truck Aggregate mode split model a Price -0.25 to –0.35 -0.25 to –0.35 Transit time -0.3 to –0.7 -0.3 to –0.7 Aggregate model from translog cost function b,c Price -0.37 to –1.16d -0.58 to -1.81e Disaggregate mode choice model b,f Price -0.08 to –2.68 -0.04 to –2.97 Transit time -0.07 to –2.33 -0.15 to –0.69 a. Levin, Richard C. 1978. “Allocation in Surface Freight Transportation: Does Rate Regulation Matter?” Bell Journal of Economics 9 (Spring): 18-45 b. These estimates vary by commodity group; we report the largest and smallest. c. Friedlaender, Ann F., and Richard Spady. 1980. “A Derived Demand Function for Freight Transportation.” Review of Economics and Statistics 62 (August) d. The first value applies to mineral products; the second value to petroleum products. e. The first value applies to petroleum products; the second value to mineral products. f. Winston, Clifford. 1981. “A Disaggregate Model of the Demand for Intercity Freight Transportation”. Econometrica 49 (July): 981-1006 10Freight Value of Time (VOT) VOT estimates Rail Truck (As percentage of shipment value) Total transit time (in days) 6-21 8-18 The lower value applies to primary and fabricated metals; the higher value applies to perishable agriculture products. Source: Winston, Clifford. 1979. “A Disaggregate Qualitative Mode Choice Model for Intercity Freight Transportation.” Working paper SL 7904. University of California at Berkeley, Department of Economics. 11Outline ● Background – Volumes – Types – Econometric Indicators ● Freight demand modeling – Framework – Logistics choices – Model system ● Trends and Summary ● Appendices: Extensions, Activity Systems, Model System 12Logistics ChoicesNetworkAssignmentEconomic ActivityGrowth FactorGravityInput-OutputFreight Modeling Framework Logistics Choices Network Assignment Origin-Destination Flows Economic Activity Growth Factor Gravity Input-Output Production-Consumption FlowsForecasting Freight OD Flows ● Growth Factors: – Factor an existing OD trip table of commodity flows to estimate future flows ● Gravity Models: – The distribution step in a 4-step model ● Economic Activity Models: – Trace the flows of commodities between economic sectors and between regions 14Growth Factors ● Supply and Demand from a region are predicted using “Growth Factors” ● Iterative Proportional Fitting (IPF) technique is used ● Given the Si , Dj and T0ij , calculate Tij , α and βijoT =α β T i = 1,..., I and j = 1,..., Jij i j ij ∑Tij = Si , i = 1,..., I j ∑Tij = Dj , j = 1,..., J i Where, Tij = predicted OD flow between region i and region j T0ij = initial OD flow between region i and region j αiand βj= balancing factors for regions i and j respectively Si = supply at region i and Dj = demand at region j 15Gravity Model T 0 = S D f C ( )● IPF with ij i j ij S ( ) , i = 1 I and j = 1,..., JT =α β D f C ,..., ij i i j j ij ∑Tij = Si , i = 1,..., I j ∑Tij = Dj , j = 1,..., J i Where, Cij= generalized cost of shipping between regions i and j ( ij) = −θCij = generalized cost function f C e If θ →∝, the model is equivalent to a linear programming problem: Min T C , s t . . T = S , T = D∑ ∑ ij ij ∑ ij i ∑ ij j i j j i 16Outline ● Background – Volumes – Types – Econometric Indicators ● Freight demand modeling – Framework – Logistics choices – Model system ● Trends and Summary ● Appendices: Extensions, Activity Systems, Model System 17Logistics Chain 18 Image removed due to copyright restrictions.Multi-Leg Logistics Chain h1h2h3 hN m t1 t2 t3 t N-1 n N : number of legs in a logistics chain m : sender n : receiver h : mode t : transhipment locationDecision Maker ●No single decision maker – Producers – Wholesalers, Distributors – Consumers – Carriers – Logistics service providersLogistics Choices ●Shipment size/frequency ●Choice of loading unit – e.g. container, pallet,