Transportation Modes, Modal Competition and Modal Shift

With increasing income levels, the propensity for people to travel rises. At the same time, international trade in manufactured goods and parts has increased. These trends in travel demand act differently upon modes. Those that offer faster and more reliable services gain over modes that might offer a lower cost, but slower, alternative. For passenger services, rail is challenged by the competition of road transport over short distances and aircraft for longer trips. For freight, rail and shipping have been impacted by competition from road and air modes. While shipping, pipelines, and rail still perform well for bulk shipments, competition over the last decades have seen road and air modes capture an important market share of the high revenue-generating goods. Road transportation continues to dominate the passenger and freight transportation markets.

Although intermodal transportation has opened many opportunities for complementarity between modes, transport operators are now competing over many modes in the transport chain. A growing paradigm thus involves supply chain competition with the modal competition component occurring over three dimensions:

• Modal usage. A competition that involves the comparative advantage of using a specific or a combination of modes. Distance remains one of the basic determinants of modal usage for passenger transportation. However, for a similar distance, costs, speed, and comfort can be significant factors behind the choice of a mode.
• Infrastructure usage. Competition resulting from the presence of freight and passenger traffic on the same itineraries linking the same nodes. Each level of capacity used by a mode is therefore at the expense of the other mode.
• Market area. Competition between transport terminals for using new location (terminal relocation or expansion) or capturing new markets (hinterland).

It is generally advocated that a form of modal equality (or modal neutrality) should be part of public policy where each mode would compete based upon its inherent characteristics. Since different transport modes are under different jurisdictions and funding mechanisms, modal equality is conceptually impossible as some modes will always be more advantageous than others. Modal competition is influenced by public policy, particularly over the funding of infrastructure and regulation issues. Roads are usually provided by the public sector, while many other transport infrastructures are financed by the operators using them. This is the case for rail, air and maritime transportation. For instance, in the United States, the Federal Government would finance 80% of the costs of a highway project, leaving the state government to supply the remaining 20%. For public transit, this share is 50%, while for passenger rail the Federal Government will not provide any funding. Under such circumstances, public policy shapes modal preferences.

The technological evolution in the transport industry aims at adapting transport infrastructures to growing needs and requirements. When a transport mode becomes more advantageous than another over the same route or market, a modal shift is likely to take place.

A modal shift involves the growth in the demand of a transport mode at the expense of another, although a modal shift can involve an absolute growth in both concerned modes.

The comparative advantages behind a modal shift can be in terms of costs, convenience, speed or reliability. For passengers, this involved a transition in modal preferences as incomes went up, such as from collective (public transit) to individual modes (motorbikes, automobiles) of transportation. For freight, this has implied a shift to faster and more flexible modes when possible and cost-effective, namely trucking and air freight. A modal shift can further be nuanced by time shift, for which the use of the same mode takes place at another time period, likely when there is less congestion. In a situation of congestion, it is thus likely that time shift will be preferred to modal shift, particularly if the time shift is relatively marginal (e.g. a few hours). An individual may delay travel at a later time while a freight delivery can be rescheduled.

There are important geographical variations in modal competition. The availability of transport infrastructures and networks varies enormously, with corridors being subject to the highest level of modal competition. Corridors have many different modes that in combination provide a range of transport services that ensure an efficient commercial environment. Thus, in contrast to the situation in the European Union, rail freight transport occupies a more important market share in North America, but passenger rail has a negligible share. In many parts of the world, however, there are only limited services, and some important modes such as rail may be absent altogether. This limits the choices for passengers and shippers and acts to limit accessibility. Passengers and freight are forced to use the only available modes that may not be the most effective to support their mobility. Areas with limited modal choices tend to be among the least developed. Advanced economies, on the other hand, possesses a wide range of modes that can provide services to meet the needs of the society and the economy.

All modes are affected by fuel price volatility, from the individual car owner to the corporation operating a fleet of hundreds of aircraft or ships. Different pricing mechanisms are used, namely direct rate adjustments, as is the case of shipping, or indirect adjustments as is the case of airlines, with the reliance on fuel surcharges when energy prices are increasing. In the context of higher energy prices and environmental concerns and therefore higher input costs for transportation, the following can be expected:

• Higher transport costs increase the friction of distance and constrain mobility. As a major consumer of petroleum, the transport industry must increase rates. Across the board increases cause people to rethink their patterns of movement and companies to adjust their supply and distribution chains.
• Because higher fuel costs impact modes differently, a modal shift can be anticipated. Road and air transport are more fuel intensive than the other modes, and so fuel price increases are likely to impact upon them more severely than other modes. This could lead to a shift towards water and rail transport in particular.
• Higher fuel prices incite a greater fuel economy across modes and reducing speed.

There is a complementarity between passenger and freight transport systems. With some exceptions, such as buses and pipelines, most transport modes have developed to handle both freight and passenger traffic. In some cases, both are carried in the same vehicle, as for instance in air transport where about 80% of the freight is transported in the cargo holds of passenger aircraft. In others, different types of vehicle have been developed for freight and passenger traffic, but they both share the same road infrastructure, as for example in rail and road traffic. In shipping, passengers and freight used to share the same vessels and often the same terminals. Since the 1950s specialization has occurred, and the two are now quite distinct, except for ferries and some RORO services.

Sharing freight and passenger modes is not without difficulties, and indeed some of the major problems confronting transportation occur where the two compete for the use of scarce transport infrastructure. For example, trucks in urban areas are seen as a nuisance and a cause of congestion by passenger transport users. Daytime deliveries and double-parked trucks are perceived as a particular nuisance. The poor performance of some modes, such as rail, is seen as the outcome of freight and passengers having to share routes. There are also growing interests expressed at using segments of transit systems to move freight, particularly in central areas. This raises the question as to what extent and under which circumstances freight and passengers are compatible. The main advantages of joint operations are:

• High capital costs can be justified and amortized more easily with a diverse revenue stream.
• Maintenance costs can be spread over a wider base.
• The same modes or traction sources can be used for both freight and passengers, particularly for rail.

The main disadvantages of joint operations are:

• Locations of demand rarely match since the origins and destinations of freight flows are usually quite distinct spatially from passenger traffic.
• Frequency of demand is different as for passengers the need is for high-frequency service, for freight it tends to be somewhat less critical.
• Timing of service. Demand for passenger services has specific peaks during the day, for freight, it tends to be more evenly spread throughout the day. Several freight operations prefer night services since they ensure that shipments arrive at their destination in the morning.
• Traffic balance. On a daily basis, passenger flows tend to be in equilibrium, irrespective of the distance involved (e.g. commuting or air transportation). For freight, market imbalances produce empty flows that require the repositioning of assets.
• Reliability. Although freight traffic increasingly demands quality service, delays (diversion from posted schedules) are unacceptable for passengers.
• Sharing routes favor passenger traffic with passenger trains often given priority or trucks excluded from specific areas at certain times of the day.
• Different operational speeds where passengers demand faster service but specific cargo, such as parcel, facing similar requirements.
• Security screening measures for passengers and freight require totally different procedures.

The ongoing separation of passengers and freight on specific gateways and corridors is consequently a likely outcome, involving a growing divergence of flows, modes, and terminals.

Passengers and freight are increasingly divergent activities as they reflect different transportation markets. In several modes and across many regions passenger and freight transport are being unbundled.

a. Shipping

It has already been mentioned that in the maritime sector passenger services have become separated from freight operations. The exception being ferry services where the use of ro-ro ships on high-frequency services adapt to the needs of both passenger and freight market segments. These ferry ships are able to transport cars, buses, and trucks carrying freight with the respective proportions determined by the demand. Deep-sea passenger travel is now dominated by cruise shipping which has no freight-handling capabilities, and bulk and general cargo ships rarely have an interest or the ability to transport passengers.

b. Rail

Most rail systems improved passenger and freight services. Where both segments are maintained the railways give priority to passengers since rail persists as the dominant mode for inter-city transport in India, China and much of the developing world. In Europe national rail systems have prioritized passenger service as a means to expand regional mobility. Significant investments have occurred in improving the comfort of trains and in passenger rail stations, but most notable has been the upgrading of track and equipment in order to achieve higher operational speeds. Freight transport has tended to lose out because of the emphasis on passengers since such systems were optimized for passenger flows. Because of their lower operational speeds, freight trains are frequently excluded from day-time slots, when passenger trains are most in demand. Overnight journeys may not meet the needs of freight customers. This incompatibility is a factor in the loss of freight business by most rail systems still trying to operate both freight and passenger operations.

It is in North America where the separation between freight and passenger rail business is the most extensive. The private railway companies could not compete against the automobile and airline industry for passenger traffic and consequently withdrew from the passenger business in the 1970s. They were left to operate a freight-only system, which has generally been successful, especially with the introduction of intermodality. The passenger business has been taken over by public agencies, AMTRAK in the US, and VIA Rail in Canada. Both are struggling to survive. A major problem is that they have to lease trackage from the freight railways, and thus slower freight trains have priority.

c. Roads

Freight and passenger vehicles still share the roads. The growth of freight traffic is increasing road congestion and in many cities, concerns are being raised about the presence of trucks. Already, restrictions are in place on truck dimensions and weights in certain parts of cities, and there are growing pressures to limiting truck access to non-daylight hours. Certain highways exclude truck traffic – the parkways in the US for example. These are examples of what is likely to become a growing trend; the need to separate trucks from passenger vehicle traffic. Facing chronic congestion around the access points to the port of Rotterdam and at the freight terminals at Schiphol airport, Dutch engineers have worked on feasibility studies of developing separate underground road networks for freight vehicles.

d. Air transport

Air transport is the mode where freight and passengers are the most integrated. First, they tend to share the same terminal facilities, although there is a specialization with some airports focusing on freight activity. Yet, even here a divergence is being noted. The growth of all-freight airlines and the freight-only planes operated by some of the major carriers, such as Singapore Airlines, are heralding a trend. The interests of the shippers, including the timing of the shipments and the destinations, are sometimes better served than in passenger aircraft. The divergence between passengers and freight is also being accentuated by the growing importance of charter and “low-cost” carriers. Their interest in freight is very limited, especially when their business is oriented towards tourism since tourist destinations tend to be lean freight generating locations.

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