Chapter 6: The Role of Transportation in Economic Geography Transport Eras Transport Rates World Transportation Patterns Summary

Transport Eras - Taaffe’s Schema Local era: pre-railroad and prior to opening of the Erie Canal in 1825 Trans-Appalachian era: canals and railroads up to ca (Figure 6.1) Era of railroad dominance (ca to World War II) Rise of gateway cities Competitive era: multi-modal

Composition of Intercity Freight Traffic

Freight Outlays (Shares of total)

Revenue Per Ton-Mile

Fixed & Variable (Operating) Costs

The Structure of Transport Costs Terminal Costs versus Line Haul Costs - buildings, docks, handling Distance Transport Cost / Mile Terminal Cost $5 Line Haul Cost $.25/ton-mile $ $.30 Total Transport Cost/Unit Weight Distance Linear O T Tapering

Variations in Transport Costs Among Modes Distance Transport Cost/Unit Weight Truck Rail Ship Pipeline Air TRS

Factors Influencing Transport Rates 1. Grouping freight rates into zones (fig 3.14) 2. Variations due to commodity characteristics (a) Differences in cost of service related to: (1) Loading characteristics (2) Size of shipment (3) Perishability and risk of damage (b) Elasticity of Demand for Transportation (Box3-1) 3. Variations due to traffic characteristics (a) intermodal competition (b) traffic density (c) direction of haul

Freight Rate Zones

Demand Elasticity $ Q Elastic $ Q Perfectly Inelastic Q $ Perfectly Elastic

General Relationship Between Distance and Unit Cost Distance Quantity $

Tapered Freight Rates Can Alter Market Areas ABM M* M**

Freight Rates Can Create Overlapping Market Boundaries: Demand Cones from Places A & B Place A Place BST

Transport Costs for Inputs and Products M S Combined tr. Cost on Product and Factor Cost of moving Factor Cost of moving product Scenario assumes all other costs are spatially invariant

Transport Costs for Inputs and Products With Terminal Costs M S Combined tr. Cost on Product and Factor plus terminal costs Cost of moving Factor Cost of moving product Scenario assumes all other costs are spatially invariant

Effects on the Location of Production General Tendency to Pull Away from Intermediate Locations MarketMaterial S T X Y G H Impact on spacing of isotims – concept coming

Tapered Transport Costs Pull Mfg. towards markets or materials--But: 1. Intermodal “break of bulk” locations 2. In-transit privileges - lower rate for long haul granted to raw and processed materials MaterialMarket Transshipment Location Material Tr. Cost Product Tr. Cost

Isotims and Isodapanes

Smith’s Space-Cost Model

Spatial Pricing Policies A. FOB - Free On Board - Consumer pays full cost of transport B. Discriminatory (1) Uniform delivered pricing (CIF) (2) Basing point (3) Spatially discriminatory pricing (market segmentation) (4) dumping

Typical F.O.B. Market XYBB* T A R S

Basing Point Pricing P Basing Point R S T X A B C Phantom Freight M Distance O

General Pricing Principle Producers choose location to maximize profit Profit = Total Revenue – Total Costs Total Revenue = sum of revenues from various geographic markets Total Costs = sum of costs for all input factors and transportation costs

Hypothetical Example Total, Average & Marginal Cost Relations

Graph of Hypothetical Example PoPo QoQo

Market Segmentation & Dumping $ Q AC MC AR MR AR A P Q* MR A QAQA PAPA AR B MR B QBQB PBPB