Measuring the Benefits Gained by Industry from Road Network Improvements

Over the last twenty years, physical distribution has gone through a revolution (McKinnon 1989). Changes in industrial structure, the power structure within the supply chain, service quality standards, marketing and production methods, heavy goods vehicle productivity and capacity, and road network quality have all played a part. External factors such as high real interest rates have made firms acutely sensitive to the costs of holding inventory and to the scope for inventory rationalisation. The purpose of this study is to examine the contribution of road network improvement to the restructuring of physical distribution. There is a particular policy context to this. At a political level, the Government attaches prime importance to the effects of road investment on economic growth (DTp 1989). But at the level of economic appraisal, it is questionable whether the Department of Transport's (DoT) procedures give adequate weight to the benefits to industry of road network improvements. The D.o.T. currently take account of the direct savings which accrue from road improvement schemes (Dawson and Vass 1974)(DTp 1981). This allows for changes in mileage related and time related operating costs, including depreciation, based on the simple assumption that time savings are translated fully into proportionate increases in utilisation of vehicles and crews (Nash 1974). Although at first sight, the existence of scheduling indivisibilities and delivery time constraints might be thought to make this assumption unrealistic, such evidence as there is suggests that it is not an unreasonable rule of thumb (Mackie and Simon 1986). Economic theory suggests that in addition to the direct transport cost savings from road improvements, some indirect "reorganisation" or "restructuring" benefits should also be expected (Mohring and Williamson 1969)(Dodgson 1973). As real transport costs fall, firms should respond by substituting within the production and distribution process so as to arrive at a more transport-intensive, but lower cost solution. The restructuring of the brewery industry into an operation with a few large plants is often attributed, at least in part, to improvements in the road network. A number of restructuring responses to strategic road investment may be listed:- - Centralisation of manufacturing or production - Concentration of distribution into fewer depots - Changes to inter-depot boundaries - Increases in market areas served by regional firms - Improvements in service quality (24 hour delivery, etc.) - Changes in distribution methods (e.g. satellite distribution) This list suggests that the indirect benefits are likely to be some mixture of economies of scale in production or warehousing, inventory savings, and added value to products. A number of studies have been undertaken in the past into the benefits from road network improvements. It is claim they played a part in the decline of road haulage rates between 1974 and 1984 of 27% (Turner 1987). Their effect on transit times and reliability has been demonstrated (Cooper and Tweddle 1988), as well as on the cost of quality of service enhancement (Walker 1988). Benefits gained in terms of larger trading areas have been revealed by studies of the major estuary crossings, such as the Severn and Humber Bridges (Cleary and Thomas 1973) (Mackie and Simon 1986). Quarmby's studies of a major retail grocery operation are of particular interest in this context (Quarmby 1989). He examines the effect of reducing the number of depots in a distribution system following improvements to the strategic road network so that each depot now serves a larger area. He finds that the total systems benefits from restructuring the distribution and depot network could exceed the direct transport benefits by 30-50%. He does not demonstrate that either his initial or final depot configuration is optimally balanced with the road network conditions. However, his study provided the stimulus for the research proposal to ESRC and to partner industrial sponsors

Bus Deregulation: Reports of a Seminar Held on 20 June 1986

The purpose of the seminar was to provide a forum for the discussion of the emerging arrangements for deregulation of the stage bus industry. The seminar was chaired by Professor K M Gwilliam and Mr P J Mackie of the Institute for Transport Studies. Each of the four sessions was introduced by a speaker currently invovled in operating the new regime. It was agreed that a note of the discussions would be circulated to all participants. This note fulfills that obligation

The case for heavier goods vehicles – some new evidence

The Armitage Inquiry found that an increase in maximum gross vehicle weights to 34 tonnes on 4 axles, 38 tonnes on 5 axles and 44 tonnes on 6 axles would permit a reduction in the size of the heavy articulated vehicle fleet of some 13%. A survey of 114 operators with 1533 maximum weight articulated vehicles was conducted. Given the weight and volume characteristics of the loads carried, the maximum possible reduction in the number of vehicles is 10%. However, if the maximum gross weight is set at 38 tonnes rather than 44 tonnes, the maximum possible reduction in the vehicle fleet is7.6% and the indications from operators are that the fleet size might actually fall by about 5%. The operating benefits from the likely proposals for heavier weights are therefore significantly lower than those accepted by Armitage

Transport in the Trans-Pennine Corridor: Present Conditions and Future Options. Interregional Study Working Paper 3.

This paper reports on a desk study carried out by the Institute for Transport Studies as part of a wider study of opportunities for inter-regional working in the trans-Pennine corridor, considering economic, environmental and transport issues. It draws together available information on transport and movement flows in the trans-Pennine corridor. These patterns of movement are examined from a broad perspective which considers intra-regional, inter- regional and international movements within and across the study area. The report proposes a regional package approach to transport, based on demand management and modal transfer

Deregulating the Bus Industry.

In its Buses White Paper, the British Government sets out its proposals for abandoning quantitative control of entry to and provision of local bus services. The logic on which the proposals are based can be reduced to four propositions:- (i) Deregulation will produce a competitive market. (ii) Competition will substantially reduce costs. (iii) A competitive market will improve resource allocation. (iv) A competitive market will not cause any significant undesirable spin-off effects. Each of these propositions is suspect. If there is any competition on bus routes, it will tend to be small group rather than large group. Active rivalry involving schedule matching and price wars may occur, as may collusion. Neither will produce efficient results. Even if a competitive result were to obtain, the resulting resource allocation would not be socially efficient. A first best optimum requires subsidies because the market is subject to external economies (the Mohring effect). If Government budget constraints operate, the second-best solution then requires cross-subsidies. Competition is not compatible with social efficiency in either of these cases. Nor will the competitive market solution optimise load factors. Quality competition, in the form of minibuses 'creaming' the best traffics, may also be socially undesirable. The White Paper authors underplay the significance of these resource allocation arguments, while exaggerating the likely impact of deregulation on cost efficiency. Even though some cost savings may be available they could be obtained anyway under a regime of competitive tendering for profitable as well as unprofitable routes. Competition for the market rather than competition in the market is required

Network effects and total economic impact in transport appraisal

It is claimed that transport infrastructure projects have network effects which are not taken into account in the appraisal of these projects. This paper reviews the concept of network effects, relates this to transport appraisal practice, and links to the concept of ‘total economic impact’. The limitations of transport modelling and appraisal in estimating total economic impact are reviewed. Good quality appraisals should be capable of picking up relevant network effects in the transport market, but the state of the art remains limited on the linkages between transport and the wider economy

Assessing the Value of Time Travel Savings – A Feasibility Study on Humberside.

It is expected that the opening of the Humber Bridge will cause major changes to travel patterns around Humberside; given the level of tolls as currently stated, many travellers will face decisions involving a trade-off between travel time, money outlay on tolls or fares and money outlay on private vehicle running costs; this either in the context of destination choice, mode choice or route choice. This report sets out the conclusions of a preliminary study of the feasibility of inferring values of travel time savings from observations made on the outcomes of these decisions. Methods based on aggregate data of destination choice are found t o be inefficient; a disaggregate mode choice study i s recommended, subject to caveats on sample size

The Direct Benefits of Road Improvements to Commercial Vehicle Operators – A Review.

This paper reviews the existing theoretical and empirical literature on the direct benefits to commercial vehicle operators of road improvements. The exercise resulted from a need to estimate operating cost and time savings generated by the Humber Bridge. Although there is significant inter- and intrasectional variation, transport and distribution costs average 10-12% of total costs. In assessing the value of time savings, it is argued that several normally serious problems in business travel time analyses are irrelevant for lorry dirvers, whose work is travel. The crucial issues are the usability (and additivity) of time savings and nature of constraints on utilization of time savings, while a set of firms' operating characteristics determines the extent of such utilization

The Development of a Common Investment Appraisal for Urban Transport Projects.

In December 1990 we were invited by Birmingham City Council and Centro to submit a proposal for an introductory study of the development of a common investment appraisal for urban transport projects. Many of the issues had arisen during the Birmingham Integrated Transport Study (BITS) in which we were involved, and in the subsequent assessment of light rail schemes of which we have considerable experience. In subsequent discussion, the objectives were identified as being:- (i) to identify, briefly, the weaknesses with existing appraisal techniques; (ii) to develop proposals for common methods for the social cost-benefit appraisal of both urban road and rail schemes which overcome these weaknesses; (iii) to develop complementary and consistent proposals for common methods of financial appraisal of such projects; (iv) to develop proposals for variants of the methods in (ii) and (iii) which are appropriate to schemes of differing complexity and cost; (v) to consider briefly methods of treating externalities, and performance against other public sector goals, which are consistent with those developed under (ii) to (iv) above; (vi) to recommend work to be done in the second phase of the study (beyond March 1991) on the provision of input to such evaluation methods from strategic and mode-specific models, and on the testing of the proposed evaluation methods. Such issues are particularly topical at present, and we have been able to draw, in our study, on experience of:- (i) evaluation methods developed for BITS and subsequent integrated transport studies (MVA) (ii) evaluation of individual light rail and heavy rail investment projects (ITS,MVA); (iii) the recommendations of AMA in "Changing Gear" (iv) advice to IPPR on appraisal methodology (ITS); (v) submissions to the House of Commons enquiry into "Roads for the Future" (ITS); (vi) advice to the National Audit Office (ITS) (vii) involvement in the SACTRA study of urban road appraisal (MVA, ITS