INTERMODAL TRASNPORT: A TOOL FOR THE CALCULATION OF THE COST FUNCTION

Monica Grosso1

1. Introduction

In order to understand which the elements that can influence mode choice are, it is important to investigate which are the variables that characterise each mode of transport. According to the literature review, one of the most important criteria is related to the out of pocket money. Although it is not the only element, there are also several qualitative attributes; the monetary expense is taken very much in consideration from the shippers or freight forwarders.

In this paper, the out of pocket costs for each mode of transport are considered and compared among them. Taking in considerations the costs items for each mode, it will be possible to observe which their weight on the total cost is and act on those variables to influence mode choice.

The paper is organized as follow. First a review of the literature about intermodal cost function has been considered and used as a framework for the elaboration of the intermodal cost function presented in the methodological part. As a third step an analysis of traffic flows for specific destinations from the port of Genoa has been carried out. Subsequently the calculation of internal costs has been developed through the use of a calculation tool specifically improved for the paper purpose. The results and the methodology of the present exercise can be considered as a possible approach for the calculation of the cost items composing the intermodal transport.

1 Cieli, Università di Genova e Department of transport and Regional Economics, University of Antwerp, V Bensa1, 16124, Genova, monica.grosso@cieli.unige.it

2. Literature review on cost functions

The competitiveness analysis of a mode of transport is unequivocally

related to the pure cost of the service. Notwithstanding the finding of the several researches showing that the relevance of monetary cost is just a part of the entire set of variables that are considered, the out of pocket cost detains a key role in the mode choice. They constitute the first and tangible costs that the shippers or freight forwarders have to face in their ordinary business activity.

The review takes in consideration a series of studies that analysed the monetary cost structure of uni-modal transport and intermodality. In Blauwens et al.2 an analysis of cost calculation in transportation is presented. The authors classify transport costs in time costs and distance costs that are consequently associated to Euro per hour and Euro per kilometre covered.

Through this methodology a calculation for road transport and inland navigation transport is performed. The cost items that are considered, according to their hourly consumption, are: interest and depreciation, insurance, taxes, wages, other costs. The other costs are considered in relation to the kilometres covered: interest and depreciation, fuel, tyres and maintenance and repair. Depreciation can be expresses both in hourly cost and in kilometre cost, or the total amount can be split in two parts.

The total cost of transportation is the following: Total Cost = uU + dD Where: u = hour coefficient d = kilometre coefficient U = time in hour D = distance in kilometre

2 Blauwens et al, 2006.

A study of Boardman3 makes a comparison among truck/rail, truck/barge and rail/barge combinations for container transport, taking in consideration the total transportation cost. The main conclusions are related to the matching of the shipment characteristics and the possible choices of the shipper. It is point out that mode choice is strongly influenced by the distance covered, road transport being the best for short distances.

In his study Boardman consider the total transportation costs as showed below.

Total Transportation Cost = Tm +Dm + Tsm + CCm

Where: Tm = transportation cost (in dollars) for mode m Dm = Dray cost (in dollars) for mode m Tsm = transfer cost (in dollars) at terminal for mode m CCm = carrying cost (in dollars) for mode m The calculation has been performed for each mode of transport and then

compared among them, the figures were expressed in €/loading Unit (LU). A considerable contribution to the topic is provided by the European project

Recordit4, Real cost reduction of door-to-door intermodal transport. This project took in consideration some European corridors with the aim of

analysing their cost structure; both uni-modal and intermodal, with the purpose of considering the cost items that weight more in the total cost and try to find solutions to minimize them.

In Recordit the calculation is performed per €/LU for each of the selected corridors.

A study carried out by the Flanders Institute for Logistics5 highlights which are the cost component in the total logistics cost. The categories considered are transport cost, loading/unloading costs, transport time, inventories costs,

3 Boardaman, B., et al, 1999. 4 Recordit Project, 2000. 5 VIL, 2006.

internal company costs and qualitative attributes. The cost items are divided according to each mode of transport, thus for road, inland navigation and rail transport. Regardless the mode of transport some key cost items are listed: energy, maintenance and repair, depreciation, personnel costs, insurance of the vehicle, liability, other direct costs for the vehicle, financial costs, additional management costs. In the Vlaams Vrachtmodel6, a collection for the analysis of the different components of each single mode of transport has been carried out. The work considers the transportation costs and the costs related to loading/unloading activities. For each mode of transport the following costs are included: loading/unloading, wages, energy costs, taxes, depreciation and interests, repair and maintenance, tools, other costs.

Therefore, according to the literature review, the cost items those appear to be always present in the cost structure of a company are listed below.

Transportation Costs • Personnel, • Energy and other consumption material, • Insurance, • Repair and Maintenance, • Taxes and charges, • Administration costs, • Depreciation and interest /Renting/leasing, • Other costs.

Transhipment Costs • Loading/unloading cargo.

A further elaboration on each of the mentioned costs is necessary, inasmuch as each of them is estimated in a different way, influenced by different drivers and affecting the final cost differently. A detailed description of each of these cost items will be provided further in the text.

6 Mint Consultant, KP Transport Consultant, 2009 (Confidential)

3. Applied Methodology Most of the cost variables are calculated according either to the distance

covered or to the time spent for the transport operation, thus the measurement are mainly in Euro per kilometre, €/km, or in Euro per hour, €/h. Although a distinction is made between transport and transhipment, there are some costs that belong to both categories.

Personnel cost refers to the cost that the company has to pay for the employment of the people that work in the company itself. Personnel cost represents one of the main cost items; the people employed in a transport company are numerous and do not include just drivers or operational categories abut also administrative and managerial divisions.

The elements that need to be taken into account are the number of people employed, their net wage and the additional costs due to social security; all these costs items need to be calculated for their average amount of working hours in a year. In our work the measurement is expressed in €/h.

Personnel cost (P):

[(Net yearly wage + Yearly costs for social security)/ number of operative hours in a year] * Number of people employed for the transport operation *

Number of driving hours for the specific journey The cost for fuel or energy is the consumption of energy for the production

of the service. It can be related to the diesel or gasoline consumption for road, inland navigation and rail transport, or electric power in rail or combined transport. Fuel consumption or energy usage is affected by the market price of the material. A consideration about the average consumption per kilometre is required in order to obtain the real energy consumption for the kilometres covered.

The measurement of the energy consumption is thus expressed in €/Km.

Energy costs (Fuel) (E):

[(Energy price per litre * average consumption per km)]* Number of kilometres for the specific journey

Energy costs (Electric power) (E):

(Energy price per kilometre)* (Number of kilometres for the specific journey)

For some cost items the selection of the unit measurement is not so

straightforward; as for the cost of vehicle’s insurance. The cost is yearly spent and it is fixed according to specific characteristics of the vehicle. One can decide to consider the cost either for kilometre or for hours. In some cases the calculation is simply equally split in two parts. In this paper the calculation is done for operative hours, €/h. The insurance’s cost reflects all the expenses related to the civil liability for the vehicle.

Insurance costs (I):

[(Yearly costs for insurance)/ (Number of operative hours in a year)]* Number of hours for the specific journey.

It is considered that, in an operative year, there will be constant expenses

related to the maintenance of the vehicles, while repair costs can occur also unexpectedly. The costs related to maintenance are the ones that occur periodically and related to the ordinary up keeping, repair costs may occur if the vehicle has accidents or damages that need to be fixed.

Maintenance and repair are costs related to the operative life of vehicles, thus they are vary according to the age of the vehicle and the distance covered, the measurement is expressed in €/Km.

Maintenance and Repair costs (M&R):

[(Yearly costs for maintenance and repair)/ (Number of kilometres covered in a year)]* Number of kilometres for the specific journey

A cost that all companies have to face is the one related to depreciation and interest, renting or leasing related to the vehicles and other physical asset. The distinction is in relation to the ownership of the asset, in case the asset belongs to the company, a depreciation rate is calculated according to the acquisition price and the passive interests that need to be paid. In case the assets do not belong to the company, a fixed amount has to be paid for the use of it. The way of calculation for the yearly depreciation or renting payment can vary from the different approaches used. Generally the measurement for these cost items is calculated in €/h.

Depreciation/Renting/Leasing costs (D/L):

[(Yearly costs for depreciation/rent/leasing)/ (Number of operative hours in a year)]* Number of hours for the specific journey

The cost associated to taxes and charges are quite variable costs. There are specific taxes for the different modes of transport or for different areas or locations; it is quite difficult to determine the value of this element if not strictly related to a specific route. Taxes and tolls are associated to ports, bridges, channels or roads. The calculation of costs associated to those expenses can be expressed in euro per hour or per kilometre, €/h or €/Km. In the specific case of road transport, the amount of money spent for charges and tolls will be in Euro, €, considering the outputs of some existing calculation tools developed ad hoc.

Taxes/Tolls/Charges costs (T):

[(Yearly costs taxes/tolls/charges)/ (Number of kilometres covered in a year)]* Number of kilometres for the specific journey

In addition to the costs strictly related to the service provided, there are

overhead costs that the company has to bear. Overhead costs are fixed; they exist regardless of distance or hours of work. These costs represent an important cost item and comprise administrative costs together with costs for the daily operative work of the entire company. In this study, these costs are considered in €/h, according to hours of work of the company.

Overhead costs (OV):

[(Yearly overhead costs)/ (Number of operative hours in a year)]* Number of hours for the specific journey

As an additional element it is necessary to include other costs of different

nature, that do not belong to any of the categories listed above and that can occur sporadically. These costs can be calculated either in €/h or in €/Km.

Other costs (O):

[(Yearly other costs per vehicle)/ (Number of operative hours in a year)]* Number of hours for the specific journey

There are also some specific cost items that are related to each mode of

transport, as such as the tyres cost in road transport or rail tracks in rail transport. Those costs items need to be calculated for the specific route where one of those modes is used. In the case of road transport the costs for tyres considers the acquisition price and their maintenance, usually the cost is calculated per kilometres covered, €/Km. In rail transport, the company that runs a service has to pay the use of the rail infrastructure to the infrastructure operator, this is the rail tracks cost. The cost for using the infrastructure between two point and for a certain number of hours, is expressed in €/Km.

Tyres costs (TY):

[(Yearly costs for acquisition and maintenance of a tyre)* (Number of tyres)]/ (Number of kilometres covered for life time)* Number of kilometres

for the specific journey

Rail Tracks costs (RT): (Average cost for rail track)* Number of kilometres for the specific journey The second category of costs that are included in the intermodal cost

function is the one related to transhipment operations during the entire door-to-

door chain. The operations taken in consideration are the ones of loading and unloading the loading unit from one mode of transport to another, or from a mode of transport to the ground and then from the ground to the second mode of transport.

Loading and unloading costs are measured in relation to the time needed to complete the operation, to be more precise the total cost of utilization of the vehicle used for loading and unloading the cargo, the workforce, and the required fuel. The total hourly cost has to be calculated for the actual time needed to carry out the procedure, thus this cost item is calculated in €/h. In most of the cases the terminal operator charges the cost for unit loaded/unload, the cost can change according the typology of loading unit; nonetheless the difference in cost does not vary substantially.

Loading/Unloading costs (L/UNL):

(Hourly cost for each loading/unloading operation) Number of hours needed for the entire operation

In rail transport, the cost of shunting operations needs to be taken into

account. Those operations are the ones related to the placement of the locomotive and wagons on the correct truck and with the proper locomotive. This cost item is usually expressed in €/h, considering the time needed to carry out the shunting.

Shunting operations costs (SH):

(Hourly cost for shunting operations) Number of hours needed for the entire operation

Once all the cost items are listed and explained, the next step is to develop a

cost function that can incorporate all the previous costs. The reasoning behind the construction of each cost function is the same for each mode of transport, although each of them is characterized by their technical nature. For each mode of transport, road, rail, and intermodal transport a calculation of the total cost, €, the cost per tonnage, €/ton have been calculated.

Total Cost Road Transport:

P + E+ I + M&R + D/L + T+ OV + TY + O + L/UNL

Total Cost Rail Transport: P + E+ I + M&R + D/L + OV + RT+ O + SH + L/UNL

Total Cost Inland Navigation Transport:

P + E+ I + M&R + D/L + T+ OV + O + L/UNL

Total Cost Intermodal Transport (Road +Rail): ROAD *(P + E+ I + M&R + D/L + T+ OV + TY + O + L/UNL) + RAIL *( P + E+ I + M&R + D/L + OV + RT+ O + SH + L/UNL)

Total Cost Intermodal Transport (Road +Inland Navigation):

ROAD *(P + E+ I + M&R + D/L + T+ OV + TY + O + L/UNL) + INLAND NAVIGATION *(P + E+ I + M&R + D/L + T+ OV + O +

L/UNL)

The purpose of the cost functions presented above is the application to the different modes of transport, in order to obtain a comparison among modes for the same origin/destination of the goods.

To implement such functions and return useful results, cost data need to be collected and insert in the mathematical formulation. The implementation of a tool that can easily produce reliable outcomes is a fundamental step in the research process.

Using Excel Programme, Office package, a simple but clear procedure for the construction of the calculation tool has been developed. The method for the construction of the Excel tool envisages different steps, program knowledge and capability of Visual Basic for Applications, (VBA) programming.

The steps for the elaboration of the tool are the following and are developed in subsequent order; nonetheless interrelated adjustments are always possible.

Construction of the model:

1. Creation of an excel sheet and naming. 2. Insertion and naming of the variables considered. 3. Insertion of the cost values corresponding to the variable considered. 4. Insertion of the step unit that the program has to consider during the elaboration. 5. Use of the Macro function. 6. Creation of a Macro for the specific purpose of the tool. 7. Running of the Macro function and test of the outcome. 8. Sensitivity analysis.

4. Case study description

The attention is now addressed to the main port located in the areas of the

Ligurian region, the Port of Genoa. As we consider a case study for freight corridors related to this port, a preliminary overview of its nature and characteristics is provided.

Genoa is the main Italian Port for container traffic, excluding of course the transhipment port of Gioia Tauro, and one of the most important in the Mediterranean scale.

When having a look at the composition of the cargo traffic, it is noticeable that the major part of the traffic is liquid bulk, followed by container traffic.

Despite the fact that liquid traffic is a substantial part of the Genoese traffic, the total amount is not comparable with the volumes handled by the top competitor’s ports. In the top twenty container ports, Genoa reached the 13th

position with 1767 million of TEU. Ro-Ro traffic represents an important compartment of the maritime sector;

in 2007 Genoa had a market share of 1.7% among the other top twenty European Ro-Ro ports.

Table 1 presents the traffic of the port of Genoa, for the last years, dived by cargo typology.

Table 1: Genoa cargo typology

2003 2004 2005 2006 2007 Container Traffic 15.071.159 15.913.679 16.074.744 16.546.974 18.772.228

General Cargo 9.348.735 9.582.750 9.449.040 9.985.050 10.949.391 Dry Bulk 8.837.311 9.320.055 8.201.104 6.797.321 5.992.603

Liquid Bulk 20.456.274 21.020.385 21.464.331 21.640.834 21.475.333 Total 53.713.479 55.836.869 55.189.219 54.970.179 57.189.555

2003 2004 2005 2006 2007

Container Traffic 28,06 28,50 29,13 30,10 32,82 General Cargo 17,40 17,16 17,12 18,16 19,15

Dry Bulk 16,45 16,69 14,86 12,37 10,48 Liquid Bulk 38,08 37,65 38,89 39,37 37,55

Total 100,00 100,00 100,00 100,00 100,00 Source: own elaboration on Genoa Port Authority data

A crucial aspect is the hinterland modal split. The topic is assuming more

and more relevance, especially in relation to environmental concerns, infrastructural problems and connectivity to the hinterland.

Nonetheless, a structural and consistent procedure for the collection of this data does not exist on a European level. The modal split of the hinterland traffic is therefore split in two modes of transport, road and rail transport.

The official sources, states that approximately 80% of the Genoese traffic is arriving or leaving the port by road, while for the remaining 20% rail transport is used.7

An accurate yearly modal split for the Port of Genoa was not available from the Port Authority, therefore the only accessible information is the one reported above.

7 PRL, 2008.

The analysis of the traffic flows of the port of Genoa does not allow us to be precise and to specify the European regions of destinations.

Nonetheless some data about the modal split from the port of Genoa to the neighbouring countries are collected by the Customs offices located on the territory.

Unlikely the level of detail of this information is not extremely precise; one of the reasons behind this lack of accuracy is due to the free circulation of goods inside Europe, and therefore the minor level of information that the Customs collect on a European scale.

Having in mind this limit, some indications are provided. In general it is true to assert that almost all the traffic leaving from the port

of Genoa is reaching its final destination by road transport, regardless the distance or the country.

From 2006 to 2008, road transport has been used from 80% to 99% to reach destinations in Switzerland, Germany, Belgium and France. Additional information about the precise region or area of destination is not collected in the elaboration of the database of the Customs, and a more extensive report of the data in our use is not permitted, due to privacy reasons.

Due to the lack of official data on traffic flows, the selection of the freight corridors derives from the abovementioned criteria and from the hints given by the few official information collected.

One of the main aims of the selection was to analyse and compare freight corridors that could be leaving form the port area and ending in some economical important destinations in the centre of Europe.

As it seems from the description provided before, the hinterland of the Port of Genoa is limited to the North of Italy.

Taking this in consideration, one could argue that the port of Genoa is not really competing in its hinterland and therefore there is no need to compare traffic flows and hinterland modal split.

This assumption is incorrect, since a large volume of freight designated to the centre of Europe is passing from the Northern ports instead of the Southern ports, even thought the distances could be shorter. The Mediterranean ports are well aware of the competition that they are suffering and in order to reduce it,

they will have to come up with strategies and actions to reduce the market power of the Northern ports.

Some relevant catchment areas can be identified in the centre of Western Europe, such as South France, South Germany or Switzerland.

Those regions could be possible destinations for the goods unloaded in the port of Genoa; nonetheless we can not prove the existence of traffic flows, due to the lack of certified data.

The detailed analysis of freight corridors will therefore consider origins and destinations in those areas and namely from/to the Ports Genoa to Basel, in Switzerland.

For the corridor a brief description will be presented, taking into account

some geographical characteristics and the transport services that are currently provided.

A preliminary remark is needed; during the elaboration of the work we encountered some difficulties in defining the exact distance between origin and destination for each mode of transport.

While for road transport, it is relatively easy, due to use of several route planner tools available online, for rail transport those instruments do not exists for general consultation, but just on a company or industry level. For thoroughness' sake there exists a site toll that provides rather detailed information about rail transport, thought this tool is mainly associated to infrastructure and track costs.8 Therefore the indications of distances have been collected through expert consultations.

Genoa-Basel Corridor In this case we are considering the corridor Genoa-Basel, from the Ligurian

port to the North West Switzerland. The only two utilizable modes of transport are road transport and rail transport; this rule will be, of course, valid for all the corridors connecting the port of Genoa with its destinations.

8 www.railneteurope.com

The road distances between the two locations are 474 km, while for rail transport approximately 456 km.

The collection of the information required a complex procedure consisting

in checking the websites of the main rail and intermodal companies operating in this area.

The results of the analysis were quite disappointing although foreseen; at the current moment there are no fixed rail services from Genoa and Basel. The reasons are different and numerous and will be analyzed further on.

It is worth to mention that some rail services exist between Busto Arsizio and Gallarate, close to Milan, to Aarau by the company Hupac. An other service of CrossRail, is connecting the city of Novara to Basel.

Road Transport Between the two modes of transport, road is the one with relatively wider

sources set, consisting of reports, academic publications or research projects. The main sources consulted were the following: • Cost calculations for road freight transport, 2010 data. NEA consulting group; • Technical note for Vlaams Vrachtmodel- Cost Model, 2009 data, Mint and K+P consulting group; • Recordit, 2000 data, European Project.

Those sources gave us a relatively broad-spectrum of the road cost figures, therefore the contacts with road transport operators were few and the scope of the interviews was to capture some insight from experts. The operators contacted are road independent operators, located in area of the port of Genoa and providing services in Italy and Europe; their experience and activity is in heavy freight road transport.

The calculations and costs figures refer to a heavy good vehicle, i.e. road tractor + semitrailer of 40 tonnes, gross vehicle weight, and a loading capacity of 25 tonnes.

Some technical assumptions are reported in the table below.

Table 2: Technical characteristics road transport

Cost Item Unit Min Max Average Active hours day h/day 8 10 9 Average speed km/h 67 70 69

Days of operation n 230 250 240 Loading capacity tonnes 24 26 25 Number of tyres n 12 14

Performance per year tyres km/year 60.000 90.000 75.000

Performance per life tyres km/life 180.000 200.000 190.000

Performance per year truck km/year 119.800 130.000 124.900

Working hours year h/year 2.200 2.500 2.350 Source: own elaboration

As it can be seen from table 2 minimum, maximum and average values are

reported. For each cost item the calculation of unit cost has been developed using the mean values of the technical characteristics.

For road transport the costs considered for the out of pocket calculation are: • Personnel and social security, • Energy and other consumption material, • Insurance, • Repair and Maintenance, • Taxes and charges, • Overhead costs, • Depreciation and interest, • Tyres, • Other costs.

Personnel costs. In regard to this, we will assume that the trucks drivers will

be hired under Western Europe rules and legislations and that the maximum allowed driving hours is 9.

Energy consumption, an important technical requirement is the fuel consumption for a vehicle considered; we opted for a minimum, maximum and average indication. The minimum fuel consumption for covering 100 km is 34.30 litres, while the maximum value is 36 litres per 100 km.

Taxes and charges. While for the taxes the cost is considered in €/hour, the figures for the calculation of tolls are obtained by some route planner tool available on line.

The use of such instruments allows us to be more accurate in defining the precise amount of toll, in relation to specific origin/destination route. In our research different route planner have been used and compared, such as ViaMichelin9, Mappy10,Routes Tomtom. 11

The costs attributed to depreciation and interest for the tractor and semitrailer can be calculated with different methodologies and they can vary upon variations of interest rates. In this paper the depreciation period for the trailer was assumed to be fixed in 6 years, while for the semitrailer is 10 years.

The costs for tyres it is obviously related just to road transport. For our calculation the number of tyres considered was twelve. In the cost per kilometre calculated, it is included the purchasing costs and the maintenance cost.

A summary table with all the cost items considered and their equivalent values is reported below. 9 http://www.viamichelin.it/ 10 http://it.mappy.com/ 11 http://www.routes.tomtom.com/t/#/

Table 3: Cost items and values for road transport

Cost Item Unit Min Max Average

Depreciation semitrailer and interest €/year 2.400,00 2.800,00 2.600,00

Depreciation semitrailer per hour €/hour 3,00 5,00 4,00 Depreciation tractor and interest €/year 10.000,00 12.000,00 11.000,00

Depreciation tractor per hour €/hour 6,00 8,00 7,00

Fuel consumption per 100 km l/100 km 34,30 36,00 35,15

Fuel price €/l 0,50 1,00 0,75 Other costs €/year 8.318,00 10.000,00 9.159,00

Other costs per hour €/hour 3,00 4,00 3,50 Overhead €/year 18.520,00 20.000,00 19.260,00

Overhead per hour €/hour 7,00 9,00 8,00 Repair and maintenance €/year 8.702,00 10.000,00 9.351,00

Repair and maintenance per km €/km 0,05 0,10 0,08 Salary €/year 28.420,55 33.500,00 30.960,28

Salary per hour €/hour 12,00 16,00 14,00 Social security costs €/year 13.442,92 15.000,00 14.221,46

Social security costs per hour €/hour 5,00 7,00 6,00 Taxes €/year 750,00 2.000,00 1.375,00

Taxes per hours €/hour 0,30 0,80 0,55 Tyres cost €/km 0,001 0,002 0,0015

Tyres purchasing price € 350,00 450,00 400,00 Vehicle Insurance €/year 4.000,00 5.000,00 4.500,00

Vehicle Insurance per hour €/hour 1,50 3,00 2,25 Source: own elaboration

Rail Transport The sources about reliable rail transport costs are rather scarce

The main references in the case of rail transport are the following: • Technical note for Vlaams Vrachtmodel- Cost Model, 2009 data, Mint and K+P consulting group; • Recordit, 2000 data, European Project; • Price and costs in the railway sector, Baumgartner, J.P., Litep 2001.

A substantial help, in the gathering information, came from the operator’s

interviews; more precisely two rail companies have been interviewed, an Italian one and a Swiss one.

We took in consideration a single wagon train, the gross train capacity will be 1300 tonnes, while the loading capacity between 600 tonnes and 800 tonnes.

Some additional indicators about technical requirements assumed are reported in the table below.

Table 4: Technical characteristics rail transport

Cost Item Unit Min Max Average

Average hours day h/day 8,00 10,00 9,00 Average speed km/h 40,00 50,00 45,00

Days of operation n 250,00 300,00 275,00 Loading capacity tonnes 600,00 800,00 700,00

Performance per year locomotive km/year 166.666,67 180.000,00 173.333,34

Performance per year wagon km/year 50.000,00 150.000,00 100.000,00 Wagons in a train n 18,00 32,00 25,00

Working hours year h/year 2.200,00 2.500,00 2.350,00 Source: own elaboration

Some cost items already described in road transport are present also in the

analysis of rail costs, despite this, some comments are required. Rail transport costs are:

• Personnel and social security, • Energy and other consumption material, • Insurance, • Repair and Maintenance, • Rail Track, • Overhead costs, • Depreciation and interest, leasing/rent, • Shunting operations, • Other costs, • Push locomotive cost.

Personnel costs: The European legislation allows for a driver for each train, this is commonly applied around the European countries, except for Italy, where it seems that at the current state normally two drivers have to be present on the train. This, of course, causes an increase in personnel and social security costs on the Italian territory.

Energy consumption in rail transport can be either referring to electric power or to diesel fuel. In most of the European main train paths electricity is used, due also to the higher cost of diesel fuel. In the case of rail transport the costs for repair and maintenance of the vehicle are related both to the locomotive and to the wagons that compose the train. To this regard in table 5 a distinction is made between repair and maintenance cost for the locomotive and for the wagons, both expressed in €/km.

The cost of rail track refers to the price that the rail operator has to pay to the infrastructure manager in order to be able to use the rail track or path. All the rail service operators in Europe incur this cost that varies from country to country, from route to route according to the traffic level of that lane. The main rail path will have higher costs, while the secondary ones will be less costly; rail track are assigned by the infrastructure manager normally once a year, but exceptions and extraordinary distributions can occur on-the-spot. It is well-known that the track cost is Switzerland is higher that in the other Western European Countries.

Shunting operations are the movement of the locomotives and wagons in order to place the train in the right direction, loading/unloading place or in the exact area.

In most of the cases in Europe there are dedicated companies that provide the service for the rail operator, in this case the cost can vary according to different components.

The costs attributed to leasing or rent of the locomotive and wagons reflects the yearly expenses for using a locomotive and the wagons. In our calculation we assumed to insert leasing costs due to the fact that the purchasing cost of a locomotive it is rather high, and a leasing contract could better represents the current situation on the European scene. This is not in contradiction with the fact that some rail companies own locomotives, and therefore the yearly asset cost is the depreciation and the interest rate. Wagons can be either own by the rail company or rented.

The above mentioned considerations done for road transport, about the vehicle insurance, overhead costs, other costs are valid also for rail transport. Table 5: Cost items and values for rail transport

Cost Item Unit Min Max Average

Energy price electricity €/km 2,50 3,30 2,90 Fuel consumption km l/ km 5,00 7,00 6,00

Fuel price €/km 0,50 1,00 0,75 Leasing/Rent locomotive €/year 270.000,00 480.000,00 375.000,00

Leasing/Rent per hour €/h 170,00 320,00 245,00 Number of drivers n 1,00 2,00 1,50

Other costs €/year 6.600,00 10.000,00 8.300,00 Other costs per hour €/h 3,00 4,00 3,50

Overhead €/year 18.520,00 30.000,00 24.260,00 Overhead per hour €/h 7,00 10,00 8,50 Push locomotive € 500,00 2.000,00 1.250,00

Repair and maintenance loc per km €/km 0,12 0,20 0,16

Repair and maintenance locomotive €/year 3.500,00 4.500,00 4.000,00

Repair and maintenance wag per km €/km 0,03 0,07 0,05 Salary €/year 28.420,55 30.000,00 29.210,28

Salary per hour €/h 20,00 40,00 30,00 Shunting operations 2

operations € 600,00 2.500,00 1.550,00 Social security costs €/year 13.442,92 14.000,00 13.721,46

Social security costs per hour €/h 5,00 7,00 6,00 Track €/km 2,50 5,00 3,75

Vehicle Insurance €/year 30.000,00 40.000,00 35.000,00 Vehicle Insurance per hour €/hour 10,00 14,00 12,00

Source: own elaboration

Intermodal road/rail transport The characteristics and cost data about the intermodal solution are similar to

the ones already presented for each single mode of transport; therefore the cost values and the technical requirements are the same. According to this we will not linger on this further more.

5. Analysis of the results

Taking in consideration the previous specifications for each cost item, it is

possible to perform the calculation tool in order to obtain some results for the freight corridor.

The process for the data elaboration has already been presented earlier, and the exact distances, times travel and additional specifications have been added in the excel sheet.

The distances and timing per mode of transport are: • Road transport: 474 km, 6 hours; • Rail transport: 456 km, 11 hours;

• Intermodal transport road + rail: 434 km by rail and 40 km by road, 9 hours by rail, 1 hour by road;

The tool has been performed per a volume of 1000 tonnes, taking into account the loading capacity of each mean of transport.

In the case of a shipment of 1000 tons from Genoa to Basel an average of 40 trucks need to be employed and 2 trains.

The results reported below consider, for each mode of transport: total cost and cost per tonnes.

Table 6 reports the comparison among the different mode of transport in relation to the total cost.

The first column specifies the mode of transport while the scenario, second column, defines the cost level. The scenario explains which values have been used for the calculation: MIN defines that the values inserted are the minimum values in the range considered; AVE stands for average and MAX are the maximum values that that cost items could have.

Table 6 Total cost comparison Genoa-Basel

Mode of Transpor

t Scenari

o Total costs

Mode of

Transport

Scenario

Total costs

Mode of

Transport

Scenario

Total costs

rail Min 14346,7

2 rail Ave 17707,

76 rail Max 21068,

8

road Min 15067,1

6 road Ave 19296,

41 road-rail Max

22791,4

road-rail Min 15962,7

6 road-rail Ave

19381,68 road Max

23416,64

Source: own elaboration When looking at the total cost that a client has pay to the different transport

operators, it is important to bear in mind that a percentage of mark up has to be

added. In all our cases we consider the final costs, which allow us to be consistent in the comparison; nonetheless this aspect has to be bear in mind.

From the table above it appears that the cheapest solution is provided by rail

transport with scenario Min, while the most expensive is road transport scenario Max.

Between the two possibilities the difference, in terms of money, it is quite relevant being around 9.000 euro. Regardless the extreme figures, what come out of the comparison are that in general rail transport is cheaper than road and intermodal solutions. The intermodal solution road-rail is more convenient than road just in the maximum scenario. Having in mind that the amount of goods considered for this case are 1000 tonnes, we are now going to elaborate on the results obtained for the calculation about the cost per tonnes.

Table 7 Cost per tonnes comparison Genoa-Basel

Mode of Transpo

rt Scenari

o Cost per tonnes

Mode of

Transport

Scenario

Cost per

tonnes

Mode of

Transport

Scenario

Cost per

tonnes

rail Min 14,3467

2 rail Ave 17,707

76 rail Max 21,068

8

road Min 15,0671

6 road Ave 19,296

41 road-rail Max

22,7914

road-rail Min 15,9627

6 road-rail Ave

19,38168 road Max

23,41664

Source: own elaboration Also in this case, the same conclusions can be drawn, rail transport is the

best solution €/tonnes wise, and road transport is the most expensive. The results of this table are quite intuitive, since the calculation is based on the total cost obtained, divided by the amount of tonnes.

As a concluding remark, regarding the comparison of the modes of transport, it can be argued that the cheapest solution from a total cost point of view is rail transport followed by road transport for the minimum and average scenarios.

In order to better understand which the relevance of each cost item on the

final total cost is, an investigation for each mode and for each scenario will be presented.

The calculation has been done considering the total cost as equal to 100 and looking at the share of each cost item, in percentage. Starting from road transport, it is observed that for all the scenarios, the cost item that counts more is the fuel price, going from around 22% up to 30%in the maximum scenario.

The second cost item, in decreasing order, is personnel cost, having a slightly bigger impact in the minimum scenario. Depreciation is also relatively important in road transport, accounting for around 14% of the total cost.

Table 8: Weight of each cost item on the total cost for road transport (percentage of the total cost)

Road transport min ave max

Fuel price 21,58 25,90 29,15 salary 19,11 17,41 16,40

social costs 7,96 7,46 7,17 tyres 1,51 1,77 1,94

insurancev 2,39 2,80 3,07 maintrep 6,29 7,86 8,10

taxes 0,48 0,68 0,82 tolls 10,41 8,13 6,70

overhead 11,15 9,95 9,22 depreciation 14,34 13,68 13,32 other costs 4,78 4,35 4,10

100,00 100,00 100,00 Source: own elaboration

What is reported in table 9, shows how the different costs weight in rail

transport. The two main costs are the leasing of the locomotive and wagons and the cost for the track paths, cost that the rail operator has to pay to the infrastructure manager for obtaining the train paths. The share of relevance is higher in the minimum scenario that in the average or maximum.

An important component of rail cost is energy consumption, being the third most important cost item.

Table 9: Weight of each cost item on the total cost for rail transport

Rail transport min ave max Energy price 15,83 14,87 14,22

Push locomotive 6,94 5,62 4,73 salary 6,11 7,42 8,32

social costs 1,53 1,48 1,46 insurancev 1,53 1,48 1,46

maintrep loc 0,76 0,82 0,86 maintrep wag 4,75 6,41 7,54

overhead 1,07 1,05 1,04 average track cost 25,33 20,52 17,24

other costs 0,46 0,43 0,42 leasing rent 25,97 30,31 33,27

shunting operations 9,72 9,56 9,45 100,00 100,00 100,00

Source: own elaboration Considering the composition of intermodal road-rail transport cost, it

appears that the costs weights changes among the different scenarios; nonetheless the 3 main costs are always the same: energy price, track costs and leasing or rent of the locomotives and wagons.

In the minimum scenario track costs has a share of 21.5% on the overall cost, while the leasing of the locomotive is counting for 19%, followed by

energy price. The composition changes for the average scenario, within the costs for the leasing are the highest, 23%, followed by track costs and energy price, the same pattern is repeated in the maximum scenario.

Table 10: Weight of each cost item on the total cost for intermodal road/rail transport

Intermodal road/rail min ave max

Fuel price road 1,71 2,16 2,51 salary road 2,98 2,87 2,79

social costs road 1,24 1,23 1,22 tyres 0,12 0,15 0,17

insurancev road 0,37 0,46 0,52 maintrep road 0,50 0,66 0,70

taxes road 0,07 0,11 0,14 tolls road 6,72 5,53 4,71

overhead road 1,74 1,64 1,57 depreciation road 2,24 2,25 2,27 other costs road 0,75 0,72 0,70 Energy price rail 13.46 12.89 12.48 Push locomotive 6,22 5,12 4,36

salary rail 4,48 5,53 6,27 social costs rail 1,12 1,11 1,10 insurancev rail 1,12 1,11 1,10

maintrep loc rail 0,65 0,71 0,76 maintrep wag rail 4,05 5,56 6,62

overhead rail 0,78 0,78 0,78 average track cost rail 21,59 17,79 15,13

other costs rail 0,34 0,32 0,31 leasing rent rail 19,03 22,59 25,10

shunting operations 8,70 8,71 8,71 100 100 100

Source: own elaboration

6. Conclusions and further research

All the considerations emerged from the analysis of the results bring us to

make some general reflexions about modes of transport and their cost functions. Road transport is the most expensive mode for the whole shipment, but it has a comparative advantage for the number of driving hours, 6 hours. In our case we also have to remember that for the shipment of 1000 tonnes, an average of 40 trucks are required.

Rail transport, being the slowest solution, can guarantee a cheaper payment. The intermodal solutions, road-rail appears to be more expensive than rail

and road transport, for the minimum and average scenario, while for the maximum is cheaper than road transport.

Interesting, although, not surprising is the pattern about the relevance of the cost items in the total transport cost. Regardless the mode of transport, energy costs, personnel costs and depreciation or leasing are the costs items that influence more the final cost of the operator.

This can lead us to some observations; those three aspects have different nature, while personnel costs and depreciation or leasing are more related to the company business and structure, for the energy cost, both diesel fuel or electric power, the company can not directly intervene in changing or adjusting significantly this cost.

Starting from energy cost, what can be argued is that the transport operator has minimum power in adjusting or deciding the fuel price or the electricity price; some commercial agreements can take place, but the haggling control of the transport operator, regardless its company dimension and power, will be rather negligible.

With regards to personnel costs, legislative and social rules enforce the transport operator to conform to, at least, minimum levels of wages and social security contributions. Albeit irregular practises in relation to the actual number of working hours are already rather habitual in the transport sector, reductions in the perceived salary could be unfair form a welfare point of view.

The possible interventions, from a business approach, could be to intervene on the personnel management, in order to re-structure the company organizational chart.

To conclude, the depreciation costs and the leasing costs for assets represent a considerable expense for the transport operators. The capital cost is an economic element that belongs to the business activity that the company itself has to control. With respect to this, each company should be well aware of their production factors and intervene, if possible, to optimise it.

An interesting exercise will be to perform a sensitivity analysis replacing

with new values for those three variables; it will be interesting to check if the relative weight of those cost items on the overall transport cost will remain similar or not.

Further research could bring us to investigate the relevance of loading and unloading activities for all the modes of transport. This will allow us to compare the all logistical chain and investigate possible influence that those activities have on modal choice.

An additional investigation could be related to the internalization of external costs, that can be added to the out of pocket money; external costs are not included in the current transport cost functions, nonetheless European policies and trends seems to lead towards this approach. References Baumgartner, J.P., (2001), Price and costs in the railway sector, Litep. Blauwens, G., De Baere, P., Van De Voorde, E., (2006), Vervoers-economie,

Standaard Uitgeverij, Antwerp. Boardman, B., Trusty, K., Malstrom, E., (1999), Intermodal Transportation

Cost Analysis tables, Department of Industrial Engineering, University of Arkansas.

Mint Consultant, KP Transport Consultant, (2009), Vlaams vrachtmodel, technical note, (Confidential).

NEA Consulting Group, (2003), Onderkoek costen per huur in de binnenvaart. PLANCO Consulting GmbH, (2007), Wasser und Schifffahrtsverwaltung des bundes. VIL, (2006), Totale logistieke kosts beslissingsondersteunend bij de bepaling

van de optimale modal split. Weinreich, S. et al., (2000), “Real cost reduction of door-to-door intermodal

transport (Recordit)”, Deliverable 1: Accounting framework for the analysis of the cost structure of door-to-door intermodal freight transport services,.

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