Principles of Modal Shift

A modal shift occurs when one mode (A) has a comparative advantage in a similar market over another (B). Comparative advantages can take various forms, such as costs, capacity, time, flexibility or reliability. Depending on what is being transported, the importance of each of these factors vary. For some, time is of the essence and a modal shift will occur only if the new mode offers time improvements, while for others it is mostly a matter of costs. The outcome is a series of decision made by firms (for freight) or individuals (for passengers) to shift to a more convenient mode if comparative advantages are significant enough. This process often takes place over three phases:

• Inertia. Initially, a strong level of inertia makes the modal shift a slow and sometimes difficult to perceive process. Only a few users will experiment with modal shift, often as part of a publicly subsidized initiative (government providing the initial funding to develop infrastructures). Inertia implies that the modal shift is often much less significant than expected, leading to a situation of underperformance. The reasons behind the inertia are linked to accumulated investments and assets in the prior mode and terminals. Thus, a corporation will be reluctant to relinquish those assets even if the comparative advantages of the other mode are significant. Management preferences also play a role as expertise was developed to manage flows on the previous mode and may be difficult to adapt to the new mode. The negotiation of new procedures and contracts are certainly tasks corporations are unwilling to undertake if the benefits are not readily apparent. The fact that the existing mode has a proven reliability, even if costly, will also play in delaying a potential modal shift. Early adopters of a modal shift are thus likely to be new transport ventures willing to risk testing an unproven distribution system for the potential rewards of being the first, enterprises facing already very high transport costs on the existing mode, or "welfare statists" receiving government subsidies to do so.
• Shift. The shift phase represents a fast transition from one mode to the other as the advantages are now acknowledged by the industry. The new transport mode evolves from a situation of underperformance to one of over performance. As inertia involved a modal shift taking place at a rate lower than expected, during the shift the transition rate is faster than expected. This can take users and authorities by surprise with a rush to cope with the transition with additional infrastructure investments. The significant drop in comparative advantages as the new mode gets increasingly congested and/or as the previous mode loses traffic (closing of some routes, rationalization, price cutting, etc.), triggers the end of this phase.
• Maturity. At this point the potential is reached and a new equilibrium in modal share is reached. Their respective comparative advantages are of lesser variance.

Thus a modal shift takes place in a context where from a macro perspective there are changes in the transport supply and from a micro perspective the decisions (behavior) of individuals (passengers) and firms (mostly for freight) is changing.