Distance, Modal Choice and Transport Cost

Different transportation modes have different cost functions according to the serviced distance. Road, rail and maritime transport have respectively a C1, C2 and C3 cost functions. While road has a lower cost function for short distances, its cost function climbs faster than rail and maritime cost functions. At a distance D1, it becomes more profitable to use rail transport than road transport while from a distance D2, maritime transport becomes more advantageous. Point D1 is generally located between 500 and 750 km of the point of departure while D2 is near 1,500 km.

Although the above relation is rather straightforward, it does not fit reality well, mainly for the following reasons:

• It assumes that modal options are interchangeable. For many origins and destinations, modal options such as rail or maritime may not be present.
• Since rail and maritime transportation are discrete networks only accessible through a terminal, most locations will involve a road transportation segment, which changes the cost structure.

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