Potential Impacts of High Oil Prices on Transportation
As most transportation modes are reliant on the usage of petroleum, a rise in oil prices will have a level of impact over several dimensions of the transport system. Six interdependent types of impacts can be expected:
  • Usage level. Users of a specific transportation mode generally respond to higher prices by limiting or rationalizing (e.g. speed) their usage level. Transport operators, such as airline companies, respond to such changes by reducing the frequency of their services. It is a matter of price elasticity where an increase of price P will result in a usage level change of Q. This function is rarely linear. At first, price increases may have limited effects as they are simply absorbed with the expectation that they are a temporary condition. Once a specific price threshold is reached, then significant changes will result as marginal and extraneous usage will be cut until a new equilibrium is reached. Usage for this mode is said to have reached a paradigm shift. High petroleum prices are generally related to recessionary periods, so their specific contribution to transport usage is codependent with the economic climate. Evidence from automobile use in the United States underline a negative relationship between vehicle use and gasoline prices.
  • Modal shift. In conjunction with a drop in usage level for a mode, a part of the traffic could shift to a more energy efficient mode through modal shift. This process is commonly not linear and a modal balance (A/B) can shift rapidly once a price threshold is reached. Thus, an increase of price P may result in a substantial shift, Q(A/B), in the modal balance. A modal shift commonly takes place towards a mode which is less energy intensive (less elasticity) than the other. It can thus be expected that with higher oil prices some trucking will shift towards rail and that public transit will gain in market share.
  • Service area changes. Under a specific price level, each mode has an optimum service area; a distance at which it provides mobility in a cost effective fashion. Since each mode has a different elasticity, an increase in prices will have different impacts on the cost / distance function. For two modes, A and B, the same increase in energy price would create a different inflection of the cost / distance function where the range of mode B would reduced by R(B). Thus, mode A gains in market share. An example is trucking versus rail in North America where about 700 miles (1120 km) was considered to be a standard cutting point, but a rise in fuel prices has placed this range around 500 miles (800 km).
  • Gateway / Hub selection. A gateway is a point of interface between two systems of circulation. Since these systems have different elasticity, a rise in energy prices can eventually change their relationships, particularly the locations where intermodal transportation takes place. A shipping service using gateway port A and taking advantage of faster (but more energy intensive) hinterland connections may instead switch to gateway port B which is closer to customers. Although this change may result in longer total shipping times, the cost trade-off would make it acceptable. Higher energy prices are thus likely to reinforce gateways that have the most efficient hinterland connections, notably in terms of modal choice.
  • Network configuration. Enduring high energy prices are likely to trigger shifts in the configuration of transportation networks in terms gateways, hubs, routing and corridors. For instance, an inland corridor may experience a change of the linkages with inland load centers that minimize road use and maximize rail use. An airline may decide to abandon less profitable routes an offer more direct (point to point) services. An air transport network may experience a reconfiguration and an abandonment of marginal services, namely at small airports.
  • Supply chain propagation. A supply chain is composed of a series of inputs and outputs having a complex geographical and functional structure. Rising energy prices imply a wide variety of changes in the cost structure within a supply chain, namely a propagation of those costs. Procurement, manufacturing and distribution costs are all impacted to various degrees. For instance an increase in the density of packing of parts for a better level of transport asset utilization may involve a delay of in assembly in the next stages along the supply chain. It is possible for some of these costs to be absorbed through reduced profit margins and higher efficiencies, but they do eventually propagate and end up in higher consumer prices. The functional and geographical structure of a supply chain is a key element of the nature and extent of its costs propagation. At a specific price level, some supply chains cease to be profitable their reconfiguration becomes necessary.
It is assumed here that the origins and destinations of passengers and cargo movements remain relatively constant. However, it is clear that locational choices are significantly impacted as well by higher petroleum prices. For instance, many comparative advantages in global trade are mainly based on low transport costs. In a higher energy prices environment, locational practices may change in several manufacturing sectors with the selection of sites closer to final markets (near sourcing), even if characterized by higher labor (or input) costs, may be advantaged.