A micro founded approach to the valuation of benefits of freight travel time savings

Abstract

This article investigates how freight travel time savings should be taken into account in cost–benefit analysis. The general setting of this article is to suppose that transport operators face a constraint on minimum travel time and to examine, in a comparative static framework, what is occurring when this minimum travel time is altered. The analysis takes into account three aspects of freight travel time savings that deserve specific attention and have been, to our knowledge, neglected in existing approaches: the distinction between make to order and make to stock production contexts, the distinction between travel time and transportation time and finally the impact of transport time savings on wider logistics organisation. In this context, the present contribution analyses how this change in the minimum travel time affects the different economic agents' tradeoffs between the duration and cost of the various operations used in production and transport activities. Our findings show that the benefits of travel time savings are at least equal to the sum of travel operating costs reduction, decrease of generalised immobilisation costs of the good (depreciation, financial immobilisation costs, and costs of damage insofar as are related to transport duration). We also draw the implications of this analysis for the valuation of projects that save travel time for freight.