The Economics of Road• and Rail Competition
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A Precis of an Important Book on This Subject, the Author of Which is Gilbert Walker, Lecturer in Economics, University of Birmingham
MANY interesting facts concerning the economics of road and rail transport are to be found in the new book " Road and Rail " by Mr. Gilbert Walker, a trained economist, and a lecturer on the subject at the University of Birmingham. It is published by George Allen an Unwin, Ltd., at 12s. 6d.
In the foreword the author points out that the book was planned and written as a contribution to the solution of an urgent problem, the MS. being completed in July, 1939. The publication was held up during the firitt years of the war, but post-war settlement will have to resolve in one way or another the difficult economic tangle which this book describes—that is the justification for bringing it out now, with its 1940 postscript.
The author acknowledges the help of the many traders, hauliers, railway servants, public officials, members of the Birmingham Chamber of Commerce and, above all, of Mr. L. W. GupwelI,
Where There Is Competition Between Road and Rail
Our precis may serve to whet the appetite of some of our readers who are intimately concerned with many of the problems with which the author deals. He commences with a guess that traffic, other than local, conveyed by 'road in competition with rail is of the order of 100,000,000 tons. Competition between the two is, for the most part, for the transport of general merchandise. The railway has almost a monopoly of traffic in coal, minerals and heavy freight. Traffic in general merchandise is that of small consignments, all of them less than a wagon-load, conveyed for short distances, the average haul being only. 104 miles. Traders ask for overnight delivery and ship their merchandise in small parcels, and both railways and hauliers must give this service. Thus, merchants keep but little stock on shelves or in storerooms, This relieves the trader from the burden of heavy stock, bit makes difficult the economical working of the transport services.
The characteristics of the traffic for which roacl,, and rail are competing—small parcels and short distances—may be set side by side with certain fundamental features of physical and economic structure. The railway requires heavy capital investment in fixed plant, but afterwards can deal with a great increase of traffic at relatively little extra cost, but it is confined to its permanent way. To tranship freight, to make up trains or to break them once made, are costly operations.
Capital Expenditure on Road Transport increases with Traffic A road contracting business, on the other hand, requires little original outlay. Lorries, insurance and licences can be paid for by instalments; the lorry can go wherever there is a road; it can be taken from one service and put on another, or diverted to serve special needs, but it cannot convey more than a lorry-load—an increase of traffic means more vehicles. Thus, capital expenditure on a road service increases directly with the growth of traffic..
These differences suggest that small consignments requiring quick transit, shipped to diverse destinations, should go by road to avoid the heavy expense for collection, delivery, transhipment and switch if conveyed by rail. Bulk traffic and train-loads of merchandise between industrial areas Should go by rail; also truck-loads of coal, minerals and heavy merchandise, which do not need immediate delivery as stocks are normally large. The haulier could usefully act as feeder for the railway, collecting traffic over a wide area, and delivering the parcels and lighter traffic from railheads. This would appear to be the rational and economic division of function, but investigation shows that distribution of traffic has grown up in the opposite direction; road transport is being used to convey bulk consignments and run services where traffic is regular and dense, whilst the railwaya are carrying the small parcels and operating where traffic is light and full loading uncertain.
The road-transport business is quite unlike the railways: the number of operators is large; most vehicles are not owned by contractors but by private carriers who take traffic for no one else.
Road services properly competitive with rail are those carrying traffic for long distances between towns and within industrial districts. How many are competing directly with the railway is not known, but the smallest lorry commonly used on regular long-distance service weighs about 50 cwt. unladen. Now, less than a quarter of all commercial vehicles are as heavy as this, and not all heavies are engaged upon long-distance services. Some are worked by local hauliers, master builders, local authorities, brewers, and many other tradesmen, and it is probably not unreasonable to put the number of vehicles actively engaged on long-distance haulage at between 110,000 and 120,000. By contrast, the railways own 650,000 tracks and wagons, and private owners have as many more.
Competition Largely Protects the Interests of the Customer Competition between producers protects the interests of the public to ensure adequate service at a reasonable price, and equal treatment for all consumers. A customer of a monopoly has no such recourse; there is no other supplier to whom he can turn; he has no remedy unless he can call the State to his aid. Road-haulage rates and charges are free from legal regulation, because control has not, so far, been necessary. [It must be remembered that all but the last chapter of this book was completed in 1939.—ED.] Railways, it was feared in the past, being monopolies would be able to charge unreasonably high rates if left to their own devices. In road haulage the opposite is the main ground of complaint—that there is too much competition and rates are uneconomically low. Control, where imposed at all, has been intended not to preserve the trader against extortion but to protect hauliers from each other. Road transport does not, however, entirely escape the burden of legal control; this is applied to mechanical fitness, drivers' hours, records and wages.
The form of control which, however, has been most -effective and most rigorously applied to road transport is restriction of the number of vehicles which contractors may • operate. Licences are not issued without limit, and an application will fail if some other carrier, by road or rail, is already providing " suitable transport facilities." Hauliers cannot, therefore, take all the traffic which could be more cheaply conveyed by road, but only that portion within the capacity of licensed vehicles. This limitation of volume is an inequity, parallel to that of which the railways have complained—that railway rates are controlled and road charges are not. The restrictions differ, but each is as complete a denial of " commercial freedom " as the other.
A Comparison of the "Tracks" Employed by Road and Rail The railways operate 20,000 route miles of track; roadtransport operators, in common with everybody else, have the freedom of 178,000 miles of public highway. There are 41,000 miles of main classified roads-25,000 of "A" or Class 1 roads, and 18,000 of " B" or Class 2: The railways have had to Construct their own track and must maintain or renew it. They estimate that £800,000,000 has been sunk in this manner, and the average annual expenditure and maintenance for the years 1936-3 was about £20,000,000. The total annual expenditure on highways, including loan charges, but excluding loans, rose to a peak of £68,000,000 in 1931. The motor road has grown out of the public highway and there is no figure corresponding to the original figure of constructing a railway. The operator of a motor vehicle does not pay directly for the use or improvement of the highway; instead, he is taxed.
With the technique of road construction and repair usual in the two decades before 1909, a road suitable for the traffic of the period and maintained to the standard of those times, would have cost, since the years 1922, about £40,000,000 annually. This is calculated by raising the index for the base period in the years before there were any motors, in the same proportion as the increase of population and making allowance for the increase in wages. It represents the annual sum which the highways in this country would have cost, without the demands which have been made by motor traffic, Highways Must be Provided and all Should Share the Cost The public highway is used by many besides the lorry. There is the. bus, the private car, and, most important of all, the public. A highway must be provided and has to be maintained for the use of the public at large, and would hdve to be, even if there were no motor traffic or if the motor were confined to a special track. The motorist, private and commercial, cannot be asked to pay in full, for a road which he must share with everyone else; the railway track is used exclusively for the companies' trains. Motor traffic has been subject to certain restrictions in the interests of safety, the most burdensome being the speed limit. The limitations on commercial vehicles are expensive and are made more so by the restriction on driving time. Between the motelr user and the ratepayer equity is reached when the receipts from motor taxation are equal to the cost of improving and adapting to the needs of modern motor traffic the highway system which has already been provided, and must be maintained for the public generally. A sum, in addition, might reasonably be asked to compensate the public for the loss of its exclusive rights to the highway, but something might be allowed on the other side, for motor traffic has made the highway an even more valuable public asset. The total payment required from motor users cannot exceed the whole annual cost of road upkeep, but the revenue of motor taxation is already more than this. The receipts of vehicle duty and the fuel tax haete exceeded the total annual expenditure on highways in each year since 1932.
Why Road Transport is Generally Cheaper Than That by Rail Transport by road motor is cheaper than by rail, because, among other things, it has not been necessary to invest a large sum in the acquisition of lands and the construction of tracks before the carriage of goods could be undertaken. The costs of adaptation are relatively low; the whole expenditure on maintenance, improvement and reconstruction since 1920 has not exceeded £1,000,000,000. Rail service requires, as stated, a track which can be used for no other purpose and which has cost £800,000,000 to construct. The saving of this cost is one of the economies which road transport offers the public. There is no reason why an economy as important as this should be offset by taxation.
The motor road is not provided especially for any one class of motor user; the highways have been restricted to make a track fit for the fast car or the slower heavy commercial vehicle, including the passenger, type. The old road has had to be widened, straightened and strengthened to allow for the high speed of the car just as much as to support the weight and to make room for the larger lorry and bus. No part of this cost, incurred in common, can be allocated to any one section. There are fewer commercial vehicles than private and public passenger types, the proportion being about 1 to 4, but each commercial vehicle runs a much greater mileage, and it is assumed that commercial vehicles, in genera use about half as much fuel as all classes of passenger vehicle.
Tax receipts from commercial vehicles have been "rising steadily in proportion to the annual expenditure upon classified roads and bridges. Increase in the number and higher rates of duty on fuel caused revenue to become equal to road expenditure in 1934, when registration duties on the heavier vehicles were raised. At present, the revenue from commercial vehicles must exceed, by a good margin, the annual expenditure upon classified roads, Many excellent and expen`sive Class 1 roads in holiday districts serve private motorists only and are never used by goods traffic unless it be for local haulage.
On competition between road and rail, the author says that the value of a commodity is one of the main factors which determine whether any merchandise shall pay a high railway rate or a low one, but it has no part in determining what the road charge shall be. The haulier considers the bulk of goods in comparison with their weight, and charges more for those which load less easily, also for easily damageable goods, whilst he makes an allowance for large consignments, but he does not increase the rate just because a consignment is made up of goods of greater value.
With this one exception of value, the Statutory principles which govern railway rates explain equally well -the current rate-making practice among road hauliers. Railway rates are based on the value of the goods conveyed as well as on the cost of carrying them; road charges are on only the latter. Consequently, road charges are less than railway rates for the more valuable goods and more than railway rates for the less valuable. Cheap, low-class commodities are given a railway rate less than road costs.
Competition in Higher-classed Loads Forced on Road Transport Hauliers are able to compete successfully only for those goods which are relatively, valuable and have been placed in the higher classes of the G.R,C. The road business is deprived of the opportunity of carrying cheaper goods which go in the lower classes. It is for this reason only that road transport takes, mainly, the high-class merchandise, whilst the railways are left to carry the heavy, cheap and bulky freight. Road operators do not refuse ' this traffic betause it is unprofitable in itself, but because they cannot compete with a railway rate less than the cost of carrying it by road.
It is not the case that all general merchandise (Clauses 7-21) is now the preserve of the road haulier, nor that he does not tarry any traffic in the lower classes. The railways still have a large volume of the former traffic, whilst some of the traffic in Minerals and heavy merchandise is road borne. Even coal is sometimes conveyed by road, althougie only for short distances, whilst a great deal of road stone is carried by hauliers because the facilities offered by rail are not very suitable. Quarry and site may be remote from stations or sidings. Bricks travel long distances by road mainly because costs of handling and risks of breakage in transhipment by rail are high. It does not usually pay the road operator to compete for traffic unless he can be reasonably assured of full loads each way. For any traffic which cannot offer so much the contractor charges a rate equivalent to the costs of running his lorry out and home, and such a charge is likely to be greater than the railway rate.
Wherein Lies the "Unfairness" of Competition by Road Transport ?
Road competition with the railways is." unfair," but not because the haulier uses a highway maintained by the public, whilst the railways provide their own permanent way, nor because road haulage wages are lower than those earned by railway men; it is " unfair " because the railways, by law, must charge rates which are higher than road costs for some classes of merchandise and lower for others; rates which do not make allowances for the difference in the cost of working traffic over one route compared with another, and rates Which discriminate less between the large and the small consignment than do road charges. The haulier is not taking the " cream " of the traffic when he competes only for high-class merchandise, for this is not necessarily the most paying traffic. Remunerative traffic is freight for which costs of operation are low compared with the rate charged. To take measures to increase by anything less•than a penal amount the taxation imposed on motor vehicles, or the wages which operators must pay, is no remedy. The level of cost can be raised, but it will leave the unfairness of the competition untouched. It will still be the case that road charges are based on costs, although these would then be higher, whilst railway rates disregard cost.
To remove the unfairness and place road and rail on an equal competitive footing, road charges and railway rates must be made on the same set of principles. Either the haulier must apply a classification of goods by value and employ that principle in charging, or the railways must leave the value out of account and follow the current practice of road hauliers. The latter solution would be the more simple to administer—it has the additional recommendation of being economically the more justifiable.
As regards the service given, some traders say that this is the predominant factor influencing their decision, that provided by road transport being better in certain important respects, such as more certain and quicker delivery. Traders are able, if they wish, to give customers a definite time for delivery, for road contractors are the more reliable timekeepers, and traders attach great weight to this quality. Even when railways can get goods to a destination station the next morning, a great deal of time is often lost in local delivery, particularly in London, when they are conveyed by one railway and sent to a part of the City in the area of another. Hours at which the haulier collects and delivers can be made more elastic on trunk journeys, often up to midnight.
Road Transport Can Cater for Emergencies and Work to Minutes Road transport also provides for the emergency job, whereas a special train cannot well be chartered. A road vehicle can be held back for goods being prepared for shipment. In some instances traders require goods to be delivered to the minute, for example, in the case of a mass-production plant working with an assembly line. No railway could provide a service as punctual as this. A through journey by road reduces the number of times that freight must be transhipped, and where goods are fragile or difficult to load and unload, there is a distinct gain.
Goods sent by railway must be elaborately packed; those by road generally need less care. This saving in cost and weight of packing is sometimes greater than the difference between road and railway rates, and can be the main inducement to a trader to send goods by road. The railway seems to have a worse reputation than the haulier for breakage and damage to traffic. On the other side, the layout of a trader's works may be such that delivery and despatch by rail are more convenient, as when there is a private siding, and when trucks can be retained, for a haulage vehicle must be loaded or unloaded as soon as it arrives; in other words, there must be a rapid turn round.
There is also less loss by pilfering when goods are sent by road, and the rate system of the haulier is much more simple than the railway classification.
The author also deals with the ancillary operator, but this matter, and many others included, must be left because of considerations of space. There is also a postscript, dated 1940, concerning civil transport in war. •
A very important second postscript gives proposals for reconstruction after the war. The two systems—the monopo lized organization of the railways and the competitive road-transport business—are mutually incompatible. They cannot survive side by side—road competition at present is undermining the whole scheme of railway regulation; either the one must give way to the other or the present device of regulation and counter restriction made much more strict, but this satisfies neither party and ensures only that the trader gets the worst of both worlds. The quetion is, therefore, not whether the transport system of the future shall be co-ordinated or remain chaotic, but whether it shall follow the railway pattern and be monopolized, or be made fully competitive—the present practice of road transport. an outline of The original case in favour of the railway's right to convey valuable merchandise at high rates has disappeared. Increase on freight removes the justification for the discriminating tariff on traffic passing over the densely worked lines, and regions in which freight is light can now be served at less (average) cost by road motor. To implement the competitive principle, each line of railway must become self-supporting; the systems should be disintegrated, but only as accounting units, into their constituent lines. Operating unity clearly cannot be abandoned—the economies of large scale in railway working are far too great to be sacrificed. The schedule of standard charges should be abolished and rates on each section of line adjusted to the costs of working traffic over it, limited by the competition of road carriers.
Lines fall into three broad classes—first, the prosperous, those carrying traffic from which, can be earned gross revenue exceeding direct working costs and general overhead charges; secondly, those which earn more than enough to cover cost of operation, but not sufficient to meet, in full, the overhead long-period costs of remaining open; thirdly, those the working costs of which exceed the gross revenue from traffic.
The first class raises a question of rate control, which the author takes up later. The second can be left free to charge what rates can be obtained in competition with road transport. The third should be abandoned and the traffic left wholly to the road. The test is the relationship of gross revenue from traffic lost to the system, compared with the saving if the line were closed. Once it appears that more would be saved by abandonment, then this policy should be adopted.
It would, however, lie the reverse of good policy to close a line because it does not pay if, as a result, more had to be spent on improving the road than would be saved on the railway. This may well occur if there. were any flow of heavy traffic along the line. In such circumstances there is a strong case for forcing up road charges in anticipation, possibly by discriminatory taxes imposed on carriers working between the points served by railway. Competing road hauliers should obtain only that traffic for which their superior facilities more than outweigh the disadvantage in cost.
Railways Should Not be Employed to Deal with Light Traffic Where traffic is too light to support a railway (even one already built) road carriers should have the business to themselves, and the public will be saved the cost of maintaining the railway—an expensive piece of equipment, the. capacity of which can never be fully employed. For the rest of the traffic, for which neither the one nor the other has a decisive advantage, road and rail can be left to compete, each obtaining that for which the combination of rate and facilities makes it the more suitable.
The proposals made are only suggestions, their worth as principles of organization cannot be decided without data, which at present are not published or even collected. The interest throughout has been on freight traffic, the passenger side having been purposely ignored, but receipts from passengers form an important item of railway revenue —almost half the gross. On lines of heavy traffic, passengers, together with freight, can be left to the rule of competition.
Finally, it is the author's opinion that for the bulk of traffic at least, competition between rail and road can be relied upon as an adequate instrument of control, but not free from all limitation. Competition is successful only when the rivals compete not freely but within a framework carefully devised to produce' the desired results. In some regions of light traffic there may be no competition at all and on the least-well-deserved routes it may be necessary to provide services at less than cost. The alternative monopoly and to this, whether privately or publicly controlled, or given wholly into the hands of the State, there are solid objections,