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| Freight shipping in Georgia State |
Goods Transport and Freight Logistics
Final demand for transportation-related goods and services made up 10.7
percent of gross domestic product in the U.S. in 2000. Final demand is far greater
than the output of the sector called “transportation,”. Imports meet
a portion of U.S. demand for transportation goods and services, and other nontransportation
sectors (for example, manufacturing and retail), satisfy another portion,
as was evident in the discussion of transportation-related employment. Much of
transportation services’ contribution to gross domestic product comes through freight,
rather than personal, transportation.
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The Role of Freight Transportation and Logistics in Production
The benchmark U.S. input-output accounts allow a general understanding of
how industries use transportation commodities as intermediate inputs in producing
the final goods and services that comprise gross domestic product. These insights are
a bit dated— the most recent data are for 1997. However, they do provide an
informative picture of the supporting role played by transportation in the economy. If
they indicate how sensitive individual industries might be to changes in these costs they also hint at how advantageous a transportation-focused location like Georgia
would be for firms in these industries.
“When a firm relocates, transport is normally only a second-order
consideration as these costs are a small part of total production costs. However, these
costs may be important in sectors such as retailing and certain services where
accessibility to customers may influence a firm’s performance. A second impact may
result from the reduction of transport costs and its effect in reducing overall
production costs, which in turn increases profit and output. However, if transport
costs are a small part of total production costs, the impact here is, again, minimal”. The national input-output accounts support
the view that transportation is indeed a very small portion of factor cost for most
industries. Unless this changes, a possibility discussed later, it seems likely that
Georgia’s transportation and location advantages will result in slightly higher profits
to owners of firms that transport goods through Georgia, or slightly reduced
consumer prices, in industries that are perfectly competitive. Neither owners nor
consumers need to be in Georgia to benefit.
Transportation improvements may have other effects on businesses as well.
When transportation improvements make possible new, larger market areas, this
advantages large businesses able to benefit from scale economies over smaller, local
businesses. “For some industries (especially high cost producers in small markets)
transportation cost reductions will eliminate the barriers that protect them from
outside competition, eroding their markets. For others (especially industries that
already operate efficiently at a relatively large scale) improved access opens up new markets and allows costs to be reduced” (Boarnet and Haughwout, 2000). Such
redistribution may bring substantial dislocation and distress.
Of likely greater concern than transportation costs to many businesses (shown
above to be a small proportion of total input costs in many cases), is whether
transportation services used as inputs are reliable. Transportation infrastructure
forms “a small, but indispensable part of the total costs of a wide range of products in
which they are used. Thus the losses that result from service failure are often very
large relative to the basic cost of service provision”. Greater reliability may be an improvement that is worth paying for. For
example, just-in-time manufacturing can be idled by transportation delay. Many final
demand customers pay extra for guaranteed delivery times. And access is important
in service businesses, though it may not be counted as an input cost.
One reason that the share of production costs traceable to transportation has
declined in recent years, and that greater reliability can be purchased, is the
specialized field of “process, physical distribution and logistics consulting services” within the NAIC 5416 Management and technical consulting
services industry group. This professional specialty, in which the Georgia Institute of
Technology is a world leader, is devoted to making manufacturing and distribution
processes more efficient and predictable. These contributions are only partly evident
in the 1997 data. Logistics advances allow industries with significant transportation
and storage costs not only to choose business approaches that achieve a one-time cost
reduction (such as relocating a facility), but to respond more rapidly to changes in
input costs and other challenges. Firms’ greater sophistication about supply chain
alternatives and their costs puts modes and routes in competition with one another as
well as with wholly different solutions, such as new manufacturing processes or
distribution facility locations. This means that private sector transportation and
warehousing may change quickly and dramatically, and reduces the leverage of any
one state, even one with as many transportation and locational advantages as Georgia.
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Following a report identifying transportation and logistics as a regional
specialization worthy of note, the Metropolitan Atlanta Chamber of
Commerce organized a Logistics Strategy Task Force, and ultimately a Logistics Industry Council to promote and advance this employment cluster. Though Georgia
is clearly specialized in this area, this condition may not persist, as the same research
initiative found transportation and logistics employment became more dispersed
across metropolitan regions between 1990 and 2000, rather than becoming more
concentrated (Porter, 2003). Local experts listed the following reasons why highlyskilled
logistics jobs locate in Georgia: the local talent pool supplied by Georgia Tech
and supported by the large number of employment opportunities at local firms; the
airport, which allows logistics consultants to visit clients easily; and the clustering of
other, related business services, including legal services. A lack of venture capital
has apparently been a brake on the industry locally (Stephens, 2003).
The large volumes of freight that pass through the state by air, ship, pipeline,
rail or truck may or may not contribute to Georgia’s economy, depending upon
whether they are moved by Georgia companies, and change modes in facilities employing Georgia workers. More clearly important is the freight
destined for or originating in Georgia, almost all of which will move by truck. The
U.S. Department of Transportation’s Freight Analysis Framework estimates that
trucks carried 71 percent of the tonnage and 80 percent of the value of total U.S.
freight shipments in 1998 (U.S. Department of Transportation, 2002). Unfortunately,
statistics on whether most truck freight on the highways originates in or is destined
for Georgia, and thus is potentially important to the state economy, are incomplete.
The following breakdown (Ibid.), shows that this information is unknown for the
majority of truck trips.
- Total average annual daily truck traffic on Georgia roads: 100 percent
- Origin or destination is in Georgia: 13 percent
- Both origin and destination are in Georgia: 12 percent
- Neither origin nor destination is in Georgia: 18 percent
- Origin, destination, or route unknown: 57 percent
The negative consequences of transportation noise have been extensively
measured. Aircraft noise is a common source of concern, but road noise has also
been studied. One common measure, the NEF (noise exposure forecast) considers the
decibels from a given source, and the distance to the point at which the effect will be
measured, over 24 hours, differentially weighted by time of day. NEF values can be
plotted in space, and have been used to estimate the effect of noise on property
values. Studies have documented effects as great as a 2.22 percent decrease in
property value for each percent increase in the index.
Finally, heavy truck traffic in Georgia also leads to a disproportionate share
of traffic fatalities. Georgia has 2.9 percent of the total highway mileage in the U.S.
but 4.2 percent of the large trucks involved in fatal crashes (U.S. Bureau of the
Census, 2002). Motor vehicle crashes cost the nation over $230 billion in 2000,
according to the National Highway Traffic Safety Administration (U.S. Bureau of
Transportation Statistics, 2003), with government at all levels bearing $21 billion of
these costs.