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Chapter 3: How Much Does Transportation Cost?

Transportation requires the use of resources—labor, equipment, fuel, and infrastructure. The cost of transportation is the use of these resources. Some of these resources are purchased directly by the users of transportation—for example, fuel purchased by households for automobile travel. Many resources are purchased by firms that provide transportation services—for example, labor purchased by a railroad or fuel bought by a trucking company. In addition, governments (federal, state and local) provide most of the transportation infrastructure, such as highways.

The prices transportation companies charge for transportation services become out-of-pocket costs to travelers and freight shippers, impacting their transportation choices. Because transportation is an input to the production of almost all goods and services, transportation price changes can influence the cost of other goods and services. Transportation prices themselves are impacted by the prices of inputs, such as labor costs, fuel costs, and the costs of transportation parts. This chapter discusses costs for three segments of the transportation market:

  1. businesses that use transportation in production and delivery of non-transportation goods, such as retail and grocery;
  2. producers of transportation services, such as railroads, airlines, or trucking companies; and
  3. business and household travelers.

When disaggregate data are not available for business and household travelers, statistics that combine business and household travelers will be used. This chapter contains a special section on fuel because it is a key input to all transportation industries and households.

Finally, while businesses and households pay prices for transportation, the prices do not fully account for air pollution, traffic congestion, or other negative effects of transportation. These unaccounted effects represent costs to society, and are known as negative externalities. While negative externalities are an important part of economic analysis, this chapter covers only prices paid.

Costs to Use Transportation Services

This section presents data on transportation costs from two perspectives: (1) the Producer Price Index (PPI) (box 3-1) and (2) the Consumer Price Index for all Urban Consumers (CPI-U) (box 3-2). The PPI for a particular mode of transportation measures the average change in the selling prices received by producers of transportation services. Prices are from the point of view of the seller, and thus exclude items like sales and excise taxes. The CPI-U is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.1

Producer Price Index

The Producer Price Index (PPI) shows the weighted average of wholesale or producer prices. Figure 3-1 shows PPIs in the transportation industry by mode from 2003 to 2015. Rail producer PPIs prices grew by 65 percent, more rapidly than any other transportation mode. Air and water PPIs also increased during this time period, with producer prices in trucking growing at a slightly slower rate than air and water. More research is needed to better understand the reasons why PPIs change differently by mode.

The historic trends in the PPI show a peak across modes in 2008. The 2008 peak occurred at the end of a period of economic growth accompanied by increasing fuel prices. After a decline during the economic downturn in 2009, prices reached a new and higher level in 2011 and continued to increase through 2015. The rise in prices since 2009 has occurred during a period of economic growth.

Table 3-1 shows changes in producer prices for selected transportation industry subsectors. While transportation PPIs have often moved together, some subsectors show exceptions. Transportation prices declined for all transportation modes in 2009 during the recession, except the “household and office moving” subsector of the trucking industry, which saw a modest increase in prices (0.5 percent). Overall the PPI for water transportation increased from 2013 to 2015 (135.1 to 138.9), but during the same time the PPI for inland water freight transportation declined (237.5 to 226.3).

Consumer Price Index for Urban Consumers

The Consumer Price Index for Urban Consumers (CPI-U) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Economists often use the CPI-U (box 3-2) as an indicator of general price trends.

Consumer Price Indexes for particular goods and services, such as ones related to transportation, show changes in prices for those goods and services. Table 3-2 shows price changes in private and public transportation from 2014 to 2015. On average, transportation cost less in 2015 than in 2014 (table 3-2).

The CPI-U (box 3-2) for both private and public transportation declined from 2014 to 2015 (table 3-2). Costs for private transportation declined by 8.2 percent resulting primarily from a 27.1 percent decrease in gasoline cost as well as decreases in the cost of other fuels and tires. These decreases were partially offset by increases in the cost of insurance, parking fees and tolls, and vehicle maintenance and repairs. The 2.8 percent decline in public transportation costs reflected lower intercity costs for rail travel (-1.0 percent) and air (-5.0 percent). On the contrary, intracity transportation costs increased 2.2 percent, while intracity mass transit costs increased 2.3 percent from 2014 to 2015.

Fuel Prices

Fuel prices are a cost to transportation industries and a direct cost to consumers. The cost of petroleum products is a large share of the total value of the output of for-hire transportation services, ranging as high as 24 percent for aviation and 21 percent for trucking (figure 3-2). Gasoline and motor oil also account for 27.2 of household spending on transportation, as discussed in Chapter 6. Fuel cost is very visible to households, as news reports focus on changes in fuel prices and gas stations (by law) must post prices, making fuel prices salient to consumers in ways other prices are not.

Sales Price of Transportation Fuel

Prices for regular gasoline, No. 2 diesel (used by automobiles and trucks), jet fuel kerosene, and railroad diesel typically move together with slight variations (figure 3-3). This reflects the underlying price of crude oil from which they all are refined.

Following a decade of relatively stable fuel prices in the 1990s, fuel prices began to increase. Gasoline, No. 2 diesel fuel, and kerosene spiked to over $3.00 per gallon in 2008. While declining sharply during the recession of 2008-2009, fuel prices began to rise again, rising above the 2008 price just after 2011. Since peaking in 2012, prices declined in 2013 through 2015. In 2015 prices declined sharply below 2009 levels for diesel fuel and kerosene, and just above 2009 levels for gasoline.

Average Motor Gasoline Prices by Region

Gasoline prices vary substantially across the United States. Prices can vary because of state and local taxes, refinery locations, fuel supplies, retail competition, and fuel regulations. Figure 3-4 illustrates average regional gasoline prices in 2015 using data from the Energy Information Administration (EIA). The averages include all grades and blends of regular gasoline. In 2015 the average gasoline price in the United States was $2.52 per gallon. The West Coast had the highest gasoline prices in the country at $3.04 per gallon—$0.50 more than the Central Atlantic, which had the second-highest prices at $2.56 per gallon. Prices were highest in California, at $3.13 per gallon, because California requires a unique blend of gasoline to meet environmental regulations. Meanwhile, the Gulf Coast had the lowest gasoline prices at $2.26 per gallon, or $0.15 lower than the Midwest, which had the second-lowest prices at $2.41 per gallon.

Costs to Deliver Transportation Services

There are two types of transportation services: freight transportation services provided to producers of goods and services (e.g., trucking and air freight); and passenger transportation services provided to both producers and household consumers. The price of freight transportation services is a cost to producers of many goods and services, and thus impacts the prices of those goods and services. The cost of passenger transportation services directly impacts consumers as well as the prices of goods and services because producers also use passenger transportation services to conduct business.

The cost to produce transportation goods and services is measured using a variety of economic sources, such as producer price indexes for inputs, average wages, and fuel prices. From the perspective of the input producers (e.g., oil and gas companies, vehicle manufacturers), input prices represent a source of revenue for their products; but from the point of view of the transportation service providers, input prices are costs. Those costs impact the profitability of transportation firms and the prices that transportation firms charge users for transportation services.

The major inputs to produce transportation services are labor, fuel, materials, and supplies as well as the depreciation of items like airplanes, trucks, railroad locomotives and freight cars, trucking terminals, railroad track, and other infrastructure. The depreciation represents the reduction in an asset’s value attributable to wear and tear, accidental damage, obsolescence, and aging. The depreciation and input prices impact the price of freight and passenger transportation. The next subsection presents a measure of equipment costs to the producers of transportation services. Measures of labor costs are presented in chapter 4.

Equipment Cost

Different modes of transportation use different equipment. This equipment is primarily privately owned by the transportation service providers. Specific price indexes for transportation equipment show how the producers’ price of transportation-related equipment changes over time (figure 3-5). The Producer Price Index (PPI) includes indexes for equipment used by transportation industries, such as aircraft, railroad cars, and heavy trucks, as well as equipment used by consumers, such as vehicles owned by households. The PPI shows the trends in transportation equipment manufacturing prices and reflect their potential impact on the cost of delivering transportation services—the higher the equipment cost, the higher the cost of delivery transportation services. The PPI for transportation equipment should not be confused with the PPIs for transportation services.

The PPIs for transportation equipment, which include indexes for automobile and light duty motor vehicles, aircraft, railroad rolling stock, ships and boats, and all transportation equipment, showed an upward trend from 2003 to 2015. An exception to this upward trend is automobile and light duty motor vehicle prices, which decreased between 2003 and 2008, leveled off from 2009 to 2011, and finally increased from 2012 through 2015. The PPIs for railroad, aircraft, and ship and boat manufacturing showed a growth greater than that for all transportation equipment combined. This increase in equipment prices potentially impacted the profitability and purchase decisions of transportation sectors, the transportation costs for transportation users, and prices along the economic supply chain in other sectors that use transportation services, such as wholesale, retail, and warehousing and storage industries.

Costs of For-Hire Travel

Households pay for travel in two ways. First, they pay fares to use for-hire passenger transportation services, as discussed below. Second, they pay to own and operate passenger vehicles for their own use, as discussed in chapter 6 on household transportation expenditures. For-hire passenger transportation services provide intercity and intracity travel.

For-hire intercity passenger transportation consists of three modes—aviation, rail,2 and scheduled bus service3 other than that provided by transit agencies (e.g., Greyhound, Bolt Bus and Megabus) (box 3-3). For-hire intracity travel includes local transit and commuter rail. Local and commuter passengers typically travel much shorter distances than intercity passengers. For example, the average trip length for intercity rail was 39.5 miles according to the 2009 NHTS, while the average trip length for transit was 7.2 miles.

Aviation Fares

Adjusted for inflation, passenger airfares decreased by 28 percent from 1993 to 2009, but increased over 4.3 percent since 2009 (figure 3-6). Average airfares were $412 in 1993 and declined to $334 in 1999 before recovering to $396 in 2000. In the following decade they dropped to a low of $297 in 2009 before slowly rebounding to $327 in 2014, and decreasing to $315 in 2015. All changes are shown in real chained dollars, which account for inflation and substitutions within market baskets. Fares do not include baggage or reservation fees, which airlines began to charge in 2008.

Domestic air travel includes relatively short trips of under 700 miles and trips as long as 3500 miles. Figure 3-7 shows that throughout the period from 2009 to 2015 air fares have been related to distance traveled and air fares by different distances have had similar patterns over time. Change in air fares between 2009 and 2015 ranged from an increase of 15.6 percent for trips between 700 and 1400 miles, to an increase of 28.2 percent for trips between 2100 and 2800 miles. Fares peaked in 2014 for all distance categories.

Intercity Railroad Fares

Amtrak intercity railroad fares represent a complex interaction of demand, operating costs, government subsidies, and regulation. Amtrak fares (in chained 2009 dollars) fluctuated within a narrow band from 1990 to 2013 (figure 3-8). The fares represent ticket revenue per passenger mile multiplied by average trip length of passengers except for years prior to 1997 where fares are calculated from total transportation revenues. Amtrak fares fell from about $59 per passenger in 1991 to $52 in 1995 and fluctuated between $52 and $61 from 1995 through 2003. Passenger fares began to rise again in 2004, hitting a peak of about $62 in 2007. Fares declined during the recession but returned to $62 in 2013.

Commuter Railroad Fares

Commuter rail is railway passenger service that operates between a central city and adjacent suburbs. Intercity rail service such as Amtrak is excluded, except for that portion of service operated by or under contract with a public transit agency for predominantly commuter services. Predominantly commuter service means that for any given trip segment (i.e., distance between any two stations), more than 50 percent of the average daily ridership makes a return trip on the same day. Commuter rail does not include heavy rail rapid transit or light rail/streetcar transit service. Figure 3-9 shows that commuter rail fares peaked at just over $5.00 (in chained 2009 dollars) in 2013, following a decade of increases after a low-point in 2002.

Transit Fares

Transit modes include heavy rail (subway or metro), light rail, bus, and trolley car. Local transit fares in chained 2009 dollars have fluctuated between $1.16 and $1.39 per unlinked trip over the last two decades, declining only 2 percent in that period (figure 3-10).4

Transit fare is per unlinked trips. Unlinked trips means that a trip involving a bus to train transfer, for example, would be counted twice. Many transit agencies are unable to reflect the existence of transfers in counting trips.

1 The CPI-U excludes rural consumers to avoid statistical sampling issues.

2 Intercity rail service provided by Amtrak – commuter rail services are included with other intracity modes in Intracity Passenger Fares.

3 Up to date fare data on intercity bus is not currently available, and so is not included in this document.

4 Transit cost is based on the average fare per unlinked trip. For example, if a passenger takes a bus at a fare of $1, to a subway station and then takes the subway at a fare of $2, this would be two unlinked trips with an average fare of $1.50.

Updated: Tuesday, June 27, 2017