Railway transport economics

(1) Transport in general may be defined as the conveyance of passengers and goods from one locality to another. Transport is primarily a function of distance, and when considered by an economist it is the overcoming of distance for a profit. Transport economics is a cross-disciplinary study linking civil engineering and economics.

(2) Transport economics as any other branch of economics deals with several main concepts. Mention just a few of them. The quantity of goods that buyers wish to buy at certain price is demand. The quantity of goods that sellers wish to sell at each price is supply. Everything that is put into production process, such as land, labour, or raw materials is the input. Everything that is produced is the output. The revenue from selling the output minus the costs of inputs used is profit. The person or organization with the demand is the buyer, or customer. The person or organization that meets demand for both goods and services is the seller, or supplier. Operating a business requires an investment of resources. Resources include money, time, skill, experience, and work.

(3) Railway transport economists have to solve different problems connected with traffic forecasting, capital investments, labour productivity, wages and financing. Railway transport is a huge complex system and as any organization, whether small or large, has to be managed. The main responsibility of senior managers is decision-making. These decisions are connected with planning, organizing, directing and controlling the work to be done. Any organization is usually divided into a number of departments, each being responsible for a specific range of work, such as finance, personnel, marketing, passenger and freight services and others. The amount of work involved in running a large business is usually too much for the senior managers to cope with entirely on their own. This means that responsibilities, authority and duties have to be passed ‘down the line’ to others – i.e. to middle management and first-line management. This is known as delegation¹.

(4) Probably there are two main issues that the managers deal with. First, whether the business is operating at a profit; and second, whether the business will be able to meet its commitment, and so not to be closed down due to lack of funds. Therefore, it is important to record and present financial information, which is the responsibility of the accounting department headed by the finance manager. At specific intervals, the information is summarized into financial statements. Accountants then interpret the figures to determine the financial strength of the business. Managers are mainly concerned with two accounting documents – the balance sheet² and the profit and loss account³.

(5) Another activity that is covered by transport economics is marketing. The marketing function involves market research, distribution, pricing, advertising, promotion and selling. It is also important to forecast changes in rail traffic and study consumer behaviour. Rail’s position in the transportation market is steadily growing but there will be no future without higher customer’s satisfaction. Competition has entered the field of comfort, time and price. Railways have to develop a stronger customer focus⁴ if they want to play a dynamic role in a future multimodal transport system. Railways can enter into this competition with other modes of transport only by providing new offers and a clearly improved cost structure. The objective is to gain a greater market share and to make profits. High-speed rail may serve as a good example of effective competition against air by providing low-cost models for relatively short (up to 5 hours) journeys.

(6) One of the recent but most important departments in railway business is railway logistics. Logistics experts optimise a steady flow of goods through a network of transportation links and storage nodes⁵, and coordinate their work. Today there is a growing awareness of the benefits of integrating one transport mode with another, and it is logistics that organizes this process, and provides the wider range of services for passengers.

(7) The ultimate goal of any railway department whether technical or non-technical is the highest profitability and competitiveness, increasing passenger and freight capacity, improving punctuality, reducing overcrowding, enhancing safety, providing end-to-end international transport services and others. Transport economics may contribute to this by constant investments into the maintenance of infrastructure and rolling stock, by successful management, involvement of private capital, effective use of fixed and working capital, saving operating and capital resources etc.

¹ delegation – делегування, передача повноважень

²balance sheet – бухгалтерський баланс

³ profit and loss account – рахунок прибутків та збитків

⁴ to develop a stronger customer focus – приділяти більше уваги пасажирам

⁵ nodes – склади, сховища