Operating Costs

Abstract

This chapter is concerned with measuring marginal transport supplier operating cost. By operating costs, we mean those costs incurred by operators of transport vehicles in providing transport services. We exclude taxes and payments for services such as the provision and maintenance of infrastructure or for accident or environmental costs as these cost elements are dealt with in other chapters. As with infrastructure costs, three primary approaches for marginal cost estimation can be identified:•the econometric approach, which uses statistical techniques such as multiple regression analysis to estimate the relationship between costs and outputs;•the engineering approach, which uses engineering relationships to estimate the relationship between inputs and outputs and attaches prices to the inputs to obtain costs;•the cost allocation approach, which takes accounting information, divides it into fixed and variable elements and allocates the variable elements to appropriate measures of output.In practice, firms in the transport industry tend to use cost allocation methods, perhaps informed by engineering and/or econometric relationships. Researchers tend to use the econometric approach. All three will be discussed in what follows, and some comparisons made between them to try to understand the role of each approach. In the next section, we consider some fundamental issues regarding operating cost measurement methodology. We then consider in turn air, rail and urban transport11The extent of evidence relating to maritime transport is somewhat less than for rail, air and urban transport and it was decided, therefore, to omit coverage of maritime transport. However, the interested reader is referred to Jansson and Shneerson (1982), Stopford (1997), Talley, Agarwal, and Breakfield (1986). before reaching our conclusions.