2.3. Developments in Transport Costs

Transport Costs are one component of international interaction costs. As a consequence of the liberalisation and deregulation described in the previous section, they have decreased substantially over the last couple of decades. Another factor contributing to their decrease was the trend to uniform standards, a third factor being innovative logistics concepts. Baldwin/Martin (1999) have estimated the development of various categories of transport costs for the period between 1940 and 1990. According to their calculations, costs of sea freight have dropped some 50%, airfreight has dropped some 80%, information transmission via satellite has dropped 90% (here, the relevant period is the one between 1980 and 1990), and the transatlantic transmission of data has decreased some 98%, all in real terms. Note that their estimates end in 1990.

In the meantime, a number of important developments have taken place that should have led to further substantial cost cuts: railways have been partially privatised or at least deregulated in many countries. This has not only led to decreases in transport charges but also to improvements in service quality. The liberalisation of the road freight business within the European Union only occurred in 1993. It also led to additional reductions in transport costs.

The reduction of transport costs has been so important that many firms have been able to reduce the number of plants and increase average plant size. The reduction of transport costs is thus an important determinant of a firm’s plant structure. Traditionally, transport costs could be an important cost component preventing the entry of new competitors. Due to dramatic decreases, this effect should have vanished largely.