۱- Introduction

۲- Research background

۳- Methodology and data

۴- Results and discussion

۵- Managerial implications and policy insights

۶- Conclusions and future research

References

Abstract

There is a substantial body of literature relating to freight transport sector’s economic impact at the macro-level, but less is known about how freight demand gets translated to an establishment’s expenditures at the micro-level. This paper addresses this research gap by collecting data about expenditure patterns of establishments and applying market segmentation technique based on finite mixture models. Three latent segments – heavy spenders, medium spenders and light spenders – and their associated profiles are identified. The results indicate that significant differences exist between the three expenditure-based segments of establishments in terms of spending patterns, business size indicators, locational characteristics and freight travel patterns. The heavy spenders tend to be strongly influenced by employment, gross-floor area, business age and fleet ownership levels. The length of haul and truck type choice have a strong incremental effect on the volume of expenditures and larger shipment sizes are associated with expenditure reduction due to economies of scale. The diverging characteristics of expenditure segments emphasizes the need of the logistics providers to “identify their markets” and planners to “identify how demand translates to transport expenditures”. The overall conclusion is that segmenting establishments based on unobservable heterogeneity with respect to their freight transport expenditure is preferable and more informative than treating them as one homogeneous group. The study findings provide important information that planners and logistics providers can utilize in developing effective logistics plans and marketing strategies.

Introduction

Over the last decade, significant media coverage, government attention, and scholarly inquiry have been directed to both passenger transportation expenditure (PTE) and freight transportation expenditures (FTE). While it is widely understood how PTE is influenced by household characteristics (Rivigo, 2018), location (Haas, Morse, Becker, Young, & Esling, 2013), and travel pattern (Li, Dodson, & Sipe, 2015), effects of their freight system counterparts – establishment characteristics, location and freight travel pattern – on FTE have remained elusive. This is a critical research gap in the context of increasing requirements faced by freight transport systems to augment their capacity and, in turn, reduce the costs of mobility (Giuliano, 2014; Rowell, Gagliano, & Goodchild, 2014). An average establishment’s logistics cost amounts up to 10 to 12% of their sales, of which 4 to 6% amounts to the expenditure on freight transportation (EDD, 2016). The growing body of literature on freight flow analysis (Guerrero & Proulhac, 2014; Kijewska, Iwan, Konicki, & Kijewski, 2017) which indicate that these figures are set to further increase in the upcoming years. Naturally, this is concerning as high freight transport expenditures diminish the economic competitiveness of businesses (Malik, Sánchez-Díaz, Tiwari, & Woxenius, 2017). Due to the spectrum of cost components and level of services involved in them, substantial differences exist in freight expenditure across the world. In a competitive market where moving freight is a service that can be bid on, these costs are heavily influenced by the freight rates charged by the logistics providers. Apart from the direct out-of-pocket expenses based on these freight rates, freight expenditure also includes time costs and costs related to possible inefficiencies. Since the latter can only be fully assessed after the shipment has reached, the direct components of freight transport expenditure form the base of mode, truck type and route choice by shippers and forwarders (Tavasszy & Jong, 2014).