Describe the concept of "Economies of Scale" as it relates to the transportation industry.
Economies of scale are realized in transportation when the transportation infrastructure and network is efficient enough to result in a reduction of cost for a company or particular industry. Also, Economies of Scale is realized when the transportation industry is able to transport more goods, more efficiently at lower cost.
Railroads take advantage of economies of scale when they move lower cost bulk commodities such as coal, minerals, chemicals, grain, and automobiles over long distances.
Vessels take advantage of economies of scale, when oil tankers carry large quantities of oil, at low cost.
Trucks take advantage of economies of scales, as it has been mentioned in other posts, when they are able to ship TL shipments and have a return shipment on the back haul.
What advantages has economies of scale brought to transportation?
Transportation adds value to all economic activities. Transportation influences where industries decide to locate their business. This increases specialization in geographic areas, leading to an improved economy in that area. I found an example from the U.S. Department of Transportation Federal Highway Administration regarding the aforementioned sentence. The document states, “Transportation improvements may enhance productivity by adding value to the output of either the shipper or the carrier. For example, the fresh fish is worth more than frozen or processed fish. Transportation improvements that make it possible to deliver fresh fish to markets in relatively short timeframes expand markets to locations where the product has higher value”. (Freight Transportation Improvements and the Economy, p. 7)
Can you think of any disadvantages?
A disadvantage of economies of scale in regards to transportation is that economies of scale will lead to safety, standard of living and environmental concerns. Fewer warehouses,...