Variables Used

1)      Transit time: This variable measures the time it would take a shipment to travel from the shipper’s location to the receiver. It includes the drayage time at both ends of the trip; and the time spent in transfers. In case of transit time by rail, the drayage includes the truck drayage time at both ends and the transfer times between the railroads for various commodities.

2)      Freight rate: This is the amount of money the payer of the transportation service would have to pay to deliver a shipment from the shipper’s to the receiver’s location.

3)      Generalized cost: The generalized cost combines the rate and the time into a single metric (using an estimate of the intrinsic value of time of the shipment to convert time into cost). The reasons to consider generalized costs are numerous: (1) it considers the combined effects of time and cost in a relatively easy-to-compute metric, and (2) it provides an alternative to cases where either time or rates are not found to be statistically significant separately (which is a likely outcome due to data issues). The generalized cost was defined as:

Equation 13 full

As shown in Equation (13), the computation of generalized costs relies on the estimated Intrinsic Value of the Cargo (IVC). This parameter estimates, through in a rather approximate manner, the value of time of a given shipment. The assumption is the value of time is determined by the opportunity cost to the receiver of the shipment, which is related to the profits and the amount of hours worked. Although the opportunity costs vary from firm to firm, the lack of data at this level of detail forces the team to use average values. To this effect, the team estimated freight mode choice models for three scenarios of opportunity costs (i.e., 5%, 10%, and 25%). The number of hours of work per year was assumed as 2,472 hours/year.

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