TERM Transport prices (real change in passenger and freight transport prices by mode)

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1 Indicator fact sheet TERM Transport prices (real change in passenger and freight transport prices by mode) Indicator code / ID Analysis made on (Assessment date) 18 October 2005 EEA contact /fact sheet responsible Name Peder Jensen: peder.jensen@eea.eu.int Fact Sheet development contact point Name: Eelco den Boer, CE Delft boer@ce.nl i On average, passenger transport prices have increased at a higher rate than consumer prices. For freight transport prices, no EU-wide data exists, but examples for two countries indicate that freight prices have declined. Figure 1: Real price indices of passenger transport based on a fixed transport product in the 25 EU Member States (1996 = 100) Bus and Taxi Car operation Water Rail All transport Air Cars average* Car purchase Note: Price indexes are adjusted for inflation. Operation of cars includes primarily fuel and secondarily maintenance prices for personal vehicles. The bus category includes all road transport services (mainly buses, coaches and taxis). The water category includes all passenger transport by sea and inland waterways. Motor cars average (*) is an indication of the average for motor cars combining purchase and operations. The index measures price changes for a specific basket of products (price/quality). Due to changes in the transport product consumed (e.g. users buy more tourist class tickets and less business class tickets), overall price developments may be different. For example, the indicator does not take account of the growth of low cost carriers. For a more complete picture, compare Figure 2. Source: Eurostat, 2005a. 11/07/2007 2nd Draft 1

2 Results and assessment Policy relevance This fact sheet analyses the signals given via transport prices to transport users. The policy goals of the European Commission are set out below: 1. A rebalancing of transport modes, particularly in favour of rail ( modal shift ). 2. Controlling transport demand and decoupling transport growth from economic growth. These issues were called for during the European Council in Gothenburg, and confirmed in the European Commission s White Paper European transport policy for 2010: time to decide (European Commission, 2001). Transport prices are themselves important drivers of individual and business transport decisions, affecting transport growth and modal split development, and can lead to changes in distribution management, location decisions, and spatial planning. The prices of transport services are the result of on the one hand autonomous market developments such as vehicle and logistics technology, on the other hand they are influenced by government interventions such as taxation, infrastructure provision, regulation, and subsidies. Through these interventions, governments can cause prices levels that reflect the external costs associated with different forms of transport. This may result in a shift between modes. Policy context No targets for transport user prices exist in the (liberalised) transport market. However, by applying fair and efficient pricing, the balance between transport modes may be affected, since the level of externalities and the room for improvement may differ between modes. According to the White Paper (European Commission, 2001), all external and infrastructure costs of transport should be internalised. External costs include environmental damage costs, cost of accidents, and congestion costs (see TERM 25 External costs of transport). Environmental context Increases or decreases in transport prices can have indirect impact on the environment, due to the price elasticity of transport and users shift to less or more environmentally harmful modes. Fiscal incentives may for example stimulate the use of improved environmental performing transport, e.g. by subsiding sulphur free fuel, biofuels and Euro 4/5 lorries. The reduction of environmental impacts can come either from reduced overall transport demand or substitution to an environmentally better performing mode. Assessment Prices are easy to measure and compare over time as long as the product or service in question stays the same. This is the case for the assessment depicted in figure 1. However, the transport product consumed changes over time. In passenger cars for example, there is a shift to more comfortable and luxurious cars. This makes comparisons of transport prices over time difficult. This holds especially for the prices of car purchase, rail and air travel. The price and quality characteristics of these products have changed substantially during the last years. 1 Transport price indexes show that real 2 passenger transport prices have increased in the majority of the EU Member States, making transport services more expensive in comparison with other consumer goods and services. Differences appear between member states (see Box 1) and modes. In general, it appears that the observed growth in transport volume (see TERM 12 passenger transport demand) is not caused by falling price levels. According to figure 1, vehicle purchase prices have grown substantially less than average consumer prices, making it relatively easier to buy a car. Together with demographic changes 1 Continuously, bigger and more luxurious cars are purchased. In rail transport, there is the development of high quality high speed trains. In air transport, an increasing share of travellers chooses low-cost carriers that offer less quality for lower prices 2 Inflation-adjusted. When not adjusted for inflation, the prices have increased even more. 11/07/2007 2nd Draft 2

3 such as declining household sizes and increased participation of women on the job market, rising real incomes may be an important driving force behind the increased vehicle ownership in the EU (see also TERM Size and composition of the vehicle fleet). The same factors can explain the increased choice of cars as transport mode and increased transport demand and concomitant environmental pressures. Similar trends are seen in the new Member States though the greater affordability of car purchases is here even more pronounced (see Table 1). It should be noted that the effect of cheaper cars is probably smaller than depicted in Figure 1, since people don t buy the same cars as ten years ago. In fact, the average purchase price of new cars has increased. Households buy more comfortable and larger cars and in fact spend a slightly greater share of their income on vehicle purchase than before (see fact sheet TERM 24 Expenditures on personal mobility). 3 Figure 1 shows that the price of specific air tickets has increased slightly, mostly due to a sharp rise in It should be noted that this does not hold for the average ticket purchased. While a specific ticket may cost more today than five years ago, it has become possible to buy another product with more travel and less service for the money (low-cost carriers). The share of these low-cost airlines has increased and led to greater competition on the market. (see TERM 12 - passenger transport demand). Revenue data for air carriers indeed indicates that revenue (and hence ticket prices) per passenger-km have declined (see Sub-indicator and Table 2). Price developments in air transport may have contributed to the growth in air transport demand (see also sub-indicator). There is less information available on freight transport prices. Case studies for the United Kingdom and the Netherlands (see Box 2), indicate prices for freight transport have declined for all modes in these states. While the limited cost decreases for road transport are largely the result of technological and logistical efficiency improvements, those of rail and water are largely a result of economies of scale (larger ships, shuttle trains, and longer distances). A result of this has been that in order to keep up with road transport, rail and shipping had to concentrate increasingly on low-cost markets with little or no overlap with road transport markets. This is represented in the value of goods that are shipped by the different modes. The value of road transported goods is nearly 2000 Euro per tonne, while the value of goods transported by rail is only half of that and for inland waterway transport it is only 9 % of that. (CE, 1999, European Commission, 2003). Despite the relative price increase (slower rate of decrease) of road transport compared with that of the other modes, the market share of road transport increased. The increased share of road transport may very well be explained by a relatively fast growth in freight segments that do not compete with sea and/or rail transport. Sub-indicator: Development in passenger transport prices i Average costs per passenger kilometre have declined substantially for air transport. Marginal prices for car transport have decreased slightly. These developments may have contributed to the growth in transport volume. Figure 2 Development in passenger transport prices for air and car transport (index 1991=100) 3 More households can afford a car, buy second cars and in general more expensive cars. 11/07/2007 2nd Draft 3

4 Kilometer-cost index (1991=100) Passenger cars (variable cost) Aviation Note: Passenger car figures are average for EEA-10 comprised of Austria, Denmark, Norway, United Kingdom, Slovenia, Finland, Ireland, Iceland, Italy, and Netherlands. Aviation (passenger air transport) is based on yields of all European carriers for European operations. Sources: AEA, 2005, Eurostat, 2005b, see Table 2 and 3. Indicators based on a fixed transport product do not signal the impact that changes in the transport product consumed may have on average transport prices. Information on average prices for aviation and marginal prices for the use of passenger cars complement the picture on the development of transport prices. Figure 4 gives an overview of revenue (air) and expenditures (car) per kilometre travelled. It gives a good picture of the developments in the average prices of trips per mode. From this the relation with overall transport growth per mode can be obtained. It is striking that while operational costs have increased markedly according to the price index in figure 1, figure 4 shows a slight decline. Differences arise because figure 1 shows price developments in a fixed basket of products, such as the price of one litre of Euro 95 fuel. Figure 4 shows expenditures per kilometre, and includes changes in behaviour in order to adapt to higher prices. For example, the change to diesel and its impact on marginal cost can be seen in figure 4, but not in figure 1. Other adaptive responses to relative price changes include buying more fuel efficient cars and a change in driving style. The slight declines in per-kilometre prices may have contributed to the growth in transport, but do by no means explain the 20 % growth in passenger car transport demand or the doubling of passenger air transport demand in the same period. Other explanations that can be offered to explain the popularity of passenger cars are the relatively low variable cost, certainly when accounting for an average occupancy rate of around 1.6. Growth of air travel is likely due in part to the growing tourism industry to cheap but far away destinations. References AEA, 2005, "2005 Summary of Traffic and Airlines Results". Association of European Airlines, July /07/2007 2nd Draft 4

5 CE, 1999, Beter aanbod, meer goederenvervoer? [ Better supply, more freight transport ], Delft, CBS, 2004, Prijsindexcijfers beroepsgoederenvervoer. Statistics Netherlands (CBS), 2004 European Commission, 2001, European transport policy for 2010: time to decide, COM(2001) 370, White Paper, Brussels European Commission, 2003 EU energy and transport in figures Statistical pocketbook Table Directorate-general for energy and transport. Belgium, Eurostat, 2005a, Harmonized indices of consumer prices - Annual Data. New Cronos database: THEME2 Economy and finance, table: haind. Downloaded from Eurostat s data explorer, September Eurostat, 2005b, Breakdown of final consumption expenditure of households by consumption purpose COICOP. table: B_CO3_K. Downloaded from Eurostat s data explorer, September UK national office of statistics, 2005, CORPORATE SERVICES PRICE INDICES - Results for Q Available via October Data Table 1: Real passenger transport price development Unit: Index (1996 = 100) Country All transport Purchase of cars Operation of cars Rail Bus Air Water Old Austria Belgium Bulgaria Cyprus Czech 97 Republic Germany Denmark Estonia Spain Finland France Greece Hungary 95 0 Ireland Iceland Italy Lithuania Luxembourg Latvia Netherlands Norway /07/2007 2nd Draft 5

6 Poland Portugal Romania 115 Sweden Slovenia Slovak Republic United Kingdom Note: Prices are adjusted for inflation, so values greater than 100 indicate that prices have increased relative to consumer prices. Operation of vehicles includes mainly fuel but also maintenance prices. The bus category includes also taxis, but is mainly buses and coaches. The water category includes all passenger transport by sea and inland waterways. For Greece and Romania, all values are for 2002, not Source: Eurostat, 2005a. Table 2: Yields in air passenger transport Year Passenger Yields (US /Revenue passengerkm) 21,7 20,0 19,0 18,2 17,3 16,8 16,3 15,9 15,5 15,3 15,0 14,6 13,1 11,8 Note: Yields are defined as the ratio of total revenues for passenger services to total passenger-km performed. Yields are adjusted for exchange rate fluctuations and inflation (base year=1991). Figures are for flights in geographical Europe by all European carriers. Source: AEA, Table 3: Kilometre-costs of car transport (EEA-10) 1995 Eurocent/pkm Cars purchase 4,3 3,8 3,7 4,0 4,6 4,7 4,8 Cars variable 5,2 5,1 5,3 5,2 5,3 5,0 5,0 Cars total 9,6 8,9 9,0 9,2 9,8 9,7 9,8 Note: Calculated based on average household expenditures on 1) car purchase and 2) car operation (includes fuel, lubricants, maintenance and repair) divided by car passenger-km. Figures are average for EEA-10 comprised of Austria, Denmark, Norway, United Kingdom, Slovenia, Finland, Ireland, Iceland, Italy, and Netherlands. Source: Eurostat, 2005b Metadata Web presentation information 1. Abstract / description / teaser: Passenger transport prices have generally increased. Contrarily, freight prices seem to have gone down. 2. Policy issue / question: Are transport prices giving appropriate signals to transport users? 3. EEA dissemination themes: Transport 4. DPSIR: D Technical information 11/07/2007 2nd Draft 6

7 5. Data sources: HICP (Harmonised Index of Consumer Prices) for passenger transport: Eurostat, 2005a; Freight transport price indices: UK national office of statistics. Categories belong to section CP07 6. Description of data: Price indices of numerous consumption items. original file name: haind Original measure units: Price indices, 1996=100 Geographical coverage: Passenger transport: Most EEA countries, aggregates for EU-25. Freight transport: Case study from the United Kingdom and the Netherlands. Air freight for all European carriers for operations in all Europe.. 7. Temporal coverage: Passenger transport: at best; freight transport: Methodology and frequency of data collection: passenger data are collected annually from individual member states by EUROSTAT. The HICP measures price changes in a package of specific products, e.g. flight tickets from Amsterdam to Paris with a certain carrier. The price is that for a product of fixed quality, so that if a cheap and low-quality product enters the market and gains market share, it does not influence the index downwards. Rather, the new product may be chained into the index, but may cause the index to fall if the price of the new product falls. Price indexes from the country case study originate from an index assembled by the UK national office of statistics and it collects information on price developments of a selection of issues from a number of individual enterprises. Yields for air travel is determined as the ratio of passenger revenue to passenger-km for which revenue was received. The revenues are gross revenues, being revenues before any deduction for commissions [interline rate, credit card commission, front-end ( usual ) commission, back-end ( kick-back ) commission] earned from the transportation of the revenue passenger traffic reported including excess baggage and excluding (1) taxes on sale of passenger transportation, (2) revenue arising from persons not regarded as a revenue passenger (see definition of a revenue passenger above); (3) capacity equalisation payments arising from pooled services and from the sale of blocked space to other carriers on an aircraft operated by the reporting carrier; (4) no-show and cancellation fees, (5) revenues from the sale of food, drinks and in-flight entertainment and ground transportation not included in the ticket price; (6) royalties earned from franchises. 9. Methodology of data manipulation, including making early estimates : Passenger transport prices were adjusted for inflation by dividing with the index of general consumer prices (CP00). Freight transport was adjusted by dividing by the general producer price index (PPI). Quality information 10. Strengths and weaknesses (at data level): EU data about freight transport prices is lacking, and a country case study may not be representative. The HICP does not capture changes caused by market shifts from one product to another of higher (or lower) quality. Specifically the increasing market share of low-cost air carriers does not put downward pressure on the price index. This issue is very relevant in terms of impacts on demand. 11. Reliability, accuracy, robustness, uncertainty (at data level): Passenger transport price data are from Eurostat and are considered reliable. UK Freight transport price indexes are still experimental, but reasonably reliable. 12. Overall scoring (give 1 to 3 points: 1 = no major problem, 3 = major reservations): 3 Relevancy: 3 (price index describes specific products (price quality). Therefore important developments are not taken into account. Also better information on absolute prices levels desirable) Accuracy: 2 (price index does not show average price development) Comparability over time: 1 Comparability over space: 2 (3 for freight prices, results may not be representative) 11/07/2007 2nd Draft 7

8 Future work The current Eurostat-data on transport price indices represent specific baskets of products. When more information on expenditures by detailed transport category becomes available (especially the 2005 Household Budget Survey) it would be desirable to develop further the subindicator on kilometre-prices for different modes, as this indicator would be more directly relevant to the signals transport users receive for overall transport demand in pkm. For freight transport, only few countries maintain price indexes and also here it would be desirable to expand the coverage to be more representative of the European situation It would also be relevant to present data on trends in affordability of transport i.e. transport prices relative to income levels (e.g. how many hours of work is needed to pay for a liter of gasoline). Ultimately, trends in affordability may better explain trends in transport volumes than merely the price tags. 11/07/2007 2nd Draft 8

9 Box 1: Price development of passenger transport in the EEA area In most EU Member States, prices of transport services have increased more than consumer prices during the past eight years (see Figure 3). In Eastern European Member States, the picture is scattered. Some Member States showing declining prices, whereas in other Member States real transport prices have increased sharply. Also within modes the regional variation can be large. In Denmark, Sweden and Finland for example, train transport prices have grown more than for any other kind of transport, whereas in Italy and Spain, train transport prices have declined. Figure 3: Changes in real prices of passenger transport between 1996 and 2004 Belgium Bulgaria Cyprus Czech Republic Germany Denmark Estonia Spain Finland France Greece Hungary Ireland Iceland Italy Lithuania Luxembourg Latvia Malta Netherlands Norway Poland Portugal Romania Sweden Slovenia Slovak Republic United Kingdom -15% -10% -5% 0% 5% 10% 15% 20% 25% Source: Eurostat, 2005a. Box 2: Price development of freight transport Freight transport prices are not systematically monitored, unlike consumer prices. To get an idea about the development of freight prices, we therefore have to turn to case studies from individual countries. In the United Kingdom and the Netherlands freight transport price indexes are monitored (Figure 3 below). Prices for road transport in the UK have increased since 1996, but now appear to be slowly declining. In contrast, rail freight prices have declined steadily, and sea freight prices even more. Where road transport increased its performance in terms of speed and improved logistics, rail and water transport increased their competitiveness by scaling-up. Rail transport, once dominated by unit transport, is now only considered competitive when executed in full train loads (shuttles). Rail and water have concentrated on high-volume markets over long distances. Road transport, stimulated by motorway construction and rapidly improving truck technology, has taken over the other market segments. In the Netherlands, prices for road freight transport have declined. This may partly be due to the strong competition from foreign hauliers. For air freight transport, prices (as reflected in yields) have declined remarkably, and much faster than for the other modes. Most of the growth in the air freight market has been freight carried along on passenger services. Growth on the passenger market may have stimulated freight transport. The development could be cautiously interpreted as alternative modes gaining a competitive edge over road transport. However, the figures carry no information on whether the markets have shifted; for example, it is conceivable that the sea freight prices have declined for goods 11/07/2007 2nd Draft 9

10 that are never transported by road and increased for goods that could also be transported by road. If freight transport prices behave as the passenger transport prices (see Figure 4) it cannot be assumed that the situation in the UK reflects a general EU trend. These results should therefore not be generalised to the EU as a whole. Nevertheless, a similar case study for the Netherlands in the TERM EU Transport prices indicated similar results. Figure 4: 110 Real price indices of freight transport 100 Index (2000=100) UK Freight transport by road NL freight transport by road UK Freight transport by rail UK Freight transport by sea and coastal water Air freight Note: Prices are adjusted for inflation. The air freight index is based on yields (revenue per ton-km) and refers to the average for all European carriers for transports in all of Europe. Source: UK national office of statistics, 2005; AEA, /07/2007 2nd Draft 10