Friday 26th May 2017 - Logistics & Supply Chain

Learning to love congestion charges

Could charges liberate the logistics business from congestion? The question is timely as London’s congestion charging scheme just starts to bed in.

Mayor Ken Livingstone’s plan for central London has generated more heat than light. Before the scheme was introduced, critics were predicting a meltdown of business in the controlled area. One month on, a survey by London First found 75 per cent of business executives hailing congestion charges a success. Only three per cent thought they had failed.

But, then, anybody who’d taken the trouble to study the experience of Trondheim could have predicted that would happen. Before that Norwegian city introduced a congestion scheme in the 1990s, around three-quarters of its citizens opposed the idea. Since the scheme came into operation, that opposition has fallen to one third.

So is it time for the logistics business to get behind congestion charging more generally? Not surprisingly bodies like the Road Haulage Association have always opposed anything that smacks of a new charge on movement. Fair enough. No business likes to see its cost base rising. But will congestion charges actually increase or decrease costs? The first month of Ken’s scheme suggests the latter might be the case.

The route cause
The key point to remember about road congestion in cities is that it’s mostly caused by people making short journeys. Mums running the kids half a mile to school; dads driving to the newsagent for their cigs instead of walking. People use their car when the marginal benefit of doing so exceeds the marginal costs. Raise the marginal costs and you remove many of those journeys.

The point for logistics is that the crossover point where marginal costs exceed marginal benefits is set so high it’s not likely to be reached by any reasonable congestion charging scheme.

So the idea that congestion charging will load unacceptable costs on to the logistcs business is a non-starter. And that point is supported by anecdotal examples. Consider the case of a van making deliveries in the London charging zone. If the fixed costs of keeping that vehicle on the road (driver’s employment costs plus depreciation on purchase price, maintenance and tax) are £30 per working hour, a three per cent efficiency improvement in the speed of making deliveries will recoup the charge. Beyond that, the delivery firm is ‘quids in’. If distribution companies did some sensible maths about the likely efficiency improvements from less congestion, they’d become the leading proponents of more charging. And they’d probably want it extended from city centres to motorways – possibly even trunk roads.

The London scheme is too new to draw long-term conclusions about what the efficiency gain might be for logistics firms delivering in the charging zone. But when Singapore introduced a charging scheme on its East Coast Parkway, traffic volume fell 15 per cent in the first year and average vehicle speed doubled from 30 to 60km per hour. A charging scheme on San Diego Interstate 15 introduced in 1998 has also cut journey times significantly.

There are many different approaches to congestion charging. Athens, for example, runs a scheme that restricts access at certain times and days to vehicles with different coloured number plates. There are schemes using electronic road pricing (similar to London) in Barcelona and Lisbon. Oslo has had a system that uses electronic tags since 1990. Stockholm is introducing a scheme.

But should the logistics business be pressing for road pricing to be used more widely – perhaps as an alternative to other forms of road or fuel tax? This is an interesting question and it calls for some creative thinking by logistics business representative bodies. The fundamental problem is that roads have traditionally been a ‘free good’ in economic terms. That means there is no cost to using them and demand is technically infinite.

Campaigning for road pricing would involve a 180 degree turn for some logistics bodies. That wouldn’t be easy. There would be feverish internal debate. Tempers would fray. But if there were tradeoffs with other forms of transport taxation and if revenues were ploughed back into transport infrastructure – as is already the case in Spain, France and Italy – there could be a strong case for doing so.

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