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An Inventory Theoretic Model of Freight Transport Demand


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  • W. J. Baumol


  • H. D. Vinod



The model in this paper is intended to explain the choice of transport made by shippers, as well as their total demand for transportation services. The optimal choice of mode is shown to involve a trade-off among freight rates, speed, dependability (variance in speed) and en-route lossage. It is shown that faster, more dependable service simply reduces the shipper's or receiver's inventories, including his safety stock and his inventory in transit. Hence inventory theory makes possible a direct comparison of the four attributes on which mode selection is based and leads to a model of rational choice in transport demand. The resulting model is suitable for statistical estimation given adequate data.

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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 16 (1970)
Issue (Month): 7 (March)
Pages: 413-421

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Handle: RePEc:inm:ormnsc:v:16:y:1970:i:7:p:413-421

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Cited by:
  1. Hummels, David L. & Schaur, Georg, 2010. "Hedging price volatility using fast transport," Journal of International Economics, Elsevier, vol. 82(1), pages 15-25, September.
  2. Huang, Hui & Whalley, John, 2008. "Baumol-Tobin and the welfare costs of national security border delays," Economics Letters, Elsevier, vol. 99(2), pages 290-292, May.
  3. Jean-François Arvis & Gaël Raballand & Jean-François Marteau, 2010. "The Cost of Being Landlocked : Logistics Costs and Supply Chain Reliability," World Bank Publications, The World Bank, number 2489.
  4. Shih, Li-Hsing, 1997. "Planning of fuel coal imports using a mixed integer programming method," International Journal of Production Economics, Elsevier, vol. 51(3), pages 243-249, September.
  5. Ertogral, K. & Darwish, M. & Ben-Daya, M., 2007. "Production and shipment lot sizing in a vendor-buyer supply chain with transportation cost," European Journal of Operational Research, Elsevier, vol. 176(3), pages 1592-1606, February.
  6. Abate, Megersa & de Jong, Gerard, 2014. "The optimal shipment size and truck size choice – The allocation of trucks across hauls," Transportation Research Part A: Policy and Practice, Elsevier, vol. 59(C), pages 262-277.
  7. de Jong, Gerard & Ben-Akiva, Moshe, 2007. "A micro-simulation model of shipment size and transport chain choice," Transportation Research Part B: Methodological, Elsevier, vol. 41(9), pages 950-965, November.
  8. Sambracos, Evangelos & Ramfou, Irene, 2013. "The effect of freight transport time changes on the performance of manufacturing companies," MPRA Paper 51842, University Library of Munich, Germany.
  9. Charles Kunaka & Robin Carruthers, 2014. "Trade and Transport Corridor Management Toolkit," World Bank Publications, The World Bank, number 18241.
  10. Kenneth Button & Rajendra Kulkarni, 2001. "Spatial and Distance Statistics of the Trucking and Warehousing Industries using GIS Tools," ERSA conference papers ersa01p219, European Regional Science Association.
  11. Emeric Lendjel, 2013. "Pre- and end-haulage of containers in shipping chains: the neglected role of transaction costs in shippers' modal choices," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00978091, HAL.
  12. San-José, Luis A. & García-Laguna, Juan, 2009. "Optimal policy for an inventory system with backlogging and all-units discounts: Application to the composite lot size model," European Journal of Operational Research, Elsevier, vol. 192(3), pages 808-823, February.
  13. Dullaert, Wout & Zamparini, Luca, 2013. "The impact of lead time reliability in freight transport: A logistics assessment of transport economics findings," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 190-200.
  14. Feo, María & Espino, Raquel & García, Leandro, 2011. "An stated preference analysis of Spanish freight forwarders modal choice on the south-west Europe Motorway of the Sea," Transport Policy, Elsevier, vol. 18(1), pages 60-67, January.
  15. Swenseth, Scott R. & Godfrey, Michael R., 2002. "Incorporating transportation costs into inventory replenishment decisions," International Journal of Production Economics, Elsevier, vol. 77(2), pages 113-130, May.


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