An Inventory Theoretic Model of Freight Transport Demand

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.