Risk governance & control: financial markets & institutions / Volume 2, Issue 2, 2012 33 OVERVIEW OF SALIENT ECONOMIC FEATURES OF THE MODES OF FREIGHT TRANSPORT FOR USE IN THE FORMULATION OF NATIONAL TRANSPORT POLICY IN SOUTH AFRICA W J Pienaar* Abstract Defining the economic role of the various modes of freight transport should be one of the basic ingredients of both an economically rational transport policy and the effective functioning of the existing free freight transport market in South Africa. In the interest of the national economy and in the commercial interest of freight carriers, national policy on freight transport should take cognisance of (1) why governments involve themselves in transport, (2) the policy instruments of governments that affect the performance of the freight transport sector, and (3) the salient economic features of the freight transport market that should be considered in the formulation of transport policy. The goal of the research was to compile an overview of these three aspects. The research approach and methodology combine (1) a literature survey; (2) an analysis of the cost structures of freight transport modes; and (3) interviews conducted with specialists in the freight transport industry. Keywords: Cost Structure, Economic Regulation, Economies of Density, Economies of Scale, Economies of Scope, Modes of Freight Transport *Department of Logistics, Stellenbosch University, Private Bag X1, Matieland 7602, South Africa Tel: 27 21 808 2251 Fax: 27 21 808 3406 Email: wpienaar@sun.ac.za 1 Introduction During the early 1970s, the general view prevailed that because of economies of scale, the need to protect rail carriers, and the potential for serious market failure, it was in the public interest to regulate freight transport through economic control. However, the operational business requirements of industrialised and trading nations called for liberalisation and reform. These came about from the late 1970s. The new viewpoint that was taking root was that regulatory failures are often more damaging than market failures. The economic environment in most countries from the late 1970s to the early 1990s was marked by rapid change. This was facilitated and fuelled by two main driving forces: the emergence of freer competition both within domestic borders and internationally, and swift advances in technology. The emergence of more open market conditions was made possible mainly by the economic deregulation of both freight transport and the marketing of agricultural produce; the privatisation of many utility industries; the globalisation of business activities; and the liberalisation of international trade. In addition to these factors South Africa also benefited by the lifting of trade sanctions. The effect was to make freight transport decision making and the distribution of goods more market-driven. In the interest of the national economy and in the commercial interest of freight carriers, national policy on freight transport should take cognisance of these open market conditions. The goal of the research was to identify the salient economic features of the freight transport market that should be considered in the formulation of such policy. The research approach combined a literature survey and an analysis of the cost structures and economic features of freight transport operations within each mode of transport. In this paper the results of the research are described qualitatively. Section 2 supplies reasons for government involvement in trans- port. In Section 3 instruments are identified that governments apply to influence the performance of the freight transport industry. Section 4 provides the intended meaning of cost terminology used in the paper. Salient economic characteristics of the modes of freight transport that national policy makers should be aware of are supplied in Sections 5 to 9. A concluding summary is contained in Section 10.