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ARCHIVE: ENERGY, ENVIRONMENT, AND TRANSPORTATION POLICY

Productivity Accelerates in Transportation Sector Following Governance and Policy Reform

Mario Iacobacci, Director, Transportation and Infrastructure Policy
August 4, 2009

Productivity in Canada’s rail freight, air, and trucking industries has increased sharply since the 1980s, largely because of sweeping governance changes and a growing reliance on market forces. This productivity growth has made a strong contribution to Canada’s overall business performance. It has also led to lower prices for users such as shippers and airline passengers.

Introducing some elements of competition in the tendering of transit services can have significant benefits.

The first research study from the Conference Board’s Centre for Transportation Infrastructure, The Productivity Performance of Canada’s Transportation Sector: Market Forces and Governance Matter found that, on average, productivity grew:

  • 3.6 per cent per year for rail freight (from 1981 to 2006);
  • 2 per cent per year for airlines (from 1981 to 2006); and
  • 1.8 per cent per year for trucking (between 1981 and 2003).1

The productivity figures do not include the safety and environmental costs and benefits associated with transportation activities. Safety and environmental factors will be part of a forthcoming study by the Centre for Transportation Infrastructure that will address social efficiency issues.

Transportation Productivity Growth Contributes to Overall Economy

In contrast to the strong productivity growth in the transportation sector, productivity in Canada’s overall business sector rose only 0.2 per cent per year during the 1981 to 2006 period. This means that these transportation segments made a disproportionately high contribution to economy-wide productivity growth.

Governance and Market Forces Matter

The exceptional productivity performance of the rail freight, air, and trucking sectors is due in large part to sweeping changes in public policies and regulatory reforms during the late 1980s and the 1990s. The conclusion from this study is that policy and regulatory regimes in these sectors should continue to promote market-oriented organizations, minimal economic regulation, and competition between carriers and modes of transportation.

Strong productivity growth in the rail freight, air, and trucking sectors can be attributed to three factors:

  • changes in governance and ownership structures, through the privatization of Crown corporations, and the transformation of infrastructure management facilities from organizations controlled directly by the state into arm’s-length, self-financing entities;
  • deregulation of prices in air, rail freight, and trucking; and
  • increased competition in the air, rail freight, and trucking sectors, due to lower entry and exit barriers for businesses.

Public Transit Productivity Declines

The study also found that the productivity of Canada’s public transit sector declined by 1.2 per cent per year between 1986 and 2006. The rate of decline has slowed in recent years, coinciding with the establishment of integrated regional transportation planning agencies in Canada’s three largest cities.

Transit has a challenging public service mandate; unlike the other modes of transportation, it cannot abandon “unprofitable” routes, even as sprawl extends the demands on the system. Still, major changes in economic regulation have not occurred in this sector, and only in recent years have governments and transit agencies started to reverse decades of underinvestment in transit infrastructure.

Higher Productivity, Lower Costs

The payback from high productivity growth is lower prices for end users. Between 1981 and 2006, prices fell by 70 per cent in real terms for rail freight users and by 25 per cent for airline customers. Trucking rates dropped an average of 1.4 per cent per year between 1981 and 2003.

Transit Productivity: A Turnaround Is Possible

Average fares for public transit rose by about 1.7 per cent annually between 1986 and 2006 to offset the declines in productivity, although the rate of increase has slowed in recent years. Transit productivity has declined in part due to the additional costs of delivering socially valued services, such as para-transit services and improved accessibility with new low-floor buses. Productivity data capture all the costs of these services but not all the benefits.

The payback from high productivity growth is lower prices for end users.

Evidence from several European cities, however, suggests that it is possible to improve productivity even when transit agencies have demanding public mandates, such as serving areas with declining population densities. Introducing some elements of competition in the tendering of transit services can have significant benefits. Many small Canadian communities already tender, but it is a much less common practice in large urban areas; GO Transit rail services and York Region’s VIVA bus service are two recent exceptions.

1 Data for this sector are available only to 2003.


Mario Iacobacci
Mario Iacobacci
Director
Transportation and Infrastructure Policy
613-526-3090 ext. 279
Publication
The Productivity Performance of Canada’s Transportation Sector: Market Forces and Governance Matter

Related Publications
Steering a Tricky Course: Effective Public–Private Partnerships for the Provision of Transportation Infrastructure and Services

Related Executive Networks
Centre for Transportation Infrastructure