Real change in transport prices by mode

Indicator Assessment
Prod-ID: IND-173-en
Also known as: TERM 020
expired Created 17 Nov 2015 Published 22 Mar 2016 Last modified 01 Dec 2016
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If 2005 is taken as the reference point , the cost of purchasing motor cars has  decreased significantly since 1996, in comparison to average consumer prices . In contrast, the costs of passenger services and the operation of personal transport equipment has  generally increased. The volatility of the transport market can be seen in 2009, for example, when overall transport prices fell at a faster rate than average consumer prices, primarily due to a significant drop in the average crude oil price between 2008 and 2009, and subsequent reductions in fuel prices. Rail  transport prices are less closely tied to the costs  of fuel as most services operate under 'public  service obligation' and an increasing proportion of  passenger rail is electric-powered.

Key messages

  • If 2005 is taken as the reference point, the cost of purchasing motor cars has decreased significantly since 1996, in comparison to average consumer prices.
  • In contrast, the costs of passenger services and the operation of personal transport equipment has generally increased.
  • The volatility of the transport market can be seen in 2009, for example, when overall transport prices fell at a faster rate than average consumer prices, primarily due to a significant drop in the average crude oil price between 2008 and 2009, and subsequent reductions in fuel prices.
  • Rail transport prices are less closely tied to the costs of fuel as most services operate under 'public service obligation' and an increasing proportion of passenger rail is electric-powered.

Are passenger transport prices increasing at a higher rate than consumer prices in Europe?

Real change in passenger transport prices by mode

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Passenger transport in Europe is predicted to grow by more than 50 % by 2050 (from a 2013 baseline), while the figure for freight transport is 80 % (EC MEMO/13/897). With this significant growth in transport use, it is important that prices are monitored to see if users are given appropriate incentives to use more environmentally-friendly modes of transport. Changes in transport prices drive individual and business transport decisions so fair and efficient price signals are required. To encourage this, one of the wishes of the 2011 Transport White Paper, which seeks to further promote the attractiveness of non-road transport modes, is to confront all modes with their full costs (including the costs of negative externalities).

The cost of transport reflects market changes such as vehicle technology developments and international energy price evolution, as well as state interventions through regulation, subsidies and taxation. Government actions can internalise the environmental externalities of different transport modes through economic incentives. The tax systems of many countries already internalise some external costs, either overtly or as an implicit by product of revenue raising through transport specific taxes. This can lead to users shifting between modes. The economic incentives for modal shifts can be monitored through the transport prices by mode indicator.

Prices are relatively easy to measure and compare over time, as long as the product or service in question stays the same. However, there are variations that take place over time that can affect the reliability of the comparison. For example, people tend not to purchase the same cars as ten years ago, and don’t use the same package of transport services (price/quality) as previously.

Therefore, only limited conclusions about trends in transport prices can be drawn. Most care should be taken when interpreting car purchase and air travel prices. The price and quality characteristics of these products have changed the most during recent years. For example, an increasing share of air travellers are choosing low-cost carriers that offer different services for different prices.

On average over the last five years, transport price indices for the EU-28 Member States show that real (inflation adjusted) passenger transport prices, apart from purchasing cars, have increased, making transport increasingly expensive in comparison with other consumer goods and services.

Vehicle purchase prices have fallen steadily in relation to average consumer prices, making it easier for people to afford a car. Together with a probable rise in incomes, this may have been an important driving force behind the increased vehicle ownership in the EU (see TERM032). Increased vehicle ownership is the primary driver behind the increased choice of cars as a transport mode. This often leads to increased transport demand and subsequent environmental pressures as the costs for vehicle use are relatively low and many cost items are fixed (e.g. depreciation, insurance and holder’s tax). Similar trends are seen in the newer Member States where greater car affordability is even more pronounced.

In the past, a rise in air travel price indices has not been regarded as representative due to the growing market share of low-cost airlines and greater competition. More decisively, prices have decreased significantly for certain pairs of origins and destinations, generally those associated with leisure trips and off-peak times. In contrast, the real cost of rail travel has risen steadily since 2000 and at an ever increasing rate. Since an increasing proportion of passenger rail (especially high-speed) is electric-powered, prices are less closely tied to the price of crude oil.

Are freight transport prices increasing in Europe?

United Kingdom freight prices

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Little information is available regarding freight transport prices. Using the United Kingdom as a case study, prices for freight transport on commercial ferries and by road  increased slightly between 1998 and 2014. Prices for freight transported by sea, however, have, in general, declined over this period (see Figure 2). The cost decreases for water transport are largely a result of economies of scale (larger ships, lower average shipping weight and longer distances).

There is wide variation in the levels of taxation and road user charges across Member States, creating a distorted road freight market. Operating costs are significantly lower in some countries than others, which is one of the reasons for the large proportion of sub-contracting; companies will out-source non-profitable jobs to smaller companies, especially in Eastern Europe (EC, 2014a). This level of fragmentation can mean that small operators aren’t able to fully recover costs such as fuel price increases; often companies struggle to pass on the cost to the consumer, which may be keeping freight prices artificially low. It is estimated that transport has a relatively low share (maximum of 10 %) in the price of the final products (Christidis and Brons, 2010). This has an impact on the distance a product travels from where it is grown or produced to where it is consumed. Establishing a fair but competitive market across Europe requires further harmonisation between Member States (EC, 2014b).  

Indicator specification and metadata

Indicator definition

This indicator looks at real price indices of passenger transport based on a fixed transport product in the 28 EU Member States, relative to an average consumer price index, the Harmonised Index of Consumer Prices (HICP).

The HICP gives comparable measures of inflation for the countries and country groups for which it is produced. It is an economic indicator that measures the change over time in the prices of consumer goods and services acquired by households. In other words, it is based on a set of consumer price indices calculated according to a harmonised approach and a single set of definitions.

In particular, the HICP provides the official measure of consumer price inflation in the euro zone for the purposes of monetary policy and the assessment of inflation convergence, as required under the Maastricht criteria (also known as convergence criteria).

Units

Price indices are used taking 2015 as a reference point (i.e. 2015 = 100). All indices are relative to the overall consumer price index (HICP), CP00 (HICP — all items (global or overall index/rate)). However, for the freight case study a reference point of 2010 = 100 is used. 


Policy context and targets

Context description

According to the 2011 Transport White Paper, 30 % of road freight transported over more than 300 km should be transported by other modes of transport, such as rail or water transport, by 2030, and more than 50 % should be transported by other modes of transport by 2050. As for passenger transport, most medium-distance passenger transport should be by rail by 2050. Given the significant growth predicted in transport demand, further measures are needed to achieve these aims.

The cost of transport reflects market changes such as vehicle technology developments, international energy price evolution and state interventions through regulations, subsidies and taxation (see TERM021). Government actions can internalise the environmental externalities of different modes of transport, which can lead to users to shift between modes of transport. This indicator, which monitors transport prices by mode, can be used to monitor the development of economic incentives for shifts in the modes of transport used (TERM020).

Targets

No targets currently exist for transport user prices in the (liberalised) transport market. However, by applying fair and efficient pricing, the balance between transport modes may be affected, since the level of externalities and room for improvement may differ between modes. The 2011 Transport White Paper highlights the need to further promote the attractiveness of non-road modes of transport through a two-pronged strategy: first, to confront all modes with their full costs (including the costs of negative externalities), and, second, to directly improve the market conditions for non-road modes of transport.

Related policy documents

Methodology

Methodology for indicator calculation

Data on transport prices are collected annually from individual Member States by Eurostat. The HICP — a comparable index of consumer prices produced by each EU Member State — is used. The prices are calculated according to a harmonised approach and a single set of definitions, and they provide an official measure of consumer price inflation in the euro zone for the purposes of monetary policy.

Methodology for gap filling

Gap filling was not used in the development of this indicator.

Methodology references

No methodology references available.

Uncertainties

Methodology uncertainty

No uncertainty has been specified.

Data sets uncertainty

The accuracy of the HICP is generally considered high. The accuracy of source data is monitored by assessing the methodological soundness of price and weight sources, and adherence to the methodological recommendations. There is a variety of data sources for both weights (national account data, household budget survey data, etc.) and prices (visits to local retailers and service providers, and central data collection via post, telephone, email and the internet are used). The type of survey and the price data collection methods used ensure sufficient coverage and timeliness. The outlets, from which price data are collected, are chosen to represent the existing trade and services network and are usually based on three main criteria: (1) popularity with consumers, (2) significant turnover from consumer sales and (3) availability of goods and services included in the HICP basket. All private households in the economic territory of the country are covered, whether resident or not and irrespective of income.

Furthermore, Eurostat and the Member States are actively working with an action plan concerning quality adjustment and sampling issues. Best practices have been agreed for a range of specific goods and services (in particular cars, consumer durables, books and CDs, clothing and computers).

The HICP does not capture changes caused by market shifts from one product to another of higher (or lower) quality. In particular, the increasing market share of low-cost air carriers for passenger travel does not put downward pressure on the price index. This issue is likely to have a significant impact on demand.

Rationale uncertainty

No uncertainty has been specified.

Data sources

Metadata

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DPSIR: Driving force
Typology: Descriptive indicator (Type A - What is happening to the environment and to humans?)
Indicator codes
  • TERM 020
Temporal coverage:

Dates

Frequency of updates

Updates are scheduled once per year

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