COST ACCOUNTING STANDARD TRANSPORTATION

Operating Costing
It is a method of costing applied by undertakings which provide service rather than production of commodities. Like unit costing and process costing, operating costing is thus a form of operation costing. The emphasis under operating costing is on the ascertainment of cost of rendering services rather than on the cost of manufacturing a product. It is applied by transport companies, gas and water works, electricity supply companies, canteens, hospitals, theatres, school etc. Within an organisation itself certain departments too are known as service departments which provide ancillary services to the production departments. For example, maintenance department; power house; boiler house; canteen; hospital; internal transport.

Operation Costing
It represent a refinement of process costing. In this each operation instead of each process of stage of production is separately costed. This may offer better scope for control. At the end of each operation, the unit operation cost may be computed by dividing the total operation cost by total output. It is defined as the refinement of process costing. It is concerned with the determination of the cost of each operation rather than the process. In those industries where a process consists of distinct operations, the method of costing applied or used is called operation costing. Operation costing offers better scope for control. It facilitate the computation of unit operation cost at the end of each operation by dividing the total operation cost by total input units. It is the category of the basic costing method, applicable, where standardized goods or services result from a sequence of repetitive and more or less continuous operations, or processes to which costs are charged before being averaged over the units produced during the period. The two costing methods included under this head are process costing and service costing.

Role of Operating Cost Accounting

Balance sheets and profit and loss statements do not reveal how profitable one product is versus another, or whether one plant produces more efficiently than another. Although the stockholder or investment analyst may care little about details of efficiency and cost since to them the overall profit of the business is sufficient, management must take a different point of view. Naturally, management is interested in maintaining the overall position of the company. The overall position of a company can include such measures as how successfully it competes, how it is perceived by its customers, competitors, and investors, and its capacity for future growth. In cost accounting the total expenditures in operating a business are broken down on per item or per unit basis, as for example the cost of producing a gallon of gasoline, a ton of coal, a dozen shirts, or a refrigerator. The same idea can be extended to cost per production order, as when a special product is made for a customer, or extended to cost per activity or operation, such as the cost of drilling inch holes, or plating sheet metal of a certain size and quality. Cost accounting provides information for the following purposes:

1. Cost determination
The costs and expense of a business are recorded, classified, and allocated to various jobs, departments, products, or services.

2. Costs for pricing

Once costs are determined, the information also serves as a guide regarding prices to be quoted to customers. Even though selling prices are governed only partly by the costs of production, in the long run the selling price must at least equal the costs of production, or there will be serious consequence to the profit and loss statement.

3. Cost for managerial decision

In a sense, both cost determination and cost for pricing provide bases for managerial decisions. Although managerial decision making actually becomes much more complex than the statement above implies, cost information may be helpful in making decision that have to do with (a) whether to add a new product, or to drop one that is now being produced (b) Whether to manufacture a certain unit, or buy it on the outside, and (c) whether to add certain sales terrories and drop others.

4. Cost control
One of the more essential purposes of cost accounting is control of expenditures. Such control leads to efficiency in the use of labor, materials machines and plants. Although to a large extent selling prices are determined by competition, the profit-making capacity of a business is guided by the efficiency with which costs are controlled.

Introduction of Transportation cost

The cost accounting principles for tracing/ identifying an element of cost, its allocation /apportionment to a product or service are well established. Transportation cost is an important element of cost for procurement of materials for production and for distribution of product for sale. Therefore, cost accounting records should present transportation cost separately from the other cost of inward materials or cost of sales of finished goods. The Finance Act 2003 also specifies the certification requirement of transportation cost for claiming deduction while arriving at the assessable value for excisable goods cleared for home consumption / export. There is a need to standardize the record keeping of expenses relating to transportation and computation of transportation cost. Economic Impacts refer to costs and benefits. Costs (benefits) reduce (increase) scarce resources such as money, time, land, health, environmental quality, or any other item of value. Costs and benefits have a mirror image relationship: a cost can be defined as a reduction in benefits and a benefit can be defined as a reduction in costs. Transportation benefits are often measured in terms reduced transportation costs. For example, congestion reduction benefits consist of reductions in travel time and vehicle operating costs. Calculating costs is therefore the basis for calculating benefits. Economists have developed estimates of many transportation costs for use in economic analysis, including vehicle expenses, travel time costs, road and parking facility costs, crash costs and environmental costs. This chapter summarizes these cost estimates and describes how to obtain additional information on individual costs. This Encyclopedia evaluates TDM strategies based on effectiveness in achieving various transportation improvement objectives (i.e., benefits), including congestion reduction, road and parking facility savings, consumer savings, road safety, and environmental protection (Evaluating TDM). These benefits are usually measured in terms of cost reductions, so this chapter primarily describes transportation costs. However, focusing on costs does not ignore transportation benefits. Transport systems face requirements to increase their capacity and to reduce the costs of movements. All users (e.g. individuals, enterprises, institutions, governments, etc.) have tonegotiate or bid for the transfer of goods, people, information and capital because supplies, distribution systems, tariffs, salaries, locations, marketing techniques as well as fuel costs are changing constantly. There are also costs involved in gathering information, negotiating, and enforcing contracts and transactions, which are often referred as the cost of doing business. Trade involves transactions costs that all agents attempt to reduce since transaction costs account for a growing share of the resources consumed by the economy.Frequently, enterprises and individuals must take decisions about how to route passengers or freight through the transport system. This choice has been considerably expanded in the context of the production of lighter and high value consuming goods, such as electronics, and less bulky production techniques. It is not uncommon for transport costs to account for 10% of the total cost of a product. This share also roughly applies to personal mobility where households spend about 10% of their income for transportation, including the automobile which has a complex cost structure. Thus, the choice of a transportation mode to route people and freight within origins and destinations becomes important and depends on a number of factors such as the nature of the goods, the available

infrastructures, origins and destinations, technology, and particularly their respective distances. Jointly, they define transportation costs. Transport costs are a monetary measure of what the transport provider must pay to produce transportation services. They come as fixed (infrastructure) and variable (operating) costs, depending on a variety of conditions related to geography, infrastructure, administrative barriers, energy, and on how passengers and freight are carried. Three major components, related to transactions, shipments and the friction of distance, impact on transport costs. Transport costs have significant impacts on the structure of economic activities as well as on international trade. Empirical evidence underlines that raising transport costs by 10% reduces trade volumes by more than 20%. In a competitive environment where transportation is a service that can be bided on, transport costs are influenced by the respective rates of transport companies, the portion of the transport costs charged to users. Rates are the price of transportation services paid by their users. They are the negotiated monetary cost of moving a passenger or a unit of freight between a specific origin and destination. Rates are often visible to the consumers since transport providers must provide this information to secure transactions. They may not necessarily express the real transport costs. The difference between costs and rates either results in a loss or a profit from the service provider. Considering the components of transport costs previously discussed, rate setting is a complex undertaking subject to constant change. For public transit, rates are often fixed and the result of a political decision where a share of the total costs is subsidized by the society. The goal is to provide an affordable mobility to the largest possible segment of the population even if this implies a recurring deficit (public transit systems rarely make any profit). It is thus common for public transit systems to have rates that are lower than costs. For freight transportation and many forms of passenger transportation (e.g. air transportation) rates are subject to a competitive pressure. This means that the rate will be adjusted according to the demand and the supply. They either reflect costs directly involved with shipping (cost-of-service) or are determined by the value of the commodity (value-of-service). Since many actors involved in freight transportation are private rates tend to vary, often significantly, but profitability is paramount.

2. Costs and Time Components

Transportation offers a spectrum of costs and level of services. The price of a transport service does not only include the direct out-of-the-pocket money costs to the user but also includes time costs and costs related to possible inefficiencies, discomfort and risk (e.g. unexpected delays). However, economic actors often base their choice of a transport mode or route on only part of the total transport price. For example, motorists are biased by short run marginal costs. They might narrow down the price of a specific trip by car to fuel costs only, thereby excluding fixed costs such as depreciation, insurance and vehicle tax. Many shippers or freight forwarders are primarily guided by direct money costs when considering the price factor in modal choice. The narrow focus on direct money costs is to some extent attributable to the fact that time costs and costs related to possible inefficiencies are harder to calculate and often can only be fully assessed after the cargo has arrived. Among the most significant conditions affecting transport costs and thus transport rates are: Geography. Its impacts mainly involve distance and accessibility. Distance is commonly the most basic condition affecting transport costs. The more it is difficult to trade space for a cost, the more the friction of distance is important. It can be expressed in terms of length, time, economic costs or the amount of energy used. It varies greatly according to the type of transportation mode involved and the efficiency of specific transport routes. Landlocked countries tend to have higher transport costs, often twice as much, as they do not have direct access to maritime transportation. The impact of geography on the cost structure can be expanded to include several rate zones, such as one for local, another for the nation and another for exports. Type of product. Many products require packaging, special handling, are bulky or perishable. Coal is obviously a commodity that is easier to transport than fruits or fresh flowers as it requires rudimentary storage facilities and can be transshipped using rudimentary equipment. Insurance costs are also to be considered and are commonly a function of the value to weight ratio and the risk associated with the movement. As such, different economic sectors incur different transport costs as they each have their own transport intensity. With containerization the type of product plays little in the transport cost since rates are set per container, but products still need to be loaded or unloaded from the container. For passengers, comfort and amenities must be provided, especially if long distance travel is involved. Economies of scale. Another condition affecting transport costs is related to economies of scale or the possibilities to apply them as the larger the quantities transported, the lower the unit cost. Bulk commodities such as energy (coal, oil), minerals and grains are highly suitable to obtain lower unit transport costs if they are transported in large quantities. For instance, moving a barrel of oil over 4,000 km would cost $1 on a 150,000 deadweight tons tanker ship and $3 on a 50,000 deadweight tons tanker ship. A similar trend also applies to container shipping with larger containerships involving lower unit costs. Energy. Transport activities are large consumers of energy, especially oil. About 60% of all the global oil consumption is attributed to transport activities. Transport typically account for about 25% of all the energy consumption of an economy. The costs of several energy

intensive transport modes, such as air transport, are particularly susceptible to fluctuations in energy prices. Trade imbalances. Imbalances between imports and exports have impacts on transport costs. This is especially the case for container transportation since trade imbalances imply the repositioning of empty containers that have to be taken into account in the total transport costs. Consequently, if a trade balance is strongly negative (more imports than exports), transport costs for imports tend to be higher than for exports. Significant transport rate imbalances have emerged along major trade routes. The same condition applies at the national and local levels where freight flows are often unidirectional, implying empty movements. Infrastructures. The efficiency and capacity of transport modes and terminals has a direct impact on transport costs. Poor infrastructures imply higher transport costs, delays and negative economic consequences. More developed transport systems tend to have lower transport costs since they are more reliable and can handle more movements. Mode. Different modes are characterized by different transport costs, since each has its own capacity limitations and operational conditions. When two or more modes are directly competing for the same market, the outcome often results in lower transport costs.Containerized transportation permitted a significant reduction in freight transport rates around the world. Competition and regulation. Concerns the complex competitive and regulatory environment in which transportation takes place. Transport services taking place over highly competitive segments tend to be of lower cost than on segments with limited competition (oligopoly or monopoly). International competition has favored concentration in many segments of the transport industry, namely maritime and air modes. Regulations, such as tariffs, cabotage laws, labor, security and safety impose additional transport costs, particularly in developing countries. Surcharges. Refer to an array of fees, often set in an arbitrary fashion, to reflect temporary conditions that may impact on costs assumed by the transporter. The most common are fuel surcharges, security fees, geopolitical risk premiums and additional baggage fees. The passenger transport industry, particularly airlines, has become dependent on a wide array of surcharges as a source of revenue. The transport time component is also an important consideration as it is associated with the service factor of transportation. They include the transport time, the order time, the timing, the punctuality and the frequency. For instance, a maritime shipper may offer a container transport service between a number of North American and Pacific Asian ports. It may take 12 days to service two ports across the Pacific (transport time) and a port call is done every two days (frequency). In order to secure a slot on a ship, a freight forwarder must call at least five days in advance (order time). For a specific port terminal, a ship arrives at 8AM and leaves at 5PM (timing) with the average delay being two hours (punctuality).

3. Types of Transport
CostsMobility tends to be influenced by transport costs. Empirical evidence for passenger vehicle use underlines the relationship between annual vehicle mileage and fuel costs, implying the higher fuel costs are, the lower the mileage. At the international level, doubling of transport costs can reduce trade flows by more than 80%. The more affordable mobility is, the more frequent the movements and the more likely they will take place over longer distances. A wide variety of transport costs can be considered. Terminal costs. Costs that are related to the loading, transshipment and unloading. Two major terminal costs can be considered; loading and unloading at the origin and destination, which are unavoidable, and intermediate (transshipment) costs that can be avoided. Linehaul costs. Costs that are a function of the distance over which a unit of freight or passenger is carried. Weight is also a cost function when freight is involved. They include labor and fuel and commonly exclude transshipment costs. Capital costs. Costs applying to the physical assets of transportation mainly infrastructures, terminals and vehicles. They include the purchase or major enhancement of fixed assets, which can often be a one-time event. Since physical assets tend to depreciate over time, capital investments are required on a regular basis for maintenance. Transport providers make a variety of decisions based on their cost structure, a function of all the above types of transport costs. To simplify transactions and clearly identify the respective responsibilities specific commercial transportation terms have been set. While the transport price plays an important role in modal choice, firms using freight transport services are not always motivated by notions of cost minimization. They often show "satisficing behavior" whereby the transport costs need to be below a certain threshold combined with specific requirements regarding reliability, frequency and other service attributes. Such complexities make it more difficult to clearly assess the role of transport price in the behavior of transport users. The role of transport companies has sensibly increased in the general context of the global commercial geography. However, the nature of this role is changing as a result of a general reduction of transport costs but growing infrastructure costs, mainly due to greater flows and competition for land. Each transport sector must consider variations in the importance of different transport costs. While operating costs are high for air transport, terminal costs are significant for maritime transport. Several indexes, such as the Baltic Dry Index, have been developed to convey a pricing mechanism useful for planning and decision making.Technological changes and their associated decline in transport costs have weakened the links transport modes and their terminals. There is less emphasis on heavy industries and more importance given to manufacturing and transport services (e.g. warehousing and distribution). Indeed, new functions are being grafted to transport activities that are henceforward facilitatinglogistics and manufacturing processes. Relations between terminal operators and carriers have thus become crucial notably in containerized traffic. They are needed to overcome the physical and time constraints of transshipment, notably at ports.The requirements of international trade gave rise to the development of specialized and intermediary firms providing transport services. These are

firms that do not physically transport the goods, but are required to facilitate the grouping, storage and handling of freight as well as the complex paperwork and financial and legal transactions involved in international trade. Examples included freight forwarders, customs brokers, warehousing, insurance agents and banking, etc. Recently, there has been a trend to consolidate these different intermediate functions, and a growing proportion of global trade is now being organized by multi-national corporations that are offering door to door logistics services.

Definitions of Transportation cost

The following terms are used in this standard with the meaning specified: Cost of transportation comprises of the cost of freight, cartage, transit insurance and cost of operating fleet and other incidental charges whether incurred internally or paid to an outside agency for transportation of goods but does not include detention and demurrage charges. Explanation: Cost of transportation is classified as inward transportation cost and outward transportation cost. Inward Transportation cost is the transportation expenses incurred in connection with materials /goods received at factory or place of use or sale /removal. Outward Transportation cost is the Transportation expenses incurred in connection with the sale or delivery of materials or goods from factory or depot or any other place from where goods are sold /re - moved. Freight is the charges paid or payable to an outside agency for transporting materials /goods from one place to another place. Cartage is the expenses incurred for movement of goods covering short distance for further transportation for delivery to customer of storage. Transit insurance cost is the amount of premium to be paid to cover the risk of loss/damage to the goods in transit. Depot is the bounded premises /Place managed internally or by an agent, including consignment agent and C & F agent, franchisee for storing of materials /goods for further dispatch including the premises of consignment Agent and C & F Agent for the purpose. Depot includes warehouses, godowns, storage yards, stock yards etc. Equalized transportation cost means average transportation cost incurred during a specified period. Equalized freight means average freight.

2. Objective Transportation cost

To bring uniformity in the application of principles and methods used in the determination of averaged/ equalized transportation cost.

To prescribe the system to be followed for maintenance of records for collection of cost of transportation, its allocation /apportionment to cost centres, locations or products.

For example, transportation cost needs to be apportioned among excisable, exempted, non excisable and other goods for arriving at the average of transportation cost of each class of goods.

To provide transparency in the determination of cost of transportation.

3.

Scope of Transportation cost

This standard should be applied for calculation of cost of transportation required under any statute or regulations or for any other purpose. For example, this standard can be used for: a) Determination of average transportation cost for claiming the deduction for arriving at the assessable value of excisable goods. b) Insurance claim valuation c) Working out claim for freight subsidy under Fertilizer industry coordination committee d) Administered price mechanism of freight cost element. e) Determination of inward freight costs included or to be included in the cost of purchases attributable to the acquisition. f) Computation of freight included in the value of inventory for accounting on inventory or valuation of stock hypothecated with Banks /Financial institution, etc.

Transportation costs can be categorized by the following attributes:

1. Distribution (Internal and External Impacts)
Internal (also called user) costs and benefits are borne or accrue directly by a goods consumer. External costs and benefits are borne or accrue by others. Social costs are the total of both internal and external impacts. External impacts do not directly affect consumers decisions, and so are a form of market failure (Market Principles).

2. Variable and Fixed

Variable (also called marginal) costs increase with consumption. Fixed costs do not. For example, fuel, travel time and crash risk are variable vehicle costs because they increase directly with vehicle mileage, while depreciation, insurance, and residential parking are considered fixed, because vehicle owners pay the same, regardless of how much a vehicle is used. The distinction between fixed and variable often depends on perspective. For example, depreciation is often considered a fixed cost because car owners make the same payments no matter how many miles a year they drive, but a cars operating life and resale value are affected by how much it is driven, so depreciation is partly variable over the long term.

3. Market or Non-Market
Market costs involve goods that are traded in a competitive market, such as vehicles, land and fuel. Non-market costs involve goods that are not regularly traded in markets such as clean air, crash injuries, and quiet. A number of techniques can be used to determine the value that consumers place on non-market goods.

4. Perceived or Actual
There is often a difference between perceived and actual automobile costs. Motorists tend to perceive immediate costs such as travel time, stress, parking fees, fuel, and transit fares, while costs that are paid infrequently, such as insurance, depreciation, maintenance, repairs and residential parking, are often underestimated.

5. Price
Price refers to what a consumer pays in exchange for a particular good, or perceivedinternal-variable cost. In general, a market is most efficient if prices reflect marginal costs (Market Principles).

Evaluating Transportation Benefits

Transportation provides tremendous benefits, and various techniques can be used to measure these benefits (Goodwin and Persson, 1999). These are so large that it is difficult to calculate the total benefits of all transportation activities. However, even if such a number could be calculated it would have little practical use. In most planning situations the important factor is the marginal (incremental) benefits provided by a particular policy or project compared with a Base Case (TDM Evaluation). Marginal transportation benefits can be divided into these two major categories:

1. Mobility and Access Benefits

Mobility benefits result from increased travel, such as increased automobile mileage, increased transit or aviation trips, increased walking and cycling, and increased freight transport. Access benefits are similar to mobility benefits, but also include the benefits from access improvements that reduce the need for physical travel, such as more efficient land use, delivery services and telework. These reflect the incremental benefits compared with a reduced level of mobility or access, such as the benefits individuals and society gains from access to school, employment, shopping, friends and recreation activities.

2. Efficiency Benefits
Efficiency benefits result from more efficient travel, such as when travelers shift from driving to transit or ridesharing under urban-peak travel conditions, or when a consumer avoids a trip by telecommuting or teleshopping. These reflect the cost savings to individuals and society when transportation becomes more efficient (fewer total resources are consumed to provide a given benefit).

These different types of benefits require different approaches to evaluate. Mobility benefits are usually measured in terms off increased travel (Evaluating Transportation Choice). Efficiency benefits are often measured in terms of reduced vehicle travel. A transportation evaluation process that only considers one category of benefits may overlook significant benefits or costs, and may result in solutions to one problem that exacerbates others. For example, the benefits of a road capacity expansion program are measured in terms of mobility benefits. The analysis assumes that more vehicle traffic speed and volume is necessarily better. The benefits of a TDM program intended to reduce congestion and pollution are measured in terms of efficiency benefits. The analysis assumes that less vehicle traffic volume is better. A planning process that is only concerned with environmental protection could reduce mobility benefits, while a planning process that is only concerned with increasing mobility benefits could reduce environmental quality. Comprehensive Evaluation considers both types of benefits.

Maintenance of records for ascertaining Transportation cost

Proper records shall be maintained for recording the actual cost of transportation showing each element of cost such as freight, cartage, transit insurance and others after adjustment for recovery of transportation cost. Abnormal costs relating to transportation, if any, are to be identified and recorded for exclusion of computation of average transportation cost. In case of a manufacturer having his own transport fleet, proper records shall be maintained to determine the actual operating cost of vehicles showing details of various elements of cost, such as salaries and wages of driver, cleaners and others, cost of fuel, lubricant grease, amortized cost of Tyres and battery, repairs and maintenance, depreciation of the vehicles, distance covered and trips made, goods hauled and transported to the depot. In case of hired transport charges incurred for dispatch of goods, complete details shall be recorded as to date of dispatch, type of transport used, description of the goods, destination of buyer, name of consignee, challan number, quantity of goods in terms of weight or volume, distance involved, amount paid, etc. Records shall be maintained separately for inward and outward transportation cost specifying the details particulars of goods dispatched, name of supplier /recipient, amount of freight etc. Separate records shall be maintained for identification of transportation cost towards inward movement of material (Procurement) and transportation cost of outward movement of goods removed /sold for both home consumption and export. Records for transportation cost from factory to depot and thereafter shall be maintained separately. Records for transportation cost for carrying any material /product to job workers place and back should be maintained separately so as include the same in the transaction value of the product. Records for transportation cost for goods involved exclusively for trading activities shall be maintained separately and the same will not be included for claiming any deduction for calculating assessable value excisable goods cleared for home consumption. Records of transportation cost directly allocable to a particular category of products should be maintained separately so that allocation in appendix 3 can be made. For common transportation cost, both for own fleet or hired ones, proper records for basis of apportionment should be maintained. Records for transportation cost for exempted goods, excisable goods cleared for export shall be maintained separately.

 Separate records of cost for mode of transportation other than road like ship, air etc. are to be maintained in appendix 2 which will be included in total cost of transportation.

6. Treatment of cost:
Inward transportation costs shall form the part of the cost of procurement of materials which are to be identified for proper allocation /apportionment to the materials /products. Outward transportation cost shall form the part of the cost of sale and shall be allocated /apportioned to the materials and goods on a suitable basis. Explanation: Outward transportation cost of a product from factory to depot or any location of sale shall be included in the cost of sale of the goods available for sale. The following basis may be used, in order of priority, for apportionment cost depending upon the nature of products, unit of measurement followed and type of transport used: (i) (ii) (iii) (iv) (v) (vi) Weight Volume of goods Tonne-Km Unit /Equivalent unit Value of goods Percentage of usage of space

Once a basis of apportionment is adopted, the same should be followed consistently. For determining the transportation cost per unit, distance shall be factored in to arrive at weighted average cost. Abnormal and non recurring cost shall not be a part of transportation cost. Explanation Penalty, detention charges, demurrage and cost related to abnormal break down will not be included in transportations cost.

Cost sheet
The cost sheets shall be prepared and presented in a form as per Appendices 1, 2 and 3 or as near thereto. Appendix 1 and Appendix 2 show the details of information to be maintained for compilation of transport cost for own fleet and hired transportation charges respectively. Appendix 1 is applicable where the organisation is having its own fleet. The directly allocable cost of own fleet (outward) shall be identified against different categories of products as shown in Appendix 3 and same shall be apportioned to different categories of products as shown in Appendix 3 on a basis which should be specified. The basis of apportionment may be adopted depending on the nature of product as indicated in Para 6.3. Similar approach shall also be applied for hired outward transport charges. More columns may be required to be shown in Appendix 3 specifying different types of transactions. For example: Sale on specific rate basis, sale of waste, scrap, return from customer, goods sent for job work, goods received after job work etc. Unit of measurement (UM) may vary depending upon the nature of the product. For example, Number, MT, Meter, Litre etc. Proper records shall be maintained to show separately the transportation cost relating to sending of jobs to job contractors /convertors and receipts back of processed jobs/ converted materials. An enterprises shall be required to maintain cost records and other books of account in a manner which would facilitate preparation and verification of cost of transportation and other related charges and its apportioning to various products. Transaction value: Transaction value shall have the meaning assigned to it in Section 4 of the Central Excise Act, 1944 or section 14 of the customs Act, 1962 or as defined in any other Act or Regulations as the case may be. The Standard will be operative from the date of issue. Finalized by CASB WTO committee on 20 July 2005 and circulated to the Council at its meeting on 21 July 2005 (1st draft was published in June 2002 journal)

Travel Time Costs

Travel time is one of the largest transport costs, and travel time savings are often the greatest potential benefit of transport improvements. Various studies have calculated travel time values relative to wage rates based on traveler behavior, and several time value schedules have been developed based on such studies (Wardman 1998; Small, et al. 1999). Many specific attributes of travel, such as comfort, safety and prestige, can be reflected in travel time costs. Below are some of the main factors affecting travel costs:
Commercial vehicle costs include drivers wages and overhead costs, vehicle costs; costs for the value of freight (particularly perishables), and sometimes costs for delays beyond a critical delivery time. The cost of personal travel is usually estimated at one-quarter to one-half of prevailing wage rates. Travel time costs tend to be higher for driving under congested conditions or passengers on crowded transit vehicles, and lower for a comfortable passenger. Travel time costs tend to be particularly high for unexpected delays. Travel time costs per minute tend to increase for longer commutes (more than about 20 minutes). Under pleasant conditions, walking and cycling can have positive value, but under unpleasant or unsafe conditions (for example, walking along a busy highway or waiting for a bus in an area that seems dirty and unsafe), time spent walking, cycling and waiting for transit has costs two or three times higher than time spent traveling. Travel time costs tend to increase with income, and tend to be lower for children and people who are retired or unemployed. (Or, to put it differently, people with full-time jobs tend to have more demands on their time, and so tend to be willing to pay more for travel time savings.) Personal needs and preferences vary. Some people place a relatively high cost on time spent driving in congestion, and place a low value on time spent as a transit passenger, while others have the opposite preferences. A certain amount of travel time has a low cost or positive value because consumers enjoy the experience. Under certain conditions, walking, cycling, driving, train travel and air travel are considered enjoyable and desirable, although under other conditions the same type of travel is considered undesirable and costly.

Environmental Costs
Several studies provide monetized estimates of the environmental costs of transportation (Bein, 1997; USEPA, 1999; Delucchi, 2000; Litman, 2001). These include air, noise and water pollution, waste disposal and the environmental impacts associated with transportation facilities, such as loss of wildlife habitat. The TRL Strategic Environmental Assessment Newsletter provides information on efforts to monetize environmental costs for application in transportation planning. Delucchi (2000) estimates that U.S. motor vehicle environmental costs total approximately $100 billion annually.

1. Air Pollution
Air pollution is one of the most obvious environmental costs of motor vehicle use. Per mile emissions for many pollutants have declined over time due to emission control strategies. It is common to hear claims that automobile emissions have declined by 90% or more over the last few decades, but this is an exaggeration. Engine and fuel improvements have significantly reduced tailpipe emission rates under design conditions, but a significant portion of driving occurs under non-design conditions and non-tailpipe emissions are not controlled by these technologies. Small and Kazimi (1995) estimated Southern California motor vehicle air pollution costs of human morbidity and mortality from tailpipe particulate and ozone emissions. Their middle estimate for gasoline cars is 3.3 per mile for automobiles and 53 per mile for heavy diesel trucks. They estimate that emission costs are about 1/3 this value in regions with less serious air pollution problems. These costs are expected to decline 50% by the year 2000 due to improved emission controls. The authors emphasize that this is only a partial analysis. Their study does not account for CO and non-tailpipe particulate emissions, both of which recent research indicate cause significant medical problems. It omits impacts on people without acute medical symptoms although residents of polluted cities suffer reduced lung capacity and are regularly instructed to limit their physical activities. It also omits ecological and aesthetic impacts, including global warming, ozone depletion, crops and wildlife damages, and reduced visibility. They state that road dust may add 4.3 per VMT, and global warming costs may be significant. Total automobile air pollution costs are therefore likely to be much higher than this studys estimates.

2. Noise Pollution
Motor vehicle traffic imposes noise pollution. Traffic noise tends to increase with traffic speed, accelerations, the portion of heavy vehicles and motorcycles, and development density. Noise costs tend to be much higher on local urban roads, where traffic tends to be closer to residences. Information on noise costs is available from FHWA (1997b) and the Noise Pollution Clearinghouse.

3. Water Pollution and Hydrologic Impacts

Roads and motor vehicles use also contribute to water pollution, hydrologic impacts and waste disposal (such as used tires) which impose a variety of costs on society (USEPA, 1999; Bein, 1997). Information on hydrologic impacts is available at the NEMO Foundation

4. Waste Disposal
Motor vehicles produce a number of harmful waste products that can impose externalities, including used tires, batteries, junked cars, oil and other semi-hazardous materials resulting from motor vehicle production and maintenance. These wastes impose a variety of environmental, human health, aesthetic, and financial costs, through improper disposal, residual impact even when proper disposal is observed, and because some disposal efforts are subsidized by general taxes. Some new laws and policies are intended to internalize these costs. Crankcase oil recycling is encouraged, vendors are required to recycle used car batteries, and in some states a tire tax is dedicated to tire disposal.

Fuel Externalities
Fuel production and consumption can impose various external costs, including national security risks and macroeconomic impacts on individual economies that import fuel, depletion of nonrenewable resources, various financial subsidies, and environmental damages (including greenhouse gas emissions). Put another way, there may be benefits to society from increased energy efficiency and conservation. The International Energy Agency, the American Petroleum Institute, the Canadian Petroleum Communication Foundation and the Canadian Petroleum Products Institute provide fuel price and consumption data. The Transportation Energy Data Book (ORNL, 2000, available also provides useful information on transportation energy costs and consumption by transportation activities. Greene and Tishchishyna (2000) estimate that oil market upheavals of the last 30 years have cost the U.S. economy $7 trillion (net present value) in reduced output, with a range of $3.5 to $14.6 trillion. These estimates do not include military, strategic or political costs associated with U.S. and world dependence on oil imports. They point out that each of the major price shocks during this time period has preceded a major economic recession, and that higher petroleum import prices reduce national GDP. An extensive review of economic and political issues concludes that, if U.S. motor vehicles did not use petroleum, the U.S. would reduce its defense expenditures in the long run by roughly $1 to 10 billion per year. (Delucchi and Murphy, 1996). A major study by the National Research Council (NRC, 2001) estimates that these externalities average about 30 per gallon of gasoline.

1. Impacts on Non-motorized Travel Changes in the design of roads and parking facilities, vehicle traffic volumes and speeds, and the quality of the pedestrian environment can affect the convenience, safety and comfort of walking and cycling (Evaluating Nonmotorized Transport). The Barrier Effect (also called Severance) refers to the tendency of roads and traffic to create a barrier to nonmotorized travel. It represents a degradation of the pedestrian and bicyclist environment that reduces the viability of these modes, often leading to increased driving. Traffic Calming, Vehicle Restrictions, Pedestrian and Cycling Improvements and various Land Use Factors can all have significant impacts on nonmotorized transportation. 2. Road and Parking Facility Costs Roads and parking are usually provided free or bundled with facility costs (for example, parking is usually included with housing purchases or rents) so most consumers have little idea of what a road or parking space costs to produce. Below are typical cost data. Highway development involves various costs, including planning and design, land acquisition, and construction costs. These costs vary significantly depending on conditions. In rural areas, planning and land costs may be modest, and construction expenses may dominate project costs. In urban areas, planning and land costs tend to be much higher. Adding capacity to existing roads

can be relatively inexpensive if there is adequate right-of-way and few intersections, or very expensive if it requires land acquisition or rebuilding intersections.

i. Roadway Construction and Maintenance Costs Roadway expenditure data can be obtained from government accounts (Highway Statistics, FHWA and Transportation Statistics, BTS, . Also see Highway Taxes and Fees; How They Are Collected and Distributed . Cambridge Systematics (1992) and Price Trends in Federal-Aid Highway Construction (a quarterly report published by the FHWA) provide information on highway construction costs. Roadway expenditures by all levels of U.S. government totaled $117 billion in 1999. Canadian roadway expenditure data is available from Transport Canadas Transportation In Canada Annual Report and Blanchard (1996). Highway development involves various costs, including planning and design, land acquisition, and construction costs. These costs vary significantly depending on conditions. In rural areas, planning and land costs may be modest, and construction expenses may dominate project costs. In urban areas, planning and land costs tend to be much higher. Adding capacity to existing roads can be relatively inexpensive if there is adequate right-of-way and few intersections, or very expensive if it requires land acquisition or rebuilding intersections. Road construction costs (grading and paving, not including planning and land costs) typically range from $250,000 per lane-mile in easy conditions up to $2,500,000 per lane-mile in difficult conditions (Construction and Maintenance Branch, 1998). Intersections also add significant costs. Rural intersections typically cost $2,000,000 to $4,000,000, while a standard urban interchange typically costs $10,000,000 to $15,000,000 for construction, plus planning and land costs. Table 4 summarizes typical costs for roadway projects under various conditions.

2.

How Travel Changes Affect Costs

The magnitude of benefits provided by TDM varies depending on the type of travel changes they produce, location, and other factors. Strategies that shift travel from peak to off-peak reduce congestion, and therefore permile vehicle cost and emission rates, although these benefits may be partly offset by Rebound Effects. Shifting to less congested travel conditions tends to reduce the number of crashes, but the crashes that do occur tend to cause more damage, so crash costs do not necessarily decline. TDM strategies that reduce average vehicle trip distances provide modest benefits, including reductions in vehicle operating costs, traffic congestion, roadway costs, crashes, and energy consumption, but pollution emission benefits are small due to cold starts. Strategies that reduce per capita vehicle trips provide greater benefits, including reductions in parking costs. Strategies that shift travel to alternative modes, such as public transit, have mixed impacts based on the difference in costs between the modes. For example, Ridesharing (using a motor vehicle seat that would otherwise travel empty) imposes minimal incremental costs, while shifting to public transit may impose significant incremental costs if doing so requires additional transit service. Strategies that reduce per capita vehicle ownership provide additional benefits, including reductions in vehicle ownership and residential parking costs. Strategies that result in more efficient land use patterns can provide a wide range of benefits, including reductions in vehicle ownership and use, and reductions in the amount of land paved for roads and parking.

3.

Modeling Benefits of Travel Changes

In order to evaluate these impacts it is necessary to model the relationships between mileage and various costs. This is measured using elasticity values, which indicate the percentage change in a cost that results from a percentage change in vehicle mileage. For example, an elasticity of 1.5 means that each 1.0% reduction in mileage reduces a particular cost by 1.5%. The elasticities of various costs with respect to mileage are discussed briefly below.

Traffic Services
All else being equal, a change in vehicle mileage probably causes a proportional change in traffic services, so the elasticity is 1.0.

Fuel Externalities
All else being equal, a change in vehicle mileage causes a proportional change in fuel consumption and related externalities, so the elasticity is 1.0. A change in congested mileage may cause a greater change in fuel consumption and externalities, so TDM strategies that target congestion, such as Commute Trip Reduction programs and congestion pricing, tend to have an elasticity of greater than 1.0.

Residential Parking
Changes in per-vehicle mileage do not affect residential parking costs, and so have an elasticity of 0.0. Reductions in vehicle ownership, and management strategies that result in more efficient use of existing parking facilities can reduce this cost. For example, Location Efficient Development, carsharing, transit improvements and parking management can reduce residential parking costs. As a result, the elasticity of residential parking costs with respect to TDM mileage reductions is estimated to average 0.5.

Roadway Land Value

Changes in per-vehicle annual mileage may cause a small change in the amount of land that is devoted to roads. Such impacts tend to occur in urban areas where land values are high. The elasticity is estimated to be about 0.1 (A 10% change in mileage changes roadway land costs by 1%). Some TDM strategies directly reduce roadway land requirements, including Smart Growth, New Urbanism and parking management.

Traffic Congestion
Traffic congestion is a non-linear function, so under some circumstances even a small increase in traffic volumes can cause a large reduction in congestion delay. Modeling reported in USEPA (1998) found that 4% change in total vehicle mileage in California urban areas would reduce traffic congestion by 7.5-10.5%. This suggests that the elasticity of congestion costs to vehicle travel is about 2.0 in urban areas. An elasticity of 1.0 is used for this analysis. Some TDM strategies are particularly effective at reducing congestion, including Commute Trip Reduction programs, road pricing and parking management.

Environmental Damages
In general, a percentage change in vehicle mileage can be expected to cause a proportional change in environmental damages, so the elasticity of environmental costs to mileage is assumed to be 1.0.

Roadway Costs
In general, a percentage change in vehicle mileage can be expected to cause a proportional change in road damages, and a proportional or larger change in roadway capacity expansion requirements. The elasticity of roadway costs to mileage is assumed to be 1.0, but may be larger in growing urban areas.

Vehicle Fuel
A change in mileage provides a proportional change in fuel consumption, so the elasticity is 1.0. TDM strategies that target congestion reductions may provide a somewhat greater reductions in fuel costs for a given reduction in mileage.

Non-residential Off-street Parking

Changes in average trip distance have no affect on parking costs, but changes in vehicle trips or ownership do. Assuming that half of the additional per-vehicle annual mileage resulting from increased fuel efficiency consists of longer trips and half consists of increased trip making, the elasticity of parking costs with respect to mileage is 0.5. Many TDM strategies directly reduce parking costs, including those that reduce per capita vehicle ownership, encourage use of alternative transportation modes, and that encourage more efficient use of existing parking capacity.

Crash Costs
Changes in total vehicle mileage tend to cause an approximately proportional change in crashes, but a significantly larger change in total crash costs, because most serious crashes involve multiple vehicles. One study found the elasticity of vehicle crash costs with respect to vehicle mileage is between 1.4 and 1.8, meaning that a 10% reduction in vehicle mileage reduces crash costs and casualties between 14% and 18%. A value of 1.4 is used in this analysis. Some TDM strategies provide extra traffic safety impacts, such as traffic calming, which reduces vehicle speeds, and Distance-based Vehicle Insurance, which gives the higher risk drivers an extra incentive to reduce their mileage, and therefore crash risk.

Vehicle Ownership
Most vehicle ownership expenses are considered fixed and not affected by a change in annual per-vehicle. However, many of these costs are actually partly variable. For example, increased vehicle mileage tends to increase vehicle maintenance and repair costs, reduce vehicle operating life, reduce resale value, and increase the chances of an insurance claim. These additional (besides fuel and oil) mileage-based charges typically average 10-15 per vehicle mile, or about 40% of total vehicle ownership costs. As a result, the elasticity of vehicle ownership costs with respect to mileage is estimated to be 0.4, meaning that a 10% increase in mileage increases vehicle ownership costs by 4%.

Land Use Impacts

Reductions in average vehicle trip length help reduce urban sprawl. Reductions in vehicle trips, shifts to alternative modes, reduced vehicle ownership and land use management strategies are most effective at reducing costs associated with inefficient land use.

Equity Impacts

Strategies that reduce unjustified underpricing and subsidies for automobile travel, and improvements to transportation and housing choices available to people who are transportation disadvantaged tend to increase equity.

Name of the manufacturer: Address of the Manufacturer: Statement of operating cost of own fleet for the period . Appendix 1 Sl No. A A1 A2 A3 A4 A5 A6 A7 A8

4. 5.

A9 B

Quantitative information Number of vehicles Number of trips Goods Transported inward (UM) Goods transported outward (UM) Goods transported inward Km Goods transported outward Km Total goods transported inward basis of apportionment (specify) Total Goods transported outward basis of apportionment (specify) Total (A7 + A8)

6. 7. 8.

COST INFORMATION Cost of Operation Variable Cost

(Rs.)

B1 B2 B3 B4 B5 B6 B7

9.
B9 B10 B11 B12

B8

Salaries & wages of Drivers, Cleaners and others Fuel & Lubricants Consumables Amortized cost of Tyre, tube and Battery Spares Repairs & Maintence Other variable cost (Specify) Total Variable Cost (B1 to B7)

10.

Fixed Cost

11. 12. 13.

C1 C2 C3 C4 C5 C6

Insurance Licence Fee, permit fee and Taxes Depreciation Other Fixed Costs (Specify) B13 Total Fixed Cost (B9 to B12) B14 Total Operating Cost (B8 + B13)

14.

Apportionment (Basis to be specified) - usage

Inward Transport Cost (B14 *A7 /A9) Outward Transport cost (B14 * A8/A9) Transit insurance for inward movement Transit insurance for outward movement Total transportation cost for inward movement (C1 +c3) Total transportation cost for outward movement (C2 + C4)

Note: 1. Cost of Battery, and Tyres and Tubes shall to be amortized over its useful life.

2. cost. 3.

Asset register shall be maintained for determination of depreciation and amortization Separate cost sheet shall be prepared for different types of vehicles.

Appendix 2
Name of the Manufacturer; Address of the Manufacturer:

i. Statement of Hired Outward Transportation cost for the period ending

Sl No. A A1 Quantitative information Quantity of goods transported outward (UM)

15.
B1 B2 B3 B4

(Rs.)

1.

Cost information

Hired Transport charges Transit insurance Other (Specify) Total Transportation cost (B1 to B3)

Name of the Manufacturer:

CONCLUSION Even though it is noticeable the burden that transportation cost represents for the goods traded internationally; the cost paid for the transportation of the goods is unavoidable. However, this saddle is decreasing constantly. To diminish the influence of the transportation cost over the value of the goods it is mandatory that each country invests in infrastructure strategically. Moreover, each company is required to implement an integrative approach in planning and controlling the flow of materials from suppliers to end-users.