Modal shift from road to rail and waterborne transport is a policy objective in the EU and in many countries because the latter two modes of transport produce less emissions per transported tonne-kilometer. For instance, European Commission adopted the target to move 30 percent respective 50 percent of long-distance freight from road to rail and waterborne (sea and inland) transport by 2030 and 2050. However, the modal share for road has increased in the EU over the past decade suggesting that modal shift from road is difficult. Still, there are no studies showing what the optimal modal shares for road transport are.  

This paper thus contributes to the literature by modelling the welfare optimal modal shares for freight transport. 

We assume a representative carrier who chooses a cost-minimizing combination of transport mode and shipment size by freight type and OD-pair given the constant total demand. The demand for transport mode m and shipment size q, by freight type and OD-pair, is derived from the multinomial logit model (MNL) estimated by Abate et al. The optimal modal shares are found by optimizing a welfare function, which a sum of benefits from choosing a transport mode and shipment size external costs, and revenues to the government, with respect to taxes by mode. In the absence of congestion, the optimal taxes are equal to the external marginal costs.

According to the preliminary results, internalizing external costs increases the average shipment size leading to reduced transport kilometers. The change in modal shares are small across different commodity groups implying that internalizing external costs has only a minor effect on modal shares and that the modal shares are close to the optimal.  

The rigidness of modal shares is consistent by the low-cross elasticities found in the previous literature. It is probably largely explained by the infrastructure availability and number of feasible transport alternatives; the generalized cost of road transport is significantly lower compared to other modes for most OD-pairs and types of goods. Hence, there are a few OD-pairs and types of goods where rail and waterborne transport are competitive with respect to transport costs, transport time and flexibility.