Question

Define the derived demand for freight (cargo) transport. List four factors that determine this demand and explain.

Answer 1

In economic system the demand for a good or service is derived from another. The demand for transport is a derived demand which means demand for a good or service in one sector occurs due to demand for another. People who use a transport service are using it not for the direct benefit accruing from it but in order to access other services.Demand for transport is determined by demand for another service like going to work etc.The derived demand for transportation cannot be met with equivalent supply and so transport providers provide for more demand at much higher prices.There are two types of derived transport demand, direct and indirect.Freight transportation is direct derived demand as they require movement of raw materials , finished products as well as unfinished products on different modes such as trucks ,rails, containership etc. Thus transportation is the result of production and consumption .Warehousing can be an eg of indirect derived demand . Warehousing exist because it is not possible to move cargo from where it is produced to where it is consumed.So this implies non movement of freight.

The factors for derived demand are price, general economic conditions, urgency ,difficulty of changing a factor of production.. Price is an important factor as for eg if the price of steel rises the derived demand for scrap metals ,coal , iron ore etc will increase. Again demand for goods and services depend on good economic condition .But during economic crisis demand for goods and services fall.Thus demand for goods and services is derived demand from boom period which is enjoyed by the market.Again urgency is another factor which creates derived demand . As for eg a person may go to office in cycle, bus or taxi but if the weather is not good ie if it rains the urgency to take a taxi to go to work increases.Thus demand for taxis is derived demand.Again if a factor of production can be substituted for another as for eg if wages of plasterers rises and services of plasterers can be substituted by brick layers then it is an eg of derived demand.