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THE COSTS OF FIXED FACILITIES

INTRODUCTION
Definition of fixed facilities
Fixed facilities is the name given to the immobile part of transportation facilities.
There are two important consequences of the inability to take up and move roads, canals,
and airports. First, fixed facilities are dedicated to particular geographic markets. Investing
in fixed facilities does not increase capacity uniformly in the transport system as a whole but
in only a part of it. Second, investment in fixed facilities are sunk. The combination of
sunkness and dedication of capacity to a limited set of markets means that investment and
pricing decisions made about fixed facilities tend to be quite different from those made
about vehicles. Fixed facilities in transportation consists of physically immobile pieces of
transportation capital. Fixed facilities are generally sunk and dedicated to geographic
markets.
FHWA
The Federal Highway Administration (FHWA) is an agency within the U.S.
Department of the Transportation that supports and local government in the design,
construction, and maintenance of the Nations highway system (Federal Aid Highway
Program) and various federally and tribal owned lands (Federal Lands Highway Program).
Through financial and technical assistance to state and local governments, the Federal
Highway Administration is responsible for ensuring that Americas roads and highways
continue to be among the safest and most technologically sound in the world.
HIGHWAYS
There are few in developed countries that are not accessible by road. Adding
together every interstate highway, mountain road, and city street, the United States has
approximately 3.9 million miles of roads. New road mileage is being added at the rate of
approximately 0.1 percent annually. Most of this mileage is in local roads that are used for
access rather than intercity transportation. Intercity transport generally uses the system of
federal aid highways. Highway quality is more variable than is the quality fixed facilities of
other modes of transportation. While all roads can be used by automobile, only the
strongest highways are designed and built to be used by heavy truck.
Funding and expenditure
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Receipts from the federal taxation of motor fuel, along with other highway-user
taxes, are deposited in the federal Highway Trust Fund. Taxes on highway users benefits
them by providing for the improvement of highway facilities. The Highway Trust Fund has
provided a stable funding source for highway program since it was established in 1956. The
federal Highway Trust Fund includes federal fuel tax revenue and other fees. The federal
gas tax rate last changed in 1996.
Each states highway users contribute to the federal Highway Trust Fund (HTF) by
paying motor fuel taxes. These are subsequently allocated to each state from the HTF. A
ratio may be calculated that compares the funds paid by motorists within each state with
the states total apportionments and allocations from the HTF.
With this calculation a ratio of 1.0 indicates that a state receives the same amount of
apportionments and allocations from HTF as its highway users contribute in motor fuel
taxes. A ratio of less than one indicates that the state receives the less in apportionments
and allocations from the HTF than its highway users contribute in motor fuel taxes, while a
ration of greater than one indicates that the state receives the more the HTF than its
highway users contribute in motor fuel taxes.
In 2009 the range of allocation to payment ratios for all states is between 0.84 and
3.7 excluding the District of Columbia. Twenty seven states have ratios less than 1.0, with
the remaining 23 states having ratios greater than or equal to 1.0. The median allocation to
payment ration for all states is 0.98.

Highway Trust Fund Receipts: 1970-2009
The Highway Trust Fund (HTF) revenue comes from fuel, truck, and tire sales taxes.
Tax rates have changed several times since the fund was established. Federal motor fuel
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taxes are collected by the Internal Revenue Service at the fuel terminal, and vary with
changes in the volume of fuel sold.
Total federal HTF receipts are $30.1 billion in 2009. This is a decrease of $1.2 billion
4% from 2008 receipts. Of the amount collected in 2009, $27 billion 89% comes from motor
fuel taxes and $3.2 billion 11% comes from others taxes, such as on truck and tire sales.
Between 1970 and 2009 HTF receipts increased at a compounded annual rate of 5.1%,
though since 2007 HTF receipts have decreased.
Highway funding and expenditures by Local, State, and Federal Government:
1970-2008

Data Source: FHWA OHPI, Highway Statistics
Total highway funding by all units of government federal, state and local reached
nearly $193 billion in 2008, the latest year for which data are available. The vast majority of
federal funds are transferred to state highway agencies as part of the federal aid highway
program. Approximately $2.9 billion in federal expenditures are spent on roadways within
national parks, military installations and on other federally owned land.
States disbursement a total of $143.8 billion for highways in 2009. State
disbursements for highways track closely with population. The states with the highest
disbursements for highways which also have the largest populations are California, Florida,
Illinois, New York, Pennsylvania, and Texas, each spending over $5billion in 2009. Combined
these six largest states account for 40% of total state highway disbursements.
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Capital outlay which include costs associated with land acquisition, design,
construction, reconstruction, resurfacing, rehabilitation, restoration, and installation of guard
rails, fencing, signs, and signals account for the largest category of disbursement in most
states, a total of $71.2 billion (49% of total state highway disbursements). Maintenance cost
total $21.7 billion (15% of total state highway disbursements), while transfers of funds to
local governments total $18.7 billion (13% of total state highway disbursements) service
cost associated with borrowing funds for highway, road, and street projects total $14.4
billion (10% of total state highway disbursements), research and administration
disbursement total $9.5 billion (7% of total state highway disbursements), and enforcement
and safety disbursements total $8.3 billion (6%of total state highway disbursements). The
data source from FHWA OHPI, Highway statistics.
Toll revenue is typically the only funding source used to repay money borrowed to
construct a toll facility and to provide for its ongoing maintenance and operations. In 2008,
the most recent year for which data are available, $29.8 billion in state and local toll
revenues were collected. Of this $23.4 billion (79%) were from state tolls and $6.4 billion
(21%) were from local tolls.
State and local combined toll revenue in 2008 is $6.8 billion higher than in 2007, an
increase of 29%. Over the last 1 years, toll revenue has increase at a compounded annual
rate of 6.8 %.
The Effect of Traffic Level and Mix on Highway Construction Cost.
Three major cost of highways ownership are capital, maintenance, and policy will
vary with traffic levels and mix. If traffic levels on a new stretch of highway are expected to
be light and to consist solely of passenger cars, a highway can be engineered differently
than if it must carry heavy trucks. The American Association of State Highway and
Transportation Officials (AASHTO) has made some engineering estimates of the required
pavement thicknesses depending on axle loads, the type of soil on which the roadway is
built, the desires condition of the roadway at the end of its lifetime, and the region of the
country in which the roadway is to be built.
For a given desired condition of the roadway at the end of its design life, the heavier
the expert traffic load, the thicker the roadways must be. AASHTO engineers found that the
damage done by heavier axle loadings increased exponentially. This means that the number
of heavy trucks on a roadway will have a far greater effect on pavement thickness decisions
than the number of cars. However, roadway strength also increase exponentially with
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thickness. Thus doubling the effective traffic load does not double pavement costs.
Pavement width also varies with traffic mix. In order to accommodate wider vehicle like
trucks and busses, highway officials will build wider roads.
Finally, the grades with which roadways can be built depends on the stopping and
climbing power of the vehicles using the highway. To keep traffic moving smoothly,
roadways cannot be built more steeply than will permit vehicles to maintain a normal
cruising speed. In general, this means that roadway can be built more steeply if they are to
be used only by vehicles which have powerful motors relative to their weight. Again, use by
heavy trucks causes roadways to be built more expensively than they would be for car traffic
alone. According to the Department of Transportation, about 20% of road grading and
drainage costs are due to design differences to accommodate trucks.
The Effect of Traffic Level and Mix on Highway Repair Costs.
While bridges do not wear out with use unless there is a catastrophic over loading,
highways surface do. On average, a bituminous highway surface lasts about 12 years. Some
deterioration is independent of traffic level. Some is simply due to weather, expenditure for
resurfacing, restoration, rehabilitation, and reconstruction of roads is a second way in which
the actions of high way user affects the cost of the highway authority.
All major highways carry a mix traffic from motor cycles to trailer trucks. The main
finding of the AASHO road tests described previously is that the damage done to a roadway
rises with the fourth power of the weight on an axle. This means that a typically heavy truck
wears out pavement at a rate equivalent to about 5,000 automobile. A trucks loaded to
100,000 lbs. does four times more damage than one loaded to 80,000 lbs. the thicker the
pavement, however , the less damage any vehicles will cause.
The effect on cost of the highways authority due to pavement damage of difference
classes of vehicles depends on the interaction of heavy vehicle and automobiles, and differ
with pavement thickness and even weather. According to the Department of Transportation,
between 40 and 90 % of repair costs of highways should be paid by trucks, depending on
the method used to calculate costs.



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RAILROADS
Introduction of railroads tracks
Railroads tracks are privately owned in the United States. In most cases, the
tracks are owned by the same company operating the rail service. In addition, railroad
tracks do not provide ubiquitous access. Ubiquitous can be defined as being existing or
being everywhere, especially at the same time. This type of immobile transportation
provides intercity transportation which is the roads were used for both intercity
transportation as well as locational access. One reason for the advantage of road
transportation apparent in demand is that the access function can be efficiently combined
with intercity transportation.
In common, the ownership of railroad tracks by their operators leads to some
circuitous freight traffic routings that would not be used if tracks were owned by all
companies. The passenger trains will switch tracks between different owning companies if it
provides a better routing because passenger trains are not operated by the same owning
tracks companies, but known as a national entity which namely Amtrak. However, the
designation of the railroad system is based on very different traffic mix than todays load.
This is where when the railroads were built, more than half of the traffic was passenger
trains. Today, passenger traffic accounts for less than 3% of railroad business. Furthermore,
when the system was built, passenger and freight traffic was centered in the industrialized
northeastern part of the country.
The U.S. railroad industry values its track and structures at approximately $54
billion, less some depreciation. This amount, however, is based on the original costs of
investment in the railroad system. The costs of construction, engineering, and design of the
railroad system are fully sunk. Eliminating the use of the railroad system by passenger and
freight trains will not save any past construction costs. The costs can be attributed to use
railroad fixed facilities is simply the opportunity cost of the land and structures used by the
track network and the maintenance costs caused by use of the tracks by railroad trains.
Measuring the Cost of Fixed Railroad Facilities
The economic measure of the cost of using railroad fixed facilities for railroad
transportation is the total amount per year that other users would be willing to pay for the
use of the railroad fixed facilities. The value of railroad fixed facilities in financial accounts is
based on the cost of creating railroads, while the economically correct measurement of the
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cost of using the fixed facilities is based on what non-railroad users would be willing to pay
for the abandoned property. Since railroad expenditures for labor, machines, fuel, and raw
materials are ongoing, maintenance expenditures are likely to be quite close to the
economic costs of the activity, In 1995, railroads spent about $25,000 per mile of track on
maintaining way and structures. At approximately 17% of all operating expenses, outdays
on fixed facilities is much larger proportion of railroad expenses than are roadway costs
compared to expenditure on highway transportation. In this sense, railroad transportation is
more fixed-facilities intensive than highway transport. Since railroad facilities are owned by
tha same companies that use the tracks, the cost that traffic imposes on tracks has been
treated as an internal business calculation of railroad companies.
Rail system in Malaysia
As of December 2003, Malaysia has 2418KM of total track of which 57KM use standard
(1.435 M) gauge and 2361 KM use Narrow (1.000M) gauge. Approximately 150KM of rail in
Malaysia is electrified.
Kereta Api Tanah Melayu Berhad is the largest railroad in the country. KTMB owns 2262 km
out of the total 2418 km of tracks in Malaysia and employs 5024 employees. Of the
remaining 156 KM, the Sabah State Railway has 134 KM. KTMB is the major and most
important railroad in Malaysia. It is government-owned but managed by a private entity.
KTMB utilizes 1.000M track gauge with 40% (903KM) tied with Concrete Sleepers and 60%
(1359) using Wooden Sleepers. Throughout the country, there are 943 bridges, 144 grade
crossings, 55 Overhead Pedestrian crossings, 11 Motorcycle overhead bridge crossings, and
22 tunnels, 2112 KM of single track and 150 KM of double track.








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KTMB Railway Network

KTMB Ownership
In December 2003, KTMB was still
wholly-owned by the government
of Malaysia through a vehivle
called the Ministry of Finance
Incorporated. In an attempt to
privatized the railroad in 1997, the
Government handed over the management of KTMB to a consortium that was majority
controlled by a conglomerate called Renong Berhad. The original plan had the consortium
taking over the management of KTMB and purchasing the equity from the Ministry of
Finance incorporated. However, the privatization attempt failed and the Government ended
the arrangement, taking control of KTMB from Marak Unggul in early 2002.
Subsidiary Operations
KTMB owns a subsidiary company known as Multimodal Freight Sdn.Bhd. According to a
UNESCAP report based on a country profile report of 1996, Property SBU, a KTMB
subsidiary, is responsible for land development, which has become a significant aspect of
the railway business in Malaysia. This branch accounted for 21% of KTMB operating
revenues at that time and it was growing faster than all other sources of income and
according to the report was expected to surpass the transportation business.

AIR FACILITIES
AIR TRAFFIC CONTROL SYSTEM
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Air traffic control (ATC) is a service
provided by ground-based controllers who direct
aircraft on the ground and through controlled
airspace, and can provide advisory services to
aircraft in non-controlled airspace. The primary
purpose of ATC worldwide is to prevent
collisions, organize and expedite the flow of
traffic, and provide information and other
support for pilots. In some countries, ATC plays
a security or defensive role, or is operated by
the military. To prevent collisions, ATC enforces
traffic separation rules, which ensure each
aircraft maintains a minimum amount of empty
space around it at all times. Many aircraft also
have collision avoidance systems, which provide
additional safety by warning pilots when other
aircraft get too close. In many countries, ATC
provides services to all private, military, and
commercial aircraft operating within its airspace.
Depending on the type of flight and the class of
airspace, ATC may issue instructions that pilots
are required to obey, or advisories that pilots may, at their discretion, disregard. Generally
the pilot in command is the final authority for the safe operation of the aircraft and may, in
an emergency, deviate from ATC instructions to the extent required to maintain safe
operation of their aircraft.
The air traffic control system sets up the equivalent of a network of fixed
facilities for the airline industry. The combination of air traffic system and the airports that
are used to load, unload, and transfer passenger and freight make the airline industry more
fixed facilities. Like highways transportation, the fixed facilities are provided by the
government.
In KLIA there have two air traffic systems which is main air traffic and Apron air
traffic. Main air traffic was the second highest in the world after the air traffic building in
Suvarnabhumi. The height of this building is 130 meters. This KLIA air traffic building was
design like an Olympics torch. In addition, this air traffic building has advance air traffic
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system and radar. While Apron air system was responsible to provide the air traffic system
to the plane and control the movement of vehicles in north and south sides of satellites
terminal and the areas of cargo. The height of this building only 55 meters.
The frequencies of KLIA air traffic controls are as follow:
Lumpur Clearance Delivery - 126.00 MHz
Lumpur Ground - 121.65 MHz, 121.80 MHz, 229 MHz
Lumpur Tower - 118.50 MHz, 118.80 MHz, 229 MHz
Lumpur Approach - 119.45 MHz, 124.20 MHz
ATIS - 126.45 MHz
Civilian air traffic control expenditures by the federal government are $4.8 billion annually.
This expenditure is about 2 percent of total expenditure on civilian passenger and freight air
transportation. By the way, there have no publicly available studies detailing how air traffic
control expenditures change with traffic levels.
In Malaysia, to improve operations management and air traffic control, the
Government will replace the existing air traffic control management system in Subang that is
almost 20 years old. A new air traffic management Centre costing RM 700 million will be
built at KLIA. The new system will facilitate an increase in air traffic from 68 to 108
movements per hour on three runways. This will be among the highest capacity in handling
air traffic worldwide. This is the amount of expenditures or cost that government in Malaysia
will paid for a new air traffic control system. This is based on the budget of 2014 that has
presented by Prime Minister and Minister of Finance Datuk Seri Najib Tun Razak at the
Dewan Rakyat on 25
th
October 2013.
AIRPORT EXPENSES
Airport authorities are nonprofit institution that set the prices for their services to
match their expected expenditures. Large airports have a larger proportion of their expenses
in terminal and smaller proportion associated with runways. In general, about 28 percent of
airport expenses are associated with runways and landing areas. Terminal areas including
parking account for 57 percent and the remaining is associated with hangars and other
leased or operating areas.
In US there have more than 18,000 airports but most of these have short, unlit, unpaved
runways. Only 250 airports have runaways over 100,000 feet long. Long runaways are
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required for operating large jet aircraft. Another 384 airports have runaways between 7,000
and 10,000 feet.
Basically, an airport is owned and operating by state, municipalities, or agencies
set up by local government to operating airport. The annual expenditures that governments
provide on airport are about $12 billion. Of this amount, approximately $2 billion is provided
by the federal government in grants to the states and for expansion of runaways and control
equipment. Then remaining $10 billion of airport expenditures are made directly by the state
and local airport authorities.
In Malaysia, to increase passenger comfort, the Government will upgrade several
airports, such as Kota Kinabalu and Sandakan in Sabah as well as Miri, Sibu and Mukah in
Sarawak. For this, the Government will allocate RM 312 million. In addition, the passenger
terminals in Langkawi International Airport and Kuantan Airport will be upgraded. This is the
total of expenses that will cover to upgrade several airports in Malaysia.
Pictures 1 show as general the global expenditures on airport construction for 2014 for Asian
pacific, North America, Europe, Middle East, Africa and Latin America.
The global expenditure on airport construction as of 08-May-2014

Source: CAPA Airport Construction and
CapEx database
GRAPH 1
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Based on Graph 1, Asia Pacific shows the higher amount of investment in airport
construction. There have more than USD100, 000 billion investment on this sides. And the
less investment on this airport construction is on Latin America. Latin America only invest
less that USD50, 000 billion.
This is shows us that most of developed countries has investing more in airport
expenditures. This is because these countries want to improve their airport to more advance
like America, Japan, China and others developing countries. This is motivating the countries
at Asia pacific to investing more in this airport expenses. This investment is including the
operating maintenance and others.

Total global expenditure on new airport construction as of 08-May-2014

Source: CAPA Airport Construction and CapEx database


Graph 2 above shows the total global expenditure on new airport construction for Asia
Pacific, Europe, Africa, Latin America, North America and Middle East.
GRAPH 2
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From the picture, Asia Pacific shows the highest investor for global expenditure on new
airport construction. Asia Pacific mostly invest more than USD 30 Billion for this construction.
Europe, Africa, Latin America, North America and Middle East only invest less than USD 10
Billion for this airport construction.


Graph 3 above shows the cost of airport in Malaysia which is Kota Kinabalu
International Airport (KKIA). From the picture above we can see the maintenance cost of
airport is increasing from RM21.7 Million on 2010 to RM23.6 Million in 2011. We can see that
the cost for fixed facility like airport is increasing year by year. This is because the increasing
of domestic and the increasing of number of tourist in Malaysia makes our country need to
improve the facility of airport such as KKIA to be more advance like other country.
As overall, we can assume that the cost of fixed facilities which is airport keep
increasing year by year. The operating cost of KKIA keep increasing because of increasing in
staff cost, direct cost, utilities and maintenance cost.
GRAPH 3
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Graph 4 shows the total cost of airport operation in, KKIA Malaysia. As general
the operating cost can divided into eight types which are staff cost, retail-direct material,
utilities, user fee, retail-direct overhead, provision for doubtful debts, lease rental and
others. Based on these operating costs, staff cost most the highest cost that should be cover
in the operating cost. It cost more than RM 60 Million. This staff cost increase RM 4 Million
from 2010 which is only RM 59.8 Million to RM 63.8 Million on 2011. Majority of this
operating cost has increased from year 2010 to year 2011.
For construction cost, KKIA cover RM 155 Billion in 2011 for this side. This
cost increased by RM 92.8 Billion from 2010 which is only cost RM 62.2 Billion.
WATER TRANSPORT
Water transport consist two type which is inland water transport and ocean
transport. Water transport use two kinds of fixed facilities which is channel improvements
and port facilities. Ocean transportation tends to use primarily port facilities while domestic
water transport is affected more by decisions on channel improvement. Ship transport is
watercraft carrying people or goods. Sea transport has been the largest carrier of freight
throughout recorded history. Although the importance of sea travel for passengers has
GRAPH 4
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decreased due to the aviation, it is effective for short trips and pleasure cruises. Transport
by water is cheaper than transport by air, despite fluctuating exchange rates and CAF
charges to account for such. Ship transport can be over any distance by boat, ship, sailboat
or barge, over oceans and lakes, through canals or along rivers. Shipping may be for
commerce, recreation or the military purpose. Virtually any material that can be moved by
water. However, water transport becomes impractical when material delivery is highly time-
critical. When a cargo is carried in more than one mode, it is inter-modal or co-modal.
Example type of ships and watercraft include bulk carriers, container ships, tankers,
refrigerated ships, roll-on/roll-off ships, coastal trading vessels, ferries, cruise ships, ocean
liner, cable layer, tugboat, dredger, barge, and multipurpose ship.
The infrastructure is requires for a port to become more efficiency to send and
receive cargo such as harbors, seaports and marinas host watercraft and consist of
components such as piers, wharf, docks and road-steads. The shipping industry is divided
into several parts such as liner service, tramp Shipping, industrial services and tanker
operations. The shipping fleet across the world comprises of tankers, dry bulk carriers,
container ships and special vessels. Inland Water Transport (IWT) is an Eco-friendly
transportation mode. It plays a significant role in augmenting the countrys transportation
infrastructure. In many western countries IWT has already emerged as an alternative mode
of transportation with the globalization. The expansion of road is limited due to non-
availability of land, high costs and environmental considerations. IWT is cost effective when
compared to the infrastructural investments made in roads and railways. Moreover some
hazardous commodities should not be transported by road, for this IWT is the best option.
In view of the above constraints and advantages, the development of IWT has become
relevant in todays context. The major advantage of IWT is doubling of load capacities for a
small increase in depth, thereby providing flexibility and cost elasticity, which does not exit
in other modes of transportation. Besides lower fuel consumption and construction cost,
IWT has the advantage of ensuring minimum human loss as opposed to frequent road and
rail accidents.

PIPELINES
Pipeline transportation is the one mode that does not use vehicles. The operator
of the fixed facilities provides the transportation directly. Because of it does not use vehicles,
and since ownership patterns in the industry often integrate the transportation, production,
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and marketing functions, pipelines have receive less attention from transportation
economists than have other modes of transport but it is the largest number of pipeline miles
are used to moved natural gas. Pipeline transport is the transportation of goods through a
pipe. Liquids and gases are transported in pipelines and any chemically stable substance can
be sent through a pipeline. Sewage, slurry, water, and even beer pipelines exist, but
arguably the most valuable are those transporting crude petroleum and refined petroleum
product including fuels such as oil, natural gas, and bio fuels. Pneumatic tubes using
compressed air can be used to transport solid capsules.

In general, pipelines can be classified in three categories depending on purpose
which is gathering pipelines. Group of smaller interconnected pipelines forming complex
networks with the purpose of bringing crude oil or natural gas from several nearby wells to a
treatment plant or processing facility. In this group, pipelines are usually short- a couple of
hundred meters and with small diameters. Also sub-sea pipelines for collecting product from
deep water production platforms are considered gathering systems. Transportation pipelines
mainly long pipes with large diameters, moving products (oil, gas, and refined products)
between cities, countries and even continents. These transportation networks include
several compressor stations in gas lines or pump stations for crude and multi-products
pipelines. Distribution pipelines composed of several interconnected pipelines with small
diameters, used to take the products to the final consumer. Feeder lines to distribute gas to
homes and businesses downstream. Pipelines at terminals for distributing products to tanks
and storage facilities are included in this group. Electrical power network, including
generation plants, electrical grid, substations and local distribution. Natural gas pipelines,
storage and distribution terminals, as well as the local distribution network. Some definitions
may include the gas well, as well as the fleets of ships and trucks transporting liquefied gas.
Petroleum pipelines, including associated storage and distribution terminals. Some
definitions may include the oils wells, refineries as well as the fleets of tanker ships and
trucks. Specialized coal handling facilities for wasting, storing and transporting coal. Some
definitions may include Coal mines. Steam or hot water production and distribution networks
for district heating systems. Electric vehicles networks for charging electric vehicles.
Pipeline cost are dominated by construction outlays. The construction costs are
divided between materials such as pipe and equipment and labor. Land costs are such a
minor part of pipeline costs because pipelines are underground and the surface of the land
can be used normally without regard to the existence of the pipelines underneath after
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placement. The costs of pipeline construction will vary with the diameter of the pipe. The
length of the pipeline, and the type of terrain through which is built. Longer pipelines are
cheaper for per mile to build than are shorter pipelines. After pipeline has been constructed,
the main operating cost is fuel for running compressors and pumps to keep the liquid or gas
moving through the pipeline. The other substantial cost is labor to operate the compressor
and transmission stations. These costs are very small in comparison to original construction
costs. The ratio of fixed costs to total coasts is by far the highest in transportation
industries.
Pipelines do not have a useful life that can be measured in years. Pipelines are
designed to last for as long as the deposit they were built to tap. Construction cost of
pipeline facilities are genuinely sunk. The opportunity cost of fixed facilities in pipeline
transportation are greatly over estimated by calculations based on the construction costs of
the pipeline.The basic advantage of pipelines is that they reduce operational costs, though
the initial investment is high. Pipelines are Eco-friendly transportation mode. The cost of
moving oil by rail or road continues to rise every year, however, with pipelines this is just
the opposite. Pipeline is the highest fixed cost (rights-of-way, construction, requirements for
control stations and pumping capacity).











Number of Barrel-Miles

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Graph shows the unit cost of expending pipeline transportation depends on how
it is done. Curve AA represents the minimum cost of increasing flow rates in the short run
which take to mean without any increase in pipe or equipment. Curve BB shows the
minimum cost way of increasing flow rates in the intermediate run which we take to mean
increasing the number and size of compressors and other equipment, but not a new building
the line. Curve CC shows the technologically minimum way of increasing the flow rate if the
entire pipeline could be re-engineered and constructed to accommodate the increase in
flow; we can think of this as the long run.

Given the pipe diameter, increasing the flow rate requires increasing the speed of
flow in the pipe, which is in turn means increasing the amount of fuel used to operate
compressors and pumps. The rising part of curve AA is the result of increased fuel used to
push the crude oil in the pipe quickly. The resistance in the pipe makes it impractical to
increase flow rates substantially simply by making the pumps work harder. A more fuel
efficient means for increasing flow rates would be add more pumps stations. This shown in
curve BB, which dips below curve AA beyond flow rate X
*.
If new building occur however the
pipe size must be larger to optimize to the flow rates. Small diameter pipe have the
advantage of a lower construction cost per mile than the larger diameter pipe. Small
diameter pipe also have less difficulty of mixing in product pipelines but the larger diameter
pipelines have the distinct advantage of lower construction cost per unit of through put and
less resistance to flow in the pipelines. These advantages are reflected in a lower cost of
curve CC beyond the flow rate X
**
. The downward slope of curve CC is often describe as
showing economies of scale in pipelines transportation. If scale economies are taken to
means that it is cheaper to build and operate one larger diameter pipelines rather than two
smaller diameter pipelines to covering the same route, pipelines are clearly subject to
economies of scale. However pipelines are far and away the most fixed facilities-intensive
mode of transportation.




19

REFERENCES
Airports and Air Traffic Control, By - Chris Edwards and Robert W. Poole, Jr. (June
2010) retrieve from http://www.downsizinggovernment.org/transportation/airports-
atc, 12 May , 2014
Budget 2014: Full text of Prime Ministers speech retrieves from
http://www.thestar.com.my/News/Nation/2013/10/25/Budget-2014-PM-
speech.aspx/, 13 May 2014.

David Levinson, (2005), paying for the Fixed of Roads, Journal of transportation and
policy, Volume 39, part 3, pp.279-294.

Highway Funding & Expenditure, retrieve on 1 May 2014, available at:
https://www.fhwa.dot.gov/ohim/onh00/onh2p10.htm
Highway statistics 2011, retrieve on 8 May 2014, available at:
http://www.fhwa.dot.gov/policyinformation/statistics/2011/userguide.cfm
Kenneth D. Boyer, Principles of Transportation Economic, 2004
Office of Highway Policy Information Highway Finance Data Collection, (2011),
retrieve on 1 May 2014, available at:
http://www.fhwa.dot.gov/policyinformation/pubs/hf/pl11028/chapter6.cfm