Transportation Demand and Volume Sensitivity: A Study of Grain Shippers in the Upper Mississippi River Valley

Transportation demands typically involve a mode and a volume decision. This paper focuses on the volume decision and the adjustments of volume to changes in rates, transit times, and reliability. Demanders are confronted with a change in each of these attributes and state whether their volumes would change and if they would change, by how much. The model is estimated with Heckman’s procedure. In the first stage, the probability of whether an adjustment occurs is estimated as a function of firm attributes, and in the second stage, the level of adjustment is estimated. The data consist of a recent (2006) survey of grain shippers in the Upper Mississippi and Illinois River Valleys. The results suggest that whether an adjustment occurs is affected by storage capacity and railcar loading capacity. The magnitude of the adjustment, given that it occurs, is driven by the magnitude of the change in rates, time, and reliability. The estimates imply moderate elasticities with respect to rate changes and smaller elasticities with respect to time and reliability. To capture the effects of spatial competition among elevators, two different types of rate changes were considered. These are rate changes that apply only to the shipper and not its competitors and rate changes that apply to both the shipper and its competitors. As expected, the former tends to have a larger effect than the latter