In economics a trade-off is expressed in terms of the opportunity cost of a particular choice, which is the loss of the most preferred alternative given up. A tradeoff, then, involves a sacrifice that must be made to obtain a certain product, service, or experience, rather than others that could be made or obtained using the same required resources. For example, for a person going to a basketball game, their opportunity cost is the loss of the alternative of watching a particular television program at home. If the basketball game occurs during her or his working hours, then the opportunity cost would be several hours of lost work, as she/he would need to take time off work.
Many factors affect the tradeoff environment within a particular country, including the availability of raw materials, a skilled labor force, machinery for producing a product, technology and capital, market rate to produce that product on a reasonable time scale, and so forth.
A trade-off in economics is often illustrated graphically by a Pareto frontier (named after the economist Vilfredo Pareto), which shows the greatest (or least) amount of one thing that can be attained for each of various given amounts of the other. As an example, in production theory, the trade-off between the output of one good and the output of another is illustrated graphically by the production possibilities frontier. The Pareto frontier is also used in multi-objective optimization. In finance, the capital asset pricing model includes an efficient frontier that shows the highest level of expected return that any portfolio could have given any particular level of risk, as measured by the variance of portfolio return.
Factors That Play a Key Role in Selecting Mode of Transport Are
1) Cost of Transport
2). Reliability and Regularity of Service
3) Safety
4) Characteristics of goods
5) Budget
6) Timescale
7) Flexibility
Factors That Play a Key Role in Selecting Mode of Transport Are
1) Cost of Transport
When selecting the best and most suitable transport for exportation of products, the budget is the most important consideration. Costs vary based on the type and amount of goods needed to be transported. It is important to keep in mind that the cost of transport influences the cost of goods.
If heavy or bulky products are being transported over a long distance, inland, then rail transport is the most economical. Land transport, typically by trucks, is best suited for small amount of goods being transported over short distances, as it also saves packing and handling costs. The cheapest mode of transport is water transport, albeit the slowest too, but most suited for heavy or bulky goods that need to be transported over long distances, where time is not an important factor. Air transport is the best option for transportation of perishable, fragile and valuable goods, even though it is the most expensive.
It is important for importers and exporters to consider the overall cost of transportation, keeping the “hidden costs” such as insurance premiums and finance charges in mind.
2) Reliability and Regularity of Service
The reliability and regularity parameters of different transport modes, differ from each other. The urgency and speed by which the goods are to be delivered, influences the decision as to which mode of transport to use. All modes of transport, land, ocean and air, are affected by bad weather such as heavy rains, snow, fog and storms, which may cause delays.
3) Safety
Another crucial factor influencing the selection of a mode of transport is the safety and security of goods in transit. Land transport is more preferred to railway transport because the losses are less.
From the safety point of view, sea transport is the most risky, as water transport exposes the goods to the perils of sea, and the long duration of travel adds to the risk factors. Certain types of packaging also helps in safeguarding the goods in transit and are highly recommended, but they do influence costs as well.
Some goods also require special facilities such as refrigeration or special security measures that need to be taken into consideration when selecting a mode of transport.
4) Characteristics of goods
When selecting the mode of transport, the size and weight of goods play a crucial role. Land and air transport primarily cater to fragile and small shipments. Rail and sea transport are a more suitable option for heavy shipments.
How dangerous, fragile or high value the products are, also influences the selection of the transport mode. For breakable and fragile, high value products, air and land transport are the best option.
5) Budget
Transportation costs are add-on cost on the sale price of a product. The transport costs add to how much the goods can be sold for, to make a profit. Hence budget requirements need to be considered accordingly. The volume or weight of the goods play a key role in determining which method of transport is the best value. Also the type of good in terms of urgency of delivery, such as how perishable the goods are, and how quickly they need to arrive, influences the choice of mode of transport.
Typically, water transport is the most cost effective, and is mostly suitable when there is no hurry, and the goods are bulky or heavy, and need to be carried a long distance. Rail transport is relatively inexpensive for these types of goods. The advantage of road transport, in terms of cost is that there are savings to be made on the costs of handling and packaging. Air transport is one of the most expensive modes, but has the benefit of being fast, so is best suited for perishable and fragile goods.
6) Timescale
Air transport is the best option for long distances requiring urgent and speedy transport, to meet deadlines or because the goods are perishable or fragile. Motor transport is faster than rail transport for short distance deliveries. However, for longer haul journeys rail is faster and more economical. Water transport is often not suitable where time is a factor.
7) Flexibility
The most flexible mode of transport is Motor or road transport, as it is not constrained by factors such as flight times, shipping routes or pre-scheduled timetables. Motor transport can operate day and night, at personal convenience, to suit all time frames, and has the added advantage of door-to-door delivery.