Economic Costs of Inefficient Transportation

Economic Costs of Inefficient Transportation

Transportation is critical for economic growth. But inefficiencies in transportation systems and traditional modes of transport have macroeconomic and microeconomic offshoots that are counterproductive. This is one of the reasons proponents of sustainable development have upheld the importance of developing sustainable cities and adopting sustainable transportation. This article identifies the specific economic costs of inefficient transportation or the negative economic impacts of inefficiencies in transportation systems.

The Economic Costs of Inefficient Transportation: How Poor Transportation Systems Negatively Impact the Economy

1. Losses and Reduced Productivity Due to Traffic Congestion

Traffic congestions are time-consuming. Being stuck on the road due to high volumes of vehicles and ineffective road networks affect businesses and the workforce because of interruptions. Losses can range from thousands to millions of dollars. Take note of the following specific economic impacts of traffic congestion:

• Interruptions due to congestion can impact the capacity of businesses with rapid inventory turnover to manage their respective inventories according to G. Weisbrod and S. Fitzroy. Examples include grocery stores, restaurants, consumer goods manufacturers, and oil and gas suppliers and end-use sellers.

• The World Economic Forum noted that traffic congestions cost the United States economy about USD 87 billion in 2018 due to the loss of productivity in dense and urbanized areas. The same is true for other countries. For example, the Japan International Cooperation Agency reported in 2018 that the Philippines is losing about USD 62.5 million each day due to congestion in Metro Manila.

• Note that the same report from the World Economic Forum mentioned that individual Americans lose an average of 97 hours a year due to congestion and the time it takes for them to travel from one destination to another. These hours can be translated into productivity or income-generating activities.

• There is an inverse relationship between traffic congestion and the productivity of workers according to researchers A. O Somuyiwa, S. O. Fadare, and B. B. Ayantoyinbo. A report from the Harvard Business School explains further that long commute negatively affects not only the productivity of individual workers but also the capacity of companies to maximize their best employees.

2. Expensive Transportation Costs From Transport Inefficiencies

Another one of the economic costs of inefficient transportation is the costs. These include fuel costs and transfer costs. Note that bad traffic and poor infrastructure consume more fuel. The same is true for long drives to work or the long routes of aircraft and shipping vessels. The following are more detailed explanations and examples:

• Researchers B. Jereb, S. Kumperščak, and T. Bratina explained the reason how congested traffic results in increased fuel consumption. They noted that congestion makes a particular vehicle stop and start several times, thus leading to more fuel consumption than vehicles moving without stopping.

• Furthermore, civil engineering researchers from the Massachusetts Institute of Technology noted that both traffic flow and the materials used in road pavements affect fuel efficiency. Congested traffic results in 3.5 times higher deflection-induced fuel consumption than free-flowing traffic.

• Inefficient mass transit systems can also result in expensive commutes. For example, in some countries where commercial zones are far from residential zones, workers need to go through different modes of transport to go to work and back to their homes.

• The quality and quantity of infrastructures also affect the logistics costs of companies. Exporters and importers in landlocked countries face higher logistics costs than countries surrounded by bodies of water according to The World Bank.

• A 2004 report by the National Institute of Standards and Technology of the U.S. Department of Commerce concluded that the estimated costs of inadequacies in relevant supply chain infrastructures were more than USD 5 billion for the automotive industry and almost USD 3.9 billion for the electronics industry.

3. Specific Public Health Costs Associated With Transportation

Unstainable transportation has been linked to several negative health impacts. These include diseases from air pollution, effects of physical inactivity due to passive transport, injuries and deaths due to traffic accidents, and mental and behavioral issues associated with different transportation inefficiencies. These have specific costs:

• M. L. Grabow et al. concluded that a benefit of USD 1900 per person each year or a 5 percent reduction in health costs would be generated if half of the U.S. metropolitan population would shift from driving to cycling.

• The World Bank also explored the toll of traffic injuries in several countries. Its findings showed that welfare benefits would be yielded that amount to 6 to 32 percent of the national gross domestic product if road traffic injuries are halved in countries including China, India, the Philippines, Tanzania, and Thailand.

• Investing in sidewalks could induce a cost-benefit ratio of 1.81 according to the study of J. Y. Guo and S. Gandavarapu. Increasing the number of cyclers in Stockholm by a quarter would have a net benefit equivalent to 8.7 percent of the health budget of the municipality according to the study of H. K. Kriit et al.

• The total health costs of problems in transportation in the U.S. amount to hundreds of billions of dollars according to the American Public Health Association. Traffic crashes have an estimated yearly cost of USD 180 billion. Health costs due to transportation-related pollution are between USD 50 billion to USD 80 billion.


  • American Public Health Association. 2010. The Hidden Health Costs of Transportation. American Public Health Association. Available via PDF
  • Arvis, J-F., Raballand, G., and Marteau, J-F. 2010. The Cost of Being Landlocked: Logistics Costs and Supply Chain Reliability. The World Bank. Available online
  • Brehm, D. 2012. “Civil Engineers Find Savings Where The Rubber Meets The Road.” MIT News. Massachusetts Institute of Technology. Available online
  • Fleming, S. 2019. “Traffic Congestion Costs the US Economy Nearly $87 Billion in 2018.” World Economic Forum. Available online
  • Grabow, M. L., Spak, S. N., Holloway, T., Stone, B., Jr., Mednick, A. C., and Patz, J. A. 2012. “Air Quality and Exercise-Related Health Benefits from Reduced Car Travel in the Midwestern United States.” Environmental Health Perspectives. 120(1): 68-76. DOI: 1289/ehp.1103440
  • Guo, J. Y. and Gandavarapu, S. 2010. “An Economic Evaluation of Health-Promotive Built Environment Changes.” Preventive Medicine. 50: S44-S49. DOI: 1016/j.ypmed.2009.08.019
  • Jereb, B., Kumperščak, S., and Bratina, T. 2018. “The Impact of Traffic Flow on Fuel Consumption Increase in The Urban Environment.” FME Transactions. 46(2): 278-284. DOI: 5937/fmet1802278J
  • Kriit, H. K., Williams, J. S., Lindholm, L., Forsberg, B., and Nilsson Sommar, J. 2019. “Health Economic Assessment of a Scenario to Promote Bicycling as Active Transport in Stockholm, Sweden.” BMJ Open. 9(9): e020466. DOI: 1136/bmjopen-2019-030466
  • Lambert, L. 2021. “Commuting Hurts Productivity and Your Best Talent Suffers Most.” Harvard Business School Working Knowledge. Harvard Business School. Available online
  • Somuyiwa, A. O., Fadare, S. O., and Ayantoyinbo, B. B. 2015. “Analysis of the Cost of Traffic Congestion on Worker’s Productivity in a Mega City of a Developing Economy.” International Review of Management and Business Research. 4(3): 644-656
  • The World Bank. 2017. High Toll of Traffic Injuries: Unacceptable and Preventable. The World Bank. Available online
  • Weisbrod, G. and Fitzroy, S. 2011. “Traffic Congestion Effects on Supply Chains: Accounting for Behavioral Elements in Planning and Economic Impact Models.” Supply Chain Management – New Perspectives. DOI: 5772/2305
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