Chapter 8: Discrete Choice Analysis of Shippers' Preferences

The models presented in this chapter are designed to predict shippers' choice of mode more accurately. The choice model reflects competition among different modes by estimating choice probabilities as a function of relative utilities between available modes. These utilities capture the differential effects of freight rate, logistics costs and service quality — all important components affecting mode choices.

The choice model is derived from the assumption that shippers seek to minimize total logistics costs. A basic version of our model is estimated using revealed preferences (RP) data collected in 1988 by a major U.S. railroad company. The survey included 166 transportation managers who each ship one of the following five commodities: paper, aluminium, pet food, plastics and tires. This kind of data is expensive and usually proprietary. It was a unique opportunity to receive such a proprietary marketing survey from a railroad company for research.