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Warehousing: Indirect Derived Demand of Transportation

Transportation plays a very important role in moving people, information as well as freight from one location to another. Rodrigue, Comtois, and Slack (2006), state that the purpose of transportation of fulfilling the demand of mobility makes it the leading outcome of derived demand (p. 2). They further argue that what happens in one particular sector has an impact on another; the same way demand for services or goods in a given sector is derived from another sector. Transportation can’t be on its own without depending on other services or movements from other sectors. Consequently, there are two types of demand for transportation, namely, directly derived demand and indirectly derived demand.

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Directly derived demands of transportation are movements, which are the direct outcome of economic functions that are unable to occur exclusive of such demands. For instance, transportation is a direct demand, which is derived from the relationship that exists between a place of residence where there is a supply of work and another location where there is the demand for labor (Rodrigue, Comtois & Slack, 2006, p.3). Since transportation facilitates the movement of materials and other products, it is considered a function of manufacturing, utilization as well as production.

Indirectly derived transportation demand is simply the movements generated by requirements of some other movements (Rodrigue, Comtois & Slack, 2006, p.3). Examples of indirectly derived demands include warehousing, energy, accommodation, catering services, banking services amongst others. Energy is a very crucial necessity in the transportation sector because it necessitates transportation activities. Therefore, energy supply by energy production system requires movement from where it is extracted, to the locations of the storage and refinery facilities, and eventually to locations of consumption. Warehousing is another example of indirect derived demand because it is a non-movement element of freight. It is not possible to move merchandise from the location of their production directly to places of their consumption. This is the reason for the existence of warehousing since it will offer storage services to commodities on transit as well as to other logistics operations.

The movement of passengers demands other requirements such as accommodation and catering services. Transportation of people over a long distance cannot take place without the provision of food and water. This makes the supply of foods and other related services aimed at satisfying and offering comfort to the passengers an indirect transportation demand. In some instances, commuters are forced to seek accommodation before proceeding with the rest of their journey. For instance, in cases where passengers heading to a particular destination are expected to change flights or catch a different vehicle whose departure time is not immediate, passengers will need accommodation before they proceed with the rest of their journey. Hotel services are therefore a critical and indirect derived transportation demand. In addition, banking service is important in the entire transportation process because of the nature of services it provides. Freight transportation, movement of passengers, and information cannot take place without paying for the services. Banks make the payment of transportation services and payment of other logistics operations possible. Services offered by banks generally ensure a smooth transportation process with limited inconveniences in financial transfer between parties involved. Banking services are, therefore, a very important requirement in transportation. Hence, banking services are considered an indirectly derived transportation demand.

Reference

Rodrigue, J., Comtois, C. & Slack, B. (2006). The Geography of Transport Systems. London: Routledge, Taylor and Francis Group.

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StudyCorgi. (2022) 'Warehousing: Indirect Derived Demand of Transportation'. 2 May.

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