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Policy Options for Intermodal Freight Transportation: Special Report 252 (1998)

Chapter: 4 Regulatory and Operations Issues

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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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4
Regulatory and Operations Issues

In addition to building transportation facilities, government in the United States operates and maintains highways, airports, ports, and waterways. Its performance as an operator greatly affects the efficiency of the intermodal freight system. Improved operation can increase the effective capacity of a facility, so better management is a substitute for capital spending. Federal policy recognizes that efficient management complements infrastructure investment. Executive Order 12893 of 1994, “Principles for Federal Infrastructure Investments,” states:

The efficient use of infrastructure depends not only on physical design features, but also on operational practices. To improve these practices, agencies should conduct periodic reviews of the operation and maintenance of existing facilities…. Since efficient levels of service can often best be achieved by properly pricing infrastructure, the Federal Government through its direct investment, grants, and regulations should promote consideration of market-based mechanisms for managing infrastructure. (Federal Register 1994, 4233)

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

Freight operations depend critically on communication among shippers, carriers, and receivers. Progress in information technology has been a primary source of productivity growth in the freight industry and has been especially important to the viability of intermodal transport. Information bottlenecks—for example, incomplete implementation of electronic data interchange and lack of standard information requirements among parties in intermodal freight transactions—hinder freight efficiency. Government, as an operator of transportation facilities as well as through its regulatory functions, must be a party to the solution of these information problems.

In addition to building and operating facilities, government regulates many aspects of freight transportation operations. Important categories of regulation that affect intermodal freight are land use (e.g., zoning and wetlands preservation), other environmental rules, truck size and weight, transportation safety, economic regulation of ocean shipping, and antitrust regulation. Government regulates private-sector shippers and carriers, and the federal government regulates the practices of state and local government transportation agencies.

An integrated government policy for improving efficiency of intermodal freight must give at least as much attention to regulatory and operations issues as to infrastructure needs. The major questions for government policy are the following:

  • What are the best opportunities for government agencies that operate ports, airports, roads, and waterways to improve the efficiency of these operations?

  • Do opportunities exist for process streamlining or other reforms to improve the cost-effectiveness of regulations?

  • What is the overall effect of government policies—including antitrust, maritime, and tax regulations as well as government aid programs—on the structure and development of the intermodal freight industries?

This area encompasses an extremely diverse array of laws and government practices. The committee did not examine these issues comprehensively. Rather, it selected three topics that other recent reviews of intermodal policy have not emphasized and that illustrate the

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

importance of policy decisions on operations and regulation to intermodal freight efficiency.

The study committee commissioned a background paper, “Information Technology for Freight Transportation Coordination,” by Barrie R. Nault, to assist it in considering one of the topics of this chapter. The paper appears in Part 2 of this volume. The conclusions in this chapter are those of the committee.

FACILITATING APPLICATION OF INFORMATION TECHNOLOGY

Information is an essential complement to freight transport. All freight must be accompanied by information to provide direction to handlers, answer questions of controlling authorities (e.g., customs), and reconcile the records of shippers, consignees, and everyone in between. Freight transportation has benefited from the radical improvements in information technology of recent decades. However, progress in linking the evolving information and transportation systems has been slowed by lack of interoperability, incomplete network infrastructure, and lack of expertise in some sectors that participate in the freight system.

Federal and state governments, in their roles as providers of transportation facilities and services and as regulators, affect the progress of information technology applications in freight transportation. Also, the Department of Defense and some other government agencies are major users of freight services and facilities. Government cannot mandate standards or the use of particular information infrastructure—such efforts have failed repeatedly. Nevertheless, government has a role in facilitating the application of information technology in transportation. It can take a more active lead in ensuring that its systems are interoperable with evolving industry systems and can provide research support for the development of solutions to problems in existing systems.

Government can reduce regulatory compliance costs and at the same time provide an impetus for adoption of information technology by making its regulatory information reporting requirements consistent with industry practice. The U.S. Customs Service’s Automated Commercial System is a successful example. This system, developed under a congressional mandate, permits shippers, carriers, terminal operators,

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

customs officials, and ports to electronically conduct transactions required for customs clearance, including transmittal of manifests and payment of customs duties. It has been credited with providing an important incentive for adoption of electronic data interchange among all parties engaged in international trade in the United States (Muller 1995, 124–125).

Other experiments with streamlining regulatory reporting requirements in freight transportation through information technology are taking place. A pilot project involving the Environmental Protection Agency and two state governments tested a system to perform the filing of manifests of hazardous waste shipments, required under state laws, via electronic data interchange. State departments of transportation and trucking companies have tested application of automatic electronic identification systems to simplify enforcement activities by reducing the frequency with which trucks are stopped for safety inspections, weighings, and permit checks at border crossings (TRB 1993b, 119, 192–193). However, the full extent of opportunities for reducing regulatory costs through automation remains to be explored.

In some cases, a flexible approach in applying regulations on anticompetitive practices may be advisable to permit industry collaboration on key precompetitive aspects of transport-related information infrastructure. Industry discussions on coordination problems in intermodal freight must take into account constraints imposed by antitrust regulation. Recently, for example, an industry association and a group of shippers’ agents have sought Justice Department reviews prior to meetings bringing together railroads, drayage firms, and third parties to discuss equipment interchange problems (Transport Topics 1995; Sparkman 1996). The arguments in favor of strictly limiting any such contacts are that any collusion, regardless of motivation, may have the effect of restricting competition to the detriment of consumers and that any regulatory loophole is subject to abuse as a pretext for inhibiting competition.

Effective information management has become an important source of competitive advantage for freight operators, but the essential network nature of the industry requires a degree of cooperation. Government should not prevent industry cooperation on questions of information interchange or other operational matters at the precompetitive level if the cooperation does not restrain competition.

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

ECONOMIC REGULATION OF CARRIERS

Economic regulation (that is, government oversight of rates and entry into an industry), which ended nearly 20 years ago in trucking and railroads, persists in ocean shipping. Also, international bilateral agreements governing air transport can amount to economic regulation. Efforts toward deregulation have been complicated by the global nature of these industries.

Steamship line common carriers may meet in organizations known as conferences to agree among themselves to fix rates, pool cargo, or establish joint services. Carriers have immunity from U.S. antitrust law for conference activities as long as agreements are filed with the Federal Maritime Commission (FMC). FMC can hold hearings and disapprove the tariffs and other agreements filed with it, but it first must show that the agreements would be harmful. FMC also enforces tariffs and common carriage obligations. These activities are governed by the Shipping Act of 1916, amended most recently by the Shipping Act of 1984, which reaffirmed antitrust immunity for conference rate-setting while giving carriers more flexibility on rates (for example, by allowing carriers and shippers to enter into contracts for rates outside the conference tariff) (Hershman and Kory 1988).

Ports can challenge conference tariffs or other agreements before FMC on grounds that they are discriminatory or unfair. As a recent example, the port of New Orleans complained to FMC in 1995 that conference tariffs were favoring Florida ports and causing it to lose substantial business. The dispute was settled when the conference changed the rates before FMC ruled on the complaint (Mathews 1997, A8). Ports, especially less dominant ones, traditionally have regarded FMC oversight of rates as protection against the propensity of the steamship companies to seek economies by consolidating operations at a smaller number of larger ports.

The magnitude of the influence of conference rate-setting has been disputed. Participating carriers have argued that they are weak cartels because they have no protection from nonconference competition and members can set rates outside the conferences in some circumstances (Mathews 1997, A8). However, the resistance encountered by legislation proposed to alter the system indicates that participants believe the arrangement is important. Studies have made quantitative estimates of

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

the amount by which conference rate-setting increases shipping rates (Mathews 1997, A1). Shipper conference rate-setting and FMC economic regulation have some effect on shippers’ transportation costs, competition among ports, and patterns of freight flows in the United States.

Bills recently introduced in Congress would have substantially modified the existing regulatory system. Unsuccessful legislation in 1996 called for largely deregulated rate-setting while leaving conference antitrust immunity in place. Compromise legislation introduced in 1997 would retain the common carriage obligation and tariff enforcement by the government, but carriers would gain flexibility in setting rates and in acting independently outside conferences (American Shipper 1997).

The effort to reform economic regulation of ocean shipping has been led by large shippers and supported by the major ocean carriers. It has been opposed, in general, by port authorities and port workers’ labor unions and by some smaller shippers and carriers. Ports, small carriers, and labor fear that deregulation would speed the trend toward consolidation of port operations, threatening smaller ports and their employees. Small shippers believe that confidential contract rate-setting would mean higher rates for them. Regulation is also defended as necessary to balance the market power of the conference rate-setting system (Barnes 1997a). The conferences, in turn, are defended on the grounds that ocean shipping is a global industry, and foreign carriers would go on fixing rates without U.S. government oversight if the antitrust protection were eliminated (Mathews 1997, A1).

Regulations also restrict competition in coastwise shipping. Under the Jones Act of 1920, freight moving between U.S. seaports must be carried in vessels built in the United States and owned and operated by U.S. companies. Although the magnitude of the effect is disputed, the Jones Act curtails to some extent long-distance coastwise trade in the United States. Vessel operators are entitled to federal operating subsidies intended to keep rates competitive, but since the phaseout of the federal shipbuilding subsidy program in the 1980s, U.S.-built ocean-going ships that would qualify for the trade have ceased to be built (TRB 1993a, 63–64; TRB 1992, 54–67).

Reducing coastwise trade restrictions would affect traffic volumes and relative competitive positions of U.S. seaports. Inland freight

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

movements would be affected by the changes in port market shares and because coastwise shipping competes with rail and truck for entirely domestic freight movements. Some ports could gain traffic as a result of diversion of freight from domestic surface modes.

The Jones Act is supported by the protected carriers and by unions that would be affected by change. It is justified as a means of maintaining U.S.-flag capacity needed for national defense. Shippers who would benefit from more freight options oppose it. Legislation introduced in 1995 and 1997 to modify the act did not succeed (Barnes 1997b). The Transportation Research Board (TRB) Committee for Study on Landside Access to Ports recommended in 1993 that the federal government encourage state projects to promote coastwise shipping as a means of reducing truck traffic between coastal cities (TRB 1993a, 13–14).

The experience of the rail and trucking industries indicates that deregulation has benefits for the public but that industry restructuring stimulated by deregulation can result in losses to some workers, firms, and local areas. So that the economic considerations can be understood, the U.S. Department of Transportation (DOT) should examine how economic regulation of ocean shipping and restrictions on coastal shipping affect intermodal freight performance in the United States and U.S. foreign trade.

PRICING PRACTICES

Setting the fees charged to users of publicly owned transportation facilities is a fundamental operating decision. Improved pricing of government transportation facilities would yield large payoffs in efficiency. There is a great volume of indirect evidence that when prices are unrelated to costs the result is inefficient production and inability of consumers to obtain the goods and services they want. This is shown in comparisons of market economies with socialist economies, and there is no reason to believe that market mechanisms are less important for the performance of individual industries than for the national economy. As an example in the case of freight, it is not disputed that deregulation of the truck and rail industries, which was principally price deregulation, led to large productivity improvements.

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

Government charges that affect intermodal freight include fees charged by ports and airports to carriers and concessions, and highway and waterway user excise taxes. Chapter 2 of TRB’s Special Report 246 (TRB 1996) describes practical obstacles to marginal cost-based pricing of publicly operated freight transportation facilities and identifies possible means of overcoming these obstacles.

Pricing, in the public or private sector, rations the use of a scarce resource, for example, capacity of a transportation link. Pricing based on marginal cost of each use of a facility encourages beneficial uses of the facility and discourages wasteful uses. The revenue from such fees is also a guide to investment. Generation of revenues in excess of agency operating costs by a facility is a good indication that expansion would be beneficial. It was noted in Chapter 3 that divergence between local and national interests in freight-related infrastructure projects would be reduced if local authorities had better means of capturing some of the benefits of freight system improvements to pay for the costs of the projects. New fee structures, including tolls, would be a way to accomplish this.

Extending the application of user fee finance is one of the principles underlying recent federal surface transportation legislation. The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) allowed construction of new toll facilities and conversion of free highways (except Interstates) to tolls with federal-aid funds. A private entity may own the toll facility. ISTEA also established a congestion pricing pilot program. The basis of infrastructure banking, such as the federal pilot program created by the 1995 National Highway System Act, is revenue-generating projects. DOT’s National Freight Transportation Policy Statement declares:

The prices charged for public sector transportation facilities and services determine whether they are used efficiently. Public facilities costs that are not included in the transportation rates paid by shippers may lead to inefficient use of the Nation’s limited transportation resources. Whenever feasible, fees and taxes adequate to cover the cost of building, operating, and maintaining public infrastructure facilities should be recovered from the parties that use and benefit from them. (DOT 1996, 7)

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

This principle has been endorsed by the states: the American Association of State Highway and Transportation Officials’ freight policy states, “Public costs of transportation facilities and services should be recovered through appropriate user charges” (AASHTO 1995).

Despite these endorsements, progress in pricing reform has been slow. An analysis of federal highway, airway, and waterway user charges by the Congressional Budget Office (CBO) and a TRB study of costs of freight transportation have identified opportunities for changes in user fees to improve efficiency.

Concerning highways, CBO concluded:

Although federal taxes on highway users about equal expenditures, changes in fee structure could raise adequate revenue and at the same time promote greater efficiency in highway use. Charges for pavement wear would encourage more efficient truck designs and operating practices. Congestion pricing would stretch existing capacity. (CBO 1992, 8)

TRB’s Special Report 246 recommended that the federal and state governments search for road user fee structures that promote freight transportation efficiency and consumer welfare (TRB 1996, 15).

Port pricing practices and revenue sources resemble those of the private sector more closely than those of other components of government-provided public freight infrastructure. Ports receive revenues from rents paid by terminal operators and from fees levied on ships and cargoes using the port. Fees more than cover costs at some ports, but various forms of government subsidies to ports are common. The availability of subsidies makes competitive undercharging possible and protracts overcapacity (Maritime Administration 1996, 41–44). The recent legal challenge to the harbor-dredging fee imposed by the federal government is described in the section on management of transportation trust funds in Chapter 5 of this report.

Concerning inland waterways, the CBO study concluded that although waterway user charges are well below the average cost of operating the system, the charges are of the same order of magnitude as the marginal cost of operating and maintaining the waterways on uncongested segments. The CBO study suggested options for changes in the fee structure to improve system efficiency or cost recovery, including an

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

annual license fee, segment-specific fees, and congestion fees (CBO 1992, 62–71).

The TRB study of freight costs also concluded that, aside from congestion costs, waterway user fees are comparable with marginal costs. The study recommended that the U.S. Army Corps of Engineers consider congestion pricing at locks as an alternative or complement to capacity expansion in its planning for the inland waterway system (TRB 1996, 14, 92). Congestion pricing would reduce the economic loss caused by congestion on the existing waterways system, provide a revenue source for expansion, and indicate which components of the system could be expanded most profitably.

User fees on public transportation facilities are almost always controversial. Changes in the structure of fees for highways, inland waterways, and aviation facilities stimulate user opposition. Pilot programs are one approach that may lead to progress in some areas of pricing reform. ISTEA’s highway congestion pricing pilot program is an example of this approach. It may be possible in some cases to gain acceptance by demonstrating benefits to users and to the public in a pilot implementation (TRB 1994, 7–12). Provisions to allow users a voice in decisions on how the revenues are spent may also help gain acceptance of changes in fees. An example of such an arrangement is the Inland Waterways Users’ Board, created by Congress at the demand of the companies that pay fees for the use of inland waterways, to advise on spending priorities for the inland waterways system.

Road construction, including improvements in access to ports and other intermodal terminals and improvement of through roads, is the most important category of freight-related government infrastructure project in terms of amount of spending and consequences for the freight industries. Road projects are to a great extent user-funded through highway user excise taxes, so some of the benefits of efficient pricing are attained.

Existing highway excise taxes function imperfectly as prices because the amount of excise tax a user pays is only weakly related to the costs that the user generates. The tax a user pays depends on distance traveled (since part of the tax is proportional to fuel consumption) and the weight of the vehicle (because heavy vehicles consume more fuel per mile and pay higher registration fees), but the full costs of a highway trip vary enormously depending on traffic conditions,

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

roadway design, the characteristics of the vehicle, and many other factors.

Highway user fees more closely related to the time and place of travel would essentially be tolls charged for use of particular roads at particular times. In contrast with user fees in the form of excise taxes, tolls provide an income source for financing particular road projects. Reliance on toll finance imposes a project-level budget constraint that discourages construction of economically unjustifiable projects.

Toll finance of road projects that serve intermodal freight is an option that should always be explored. However, for practical and political reasons, toll finance of highways is not yet widespread in the United States. (One important practical obstacle is that a new toll road generally must compete with untolled parallel routes.) The existing excise tax user fee system may be imperfect as a price mechanism, but it does influence individual user decisions and impose a systemwide budget constraint, and so contributes to efficiency. Therefore, recommendations in this report encouraging user funding are not intended to discourage projects in which highway construction is paid for with highway user excise tax revenues.

REFERENCES

Abbreviations

AASHTO American Association of State Highway and Transportation Officials

CBO Congressional Budget Office

DOT U.S. Department of Transportation

TRB Transportation Research Board

AASHTO. 1995. AASHTO Comprehensive Domestic Freight Policy. PR-5-95. Washington, D.C., April 25.

American Shipper. 1997. Shipping Act Reform, 1997 Version. April, pp. 18–20.

Barnes, D. 1997a. Keep Up the Good Work. Traffic World, Sept. 29, p. 29.

Barnes, D. 1997b. New Jones Act Assault. Traffic World, June 30, p. 16.

CBO. 1992. Paying for Highways, Airways, and Waterways: How Can Users Be Charged? May.

DOT. 1996. National Freight Transportation Policy Statement.

Federal Register. 1994. Principles for Federal Infrastructure Investments. Executive Order 12893. Vol. 59, Jan. 26.

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

Hershman, M. J., and M. Kory. 1988. Federal Port Policy: Retrenchment in the 1980s. In Urban Ports and Harbor Management: Responding to Change Along U.S. Waterfronts (M. J. Hershman, ed.), Taylor and Francis, New York, pp. 100–106.

Maritime Administration. 1996. Report to Congress on the Status of the Public Ports of the United States 1994–1995. U.S. Department of Transportation, Oct.

Mathews, A. W. 1997. As U.S. Trade Grows, Shipping Cartels Get a Bit More Scrutiny. Wall Street Journal, Oct. 7, pp. A1, A8.

Muller, G. 1995. Intermodal Freight Transportation (third edition). Eno Transportation Foundation and Intermodal Association of North America, Lansdowne, Va.

Sparkman, D. L. 1996. IMCs Organize Efficiency Forum. Transport Topics, March 4, p. 3.

Transport Topics. 1995. Justice OKs Intermodal Forums. Feb. 27, p. 35.

TRB. 1992. Special Report 236: Intermodal Marine Container Transportation: Impediments and Opportunities. National Research Council, Washington, D.C.

TRB. 1993a. Special Report 238: Landside Access to U.S. Ports. National Research Council, Washington, D.C.

TRB. 1993b. Special Report 239: Hazardous Materials Shipment Information for Emergency Response. National Research Council, Washington, D.C.

TRB. 1994. Special Report 242: Curbing Gridlock: Peak-Period Fees To Relieve Traffic Congestion. Vol. 1. National Research Council, Washington, D.C.

TRB. 1996. Special Report 246: Paying Our Way: Estimating Marginal Social Costs of Freight Transportation. National Research Council, Washington, D.C.

Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Suggested Citation:"4 Regulatory and Operations Issues." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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TRB Special Report 252 - Policy Options for Intermodal Freight Transportation recognizes that freight transportation is of critical importance to the United States and that intermodal freight transportation is one of the major technological and organizational trends affecting the performance of the sector.

During the last two decades, the importance of freight efficiency to the nation's economy has become more apparent to federal policy makers and has emerged as an increasingly important element of laws and regulations related to surface transportation. In the Intermodal Transportation Efficiency Act of 1991 (ISTEA), Congress stated: "It is the Policy of the United States to develop a National Intermodal Transportation System that is economically efficient and environmentally sound, provides the foundation for the Nation to compete in the global economy, and will move people and goods in an energy efficient manner."

The term "intermodal" is usually interpreted as referring to places where the various modes connect for the purpose of transferring passengers or freight or to operations designed to move on more than one mode. ISTEA introduced provisions, carried over and extended in the Transportation Equity Act for the 21st Century, that allowed taxes collected for the highway trust fund to be used for intermodal investments designed to facilitate more efficient connections between the modes. Highways and trucking are central to intermodalism because virtually all freight moves by truck at some point in its trip.

Intermodal transfer points include any terminals where freight is transferred from one mode to another. Intermodal connections are critically important to freight movement. Massive seagoing vessels deliver containerized cargo to ports, where the containers are either trucked to rail yards for placement on trains or offloaded directly onto rail cars at the port terminal. Containerization has introduced extraordinary efficiencies into freight movement, but the connection points remain sources of friction and lost efficiency.

The TRB committee that examined policy options for intermodal freight transportation concluded that public investment in freight facilities is complex. These types of facilities (rail yards, port terminals, and truck terminals) have usually been financed exclusively by the private sector. The committee concluded that introducing public funds into this mix could undermine the "user pays" principle that has been fundamental to highway finance, fuel interstate rivalries, and come to be demanded by private-sector firms as a substitute for formerly private investment.

Appropriate federal and state roles in such projects are not yet well established in practice; hence there are uncertainties about how to proceed and a risk of wasted resources. Before federal and state funds are invested in such facilities, the investments should be clearly justified. Such justification might include, for example, that the investment would reduce negative externalities and increase positive externalities, or that it is necessary for national defense. In defining an appropriate public role, government agencies should apply standard analysis tools to estimate costs and benefits and winners and losers. The public role in financing major facilities should also receive close scrutiny to ensure that public benefits justify the expenditure of public funds and that users pay to the extent that they benefit. The location of benefits also matters: when benefits are primarily local rather than national, local or state governments are the appropriate sources of funding.

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