Policy Options for Intermodal Freight Transportation Special Report 252 (1998) / Chapter Skim
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PART 2 Commissioned Papers
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E Upjohn Institute for Employment Research The Committee for a Study of Policy Options To Address Intermodal Freight Transportation of the Transportation Research Board has been charged with providing guidelines for determining government's role in freight-related activities.
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Reasons for government involvement, including market failures and externalities, are introduced. The relationship between regional economic development, intermodal freight activity, and government involvement is described.
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Second, because intermodal freight activity connects publicly provided transportation systems, such as highways and water navigation improvements, with privately provided systems such as rail, it involves from the start a public-private partnership. Third, the construction of intermodal facilities, such as seaport facilities, entails large fixed costs, which may give the facility the status of a natural monopoly and thus has
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Although it is a successful enterprise, local governments have provided substantial financial support. To attract a maintenance facility of a large airline to the tradeport, the Alliance Airport Authority, a government entity, issued up to $800 million in tax-exempt special facility revenue bonds.
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. The commission considered all intermodal transportation, including passenger, but the list presented here includes only the benefits that are most likely to result from intermodal freight activity: · Lowering overall transportation costs by allowing each mode to be used for the portion of the trip to which it is best suited; · Increasing economic productivity and efficiency, thereby enhancing the nation's global competitiveness; · Reducing congestion and the burden on overstressed infrastructure components; · Generating higher returns from public and private infrastructure investments; and · Reducing energy consumption and contributing to improved air quality and environmental conditions.
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This list, with the addition of national defense, will be used in this paper to establish principles for determining the extent of government involvement in intermodal freight activity. BARRIERS TO DEVELOPMENT OF AN INTERMODAL FREIGHT SYSTEM Whereas intermodal freight activities account for only 2 percent of the volume of shipments, intermodal activity is predicted to grow substantially in the next few years if barriers to the development of intermodal facilities are overcome.
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The third type calls for government intervention, in the form of an infrastructure project, to correct perceived market failures of high unemployment and low economic activity within specific regional economies. This type is similar to the second in that it generates externalities, but the two types of externalities are differentiated, because the third type frames intermodal freight activity as a means to an end that is not directly related to transportation, that is, to boost the overall local economy.
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The extent of government involvement in freight-related activities is determined by a host of factors, including the nature of the activities, the type and magnitude of market and nonmarket benefits resulting from intermodal freight activities, cost characteristics, and the economic condition of the local economy in which the activity is located. INTERMODAL FREIGHT ACTIVITY AS PRIVATELY PROVIDED Intermodal freight activity combines existing modes of freight transportation to use these modes efficiently.
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Consequently, intermodal terminal owners can reap the benefits of their investment through the market system. Indeed, most rail and truck intermodal terminals and facilities are privately owned and operated, so the private sector has taken primary responsibility for the terminal component of the intermodal freight system (DOT 1995)
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In addition to the air freight operations, a large truck-rail intermodal facility has been completed there. In these and other cases, the size of the facility more than likely causes the average cost of building and operating the facility to decline over the entire feasible range of operation.
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In this case, a private entity seeks a government subsidy to build an intermodal freight facility to cover the cost of the facility and extract part of the customer's consumer surplus. An approach that does not necessarily involve government directly is for the facility to practice price discrimination among its customers.
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. Whereas there is no consensus about the magnitude of the excess burden, the possibility that government financing of intermodal freight activities may entail costs beyond the amount raised should be taken into consideration.
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Another level of involvement would be to facilitate the establishment of standards necessary to ensure proper communication and coordination. EXTERNALITIES AS JUSTIFICATION FOR GOVERNMENT INTERVENTION From the perspective of the broader community, such as a regional economy, the commercial profitability decision criterion may not reflect the extent of the benefits or costs associated with the intermodal freight facility.
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The railroad plans to build an intermodal freight facility next to an industrial park and recognizes that the benefits of the intermodal facility extend beyond the customers who directly use it. The facility makes the industrial park more attractive to businesses who use rail and trucks to ship their commodities.
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With respect to internal bene TABLE 1 Classification of Internal and External Benefits from Intermodal Freight Activities BENEFITS INTERNAL EXTERNAL Lowering overall transportation costs Increasing national and regional economic productivity and efficiency Multiplier effects from building and operating freight facilities Reducing congestion and the burden on overstressed infrastructure Generating higher returns Reducing energy consumption and contributing to improved air quality and environmental conditions National defense
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Therefore, the effects of intermodal freight activity and facilities on these regions will vary accordingly. The ability of intermodal activities to generate higher returns is another example of an internal benefit that may be confused with an external benefit.
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. Other Externalities and Market Failures Another possible market failure is the existence of imperfect capital markets that distort the market rate of return.
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For example, it is simple to bring about income redistribution by locating a project in a poor or high-unemployment region instead of a wealthy, low-unemployment area, so long as local residents are employed by the project. Government Subsidies and Taxes For all these reasons, government intervention may be warranted, depending on the relative magnitude of these characteristics.
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For instance, regional economic development policies will encourage the expansion of benefits that private markets fail to recognize adequately. What differentiates these externalities from the ones in the previous section is that intermodal freight facilities are not the only project that could address these regional market failures.
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Shifting a regional economy toward high-wage industries provides nonmarket benefits that are a possible goal of regional economic development. Second, publicly provided services, such as a government-sponsored intermodal freight facility, benefit businesses and residents.
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For instance, if a region is growing quickly and bottlenecks occur in the current transportation system, additional investment designed to alleviate the bottlenecks would benefit the region. On the other hand, if a regional economy is declining because of a loss in comparative advantage, intermodal freight facilities with innovative systems may benefit the region by offering lower-cost transportation, which in turn may lower costs of doing business in that region and attract businesses.
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Simply because intermodal freight activities generate externalities that appear to be reasonable does not warrant government involvement. A determination should be based on the magnitude of the externalities relative to internal benefits and to public goals with regard to the reduction of pollution and congestion or economic development.
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For instance, the federal grants for Interstate highways have matching ratios of 90 percent federal and 10 percent state. If this ratio reflected external benefits accruing to highway users who live outside the state, we would expect 90 percent of the benefits to flow outside the state.
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Furthermore, as mentioned previously, if the federal-state funding ratio is TABLE 2 Typical Public-Private Responsibility for Intermodal Freight Activities PRIVATE PUBLIC Terminal Terminal Access Communication Across Modes
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COMPETITION AMONG GOVERNMENTS We have made the argument that government has a role in intermodal freight systems if nonmarket benefits or other market failures are large enough that the benefits to society are greater than the cost of the government intervention. The next question is whether the pursuit of investment in intermodal transportation by individual state and local governments acting independently to foster economic development in their regions is efficient.
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. The first is that as long as the benefits exceed the costs of government intervention, local competition may not produce undesirable effects and will enhance national efficiency.
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Two aspects of state and local government financial decision making may lead to the provision of subsidies that are too generous. First, the political horizon of elected officials is short relative to the life of an intermodal freight terminal and its ancillary infrastructure.
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There are two ways to view the network dimension to the question of government intervention in freight transportation systems. The first view is that accessing transportation networks is an economic benefit to local areas.
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ROLE OF VARIOUS LEVELS OF GOVERNMENT If the criteria given in the preceding section are followed, the choice of the appropriate level of government would not be affected by the concern that investment by local governments in intermodal freight activities is necessarily inefficient. A basic tenet in economics is that the government jurisdiction should encompass the region on which the benefits or costs of a particular activity fall.
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The outermost circle captures the external FIGURE 1 External benefits from intermodal freight activities.
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. FINANCING ARRANGEMENTS Once the combination of private-public involvement in intermodal freight activity is determined by the criteria given in the paper, financing instruments and arrangements can be determined.
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By making freight transportation more efficient through more efficient use of existing facilities and more efficient pricing, intermodal freight activities could reduce the funding burden. Recognizing that the current state of knowledge about the costs and benefits of transportation infrastructure and the effects of economic development incentives in general is insufficient to yield an optimal solution through such methodologies as benefit-cost analysis, it follows that the financing question should be approached from a pragmatic perspective.
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It should be kept in mind that tax financing may entail an additional cost, as described in the section on inefficient government financing. Step 3: Determine the existence of external benefits generated by the intermodal freight facility.
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Intermodal freight activity provides an opportunity to use the single modes more efficiently, reducing transportation costs,
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There is insufficient knowledge of the cost structure of intermodal freight facilities to determine whether their marginal cost curves are below their average cost curves over the feasible range of operations characteristic of natural monopolies. The difficulties are exacerbated by inefficiencies inherent in the local government sponsorship of some projects that may lead to an inefficient allocation of resources at the broader regional or national levels.
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1995. Intermodal Freight Transportation: Volume 1.
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The implementation of ISTEA is discussed, and outcomes are compared with expectations. Finally, changes and additions to future federal surface transportation legislation and program implementation that affect intermodal freight transportation are suggested.
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An additional concern of Transportation and Public Works Committee members was that, if Chairman Dingell were successful in claiming some jurisdiction over revenues in the Highway Trust Fund, he might expand eligibility even further and use Highway Trust Fund money for other purposes under the jurisdiction of the Energy and Commerce Committee. As a result of these concerns, the House bill contained a significant number of references to the importance of intermodalism, including freight rail, but very little access to Highway Trust Fund money for intermodal freight rail projects.
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The Commerce, Science, and Transportation Committee has freight rail, aviation, the regulatory aspects of trucks, and portions of highway safety. The Banking, Housing, and Urban Affairs Committee has transit, and the Finance Committee has jurisdiction over the Highway Trust Fund.
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Title V says: It is the policy of the United States Government to encourage and promote development of a national intermodal transportation system in the United States to move people and goods in an energy-efficient manner, provide the foundation for improved productivity growth, strengthen the Nation's ability to compete in the global economy, and obtain the optimum yield from the Nation's transportation resources. The conference report further indicates the intent of Congress: "Audacious and bold new approaches are needed if the nation is to transform the existing separate, balkanized transportation systems into a single, coordinated unit that will provide the foundation for the nation to confront the realities of the 1990s and the 21st century" (U.S.
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Summary of ISTEA Provisions Affecting Freight ISTEA is the first federal surface transportation legislation to recognize intermodal freight transportation. Although it does not earmark specific funds for freight projects, it provides ways for intermodal freight projects or elements of these projects to be funded out of Highway Trust Fund money.
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Summary of Role Given to MPOs and States in Planning and Project Selection In 1962 federal legislation was passed that mandated an urban transportation planning process. Implementation of this planning process was required to receive federal highway funds in urbanized areas (areas exceeding 50,000 population)
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methods to enhance the efficient movement of freight. Organizations that administer or operate any mode of transportation, including intermodal freight, are to be encouraged to participate in planning.
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Development of the transportation plan and the TIP must be coordinated with other providers of transportation, including rail freight operators. The MPO must give citizens, affected public agencies, representatives of transportation agency employees, other affected employee representatives, private providers of transportation, and other interested parties a reasonable opportunity to comment on the proposed program.
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The statewide plan must be intermodal and provide for connections between rail, commercial motor vehicle, waterway, and aviation facilities. The statewide transportation planning process must be coordinated with the MPO planning process and must consider a number of factors, including the following related to intermodal freight transportation: data collection and analysis; a statewide transportation plan designed to meet the transportation needs of both passenger and freight transportation including all modes and their connections; international border crossings and access to ports, airports, intermodal transportation facilities, and major freight distribution routes; transportation system management and investment strategies designed to make the most efficient use of existing transportation facilities including all transportation modes; and long-range needs of the transportation system for the movement of persons and goods.
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Therefore, the NHS legislation required the Secretary of Transportation to submit to Congress a list of intermodal connectors to major ports, airports, international border crossings, public transportation and transit facilities, interstate bus terminals, and rail and other intermodal transportation facilities. The list of intermodal connectors
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. This financing method can be used to finance projects that benefit intermodal freight transportation.
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Whereas direct access to ISTEA funds has been limited for freight projects, in some cases highway projects funded by ISTEA have benefited rail freight or enabled rail freight projects to proceed. There are two other potential sources of funding for rail freightrelated projects.
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ISTEA was the first federal law to require it. MPOs play a critical role in the performance of the intermodal freight transportation system.
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. Out of 15 factors that ISTEA directs MPOs to consider in preparing transportation plans, two relate specifically to intermodal freight: (a)
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identify the infrastructure, systems, and institutional deficiencies adversely affecting intermodal freight operations in northern New Jersey; (b) analyze and evaluate those deficiencies; and (c)
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MPOs have encountered several challenges in addressing ISTEA intermodal freight requirements. They include learning about the role of freight in the economy as well as the transportation system and how important it is to conduct a good study of freight needs, how the private sector manages freight, that there is an increasing interest in freight projects but limited funding for them, and that the traditional long time frame of MPO planning versus the relatively short horizon of private-sector organizations is a major problem (GAO 1996)
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identification of strategies and actions that improve intermodal efficiencies. It also requires that the result of the management systems be considered in developing metropolitan and statewide transportation plans and improvement programs and in making project selections (Federal Register 1993)
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Texas and Utah are not developing the system but are incorporating the Intermodal Management System into their state transportation planning efforts. In a study done by the General Accounting Office, the states interviewed said that they need technical assistance from FHWA in areas such as developing software, implementing geographic information systems technology, establishing performance measures for systems, and integrating management systems (GAO 1997)
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Some in the intermodal community expected that a wide variety of intermodal projects, including freight rail, would have significant access to ISTEA funds. Traditional highway interests benefiting from past highway funding legislation feared that already scarce resources for highway projects would be further reduced with broader access to these funds for nonhighway projects.
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5. Technology and research There is a need to identify the role technologies such as ITS can play to benefit intermodal transportation.
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This creates more resistance to expanding the universe of projects that have access to Highway Trust Fund money. A significant number of states do not permit state highway funds to be used on intermodal freight transportation projects.
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Inter modal freight businesses are rapidly changing. There is a need for better public-private relationships that will promote the benefits of good intermodal freight transportation.
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DOT also does not track ISTEA spending on intermodal facili ties, and it is difficult to find information on the amount of ISTEA funds used for intermodal freight projects. The data available on intermodal freight transportation are insufficient.
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Equipment utilization is inefficient for intermodal freight transportation. Countries do not allow use of foreign vessels, trucks, containers, or chassis for domestic moves (Public Law 102 240; U.S.
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Other states and localities are taking an intermodal approach to solving transportation problems for the first time because of the encouragement in ISTEA to do so. Again, the intent of ISTEA was to encourage an intermodal approach to transportation, including freight rail, rather than mandating such an approach.
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· Regional/national priority facilities: According to Jean Godwin, representing the American Association of Port Authorities, "It appears that under ISTEA, national priorities are in danger of being lost in the current decision-making framework at the MPO level. We are concerned that freight projects that support the Nation's global competitiveness must continue to compete for funds under a process that inherently favors more popular local passenger and transit projects." According to John Glover of the Port of Oakland, "The problem with the current ISTEA process is that projects such as freight rail improvements that contribute to the economic vitality of the Nation, but do not have obvious benefits to their immediate local or regional areas, are penalized.
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This is particularly true when it comes to determining the amount of federal funds that should be made available for freight rail projects from the Highway Trust Fund. The use of Highway Trust Fund money for "nonhighway projects" such as intermodal freight rail projects, the amount of federal funds that should be targeted at transportation spending, publicprivate financing partnerships, the flexibility of using federal transportation dollars, and who determines project selection are ongoing issues.
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Several highway-related groups including ATA, AHUA, and ARTBA oppose spending Highway Trust Funds for anything but highway projects. AAR also opposes the use of trust fund revenues for freight rail projects because of the fear of having to pay a user fee into the trust fund but favors the use of these funds for improving intermodal connectors.
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Maintain funding flexibility in ISTEA, particularly CMAQ and Transportation Enhancement (TE) categories: The CMAQ and TE programs have been a source of funds for intermodal freight projects.
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AAPA specifically recommends that the government provide innovative financing for projects of regional and national significance, enhance flexible funding for port infrastructure projects by expanding the use by public agencies of tax exempt bond authority for cargo transportation purposes, and permit the use of private activity bonds to finance trackage and rail facilities, in addition to docks and wharves, in limited circumstances. IANA supports encouraging innovative public-private partnerships to finance projects that might otherwise not be built that will enhance the nation's transportation network.
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Recommendations for the intermodal freight transportation community to consider for future legislative changes follow. The list is not exhaustive.
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It is hoped that they will generate discussion and additional ideas within the transportation community to determine whether these or other solutions will benefit intermodal freight rail and the entire transportation system in this country. Financial: Transportation demands have exceeded resources for many years, and the gap is likely to continue.
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· Give DOT's Office of Intermodalism more funding and more authority to conduct studies on intermodal routes and facilities important to interstate and international commerce; make collection of freight data a high priority; determine where federal funds are used on intermodal freight transportation projects; and provide information and training about intermodal freight transportation to federal, state, and local officials, transportation professionals, and the general public. · Require DOT, in cooperation with states, local governments, transportation providers, and the private sector, to develop a National Intermodal Transportation System.
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This can lead to solving problems often without mandates or formal structures. Recommendations: · Emphasize elements in the transportation program that benefit intermodal freight and insert wherever possible language that will benefit or include intermodal freight even in a small way.
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· Require the federal government to bring together the parties involved in the use of technologies such as information systems to define needs, promote standardization, and encourage research on and dissemination of innovation for intermodal freight transportation. · Require the Bureau of Transportation Statistics and the Office of Intermodalism to collect and disseminate data on intermodal freight transportation.
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1996. Intermodal Freight Transportation Projects and Planning Issues.
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3. Section 1006 creates the NHS, the purpose of which is to "provide an interconnected system of principal arterial routes which will serve major population centers, international border crossings, ports, airports, public transportation facilities, and other intermodal transportation facilities and other major travel destinations; meet national defense requirements; and serve interstate and interregional travel." NHS funds are generally available for road and bridge construction and rehabilitation projects on designated NHS roads only.
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ISTEA requires states to spend 10 percent of STP funds for transportation enhancements. Ten categories of projects are eligible for enhancement funds, including several that can benefit intermodal freight transportation: (a)
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Section 1108 provides $437 million for Priority Intermodal Projects that have intermodal transportation benefits. ISTEA provided more than $6 billion over 6 years for general demonstration projects.
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Specifically, statistics should be in a form permitting cost-benefit studies comparing individual transportation modes with intermodal transportation systems. Section 6009 requires the Secretary to submit an annual report to Congress on surface transportation research and development planning.
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Stark County Intermodal Facility in Ohio will enable truck trailers and freight containers to be loaded onto railroad cars rather than travel by truck. CMAQ funds are loaned through a transportation revolving loan fund.
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Danville Rail Passenger Station and Science Center in Danville, Virginia, restores a historic rail passenger building, freight depot, and railroad trestle. (Although the Georgetown and Danville projects are not related to current freight movement, they interpret freight trans portation history to the public and may increase the public's appreci ation of the role freight transportation has played and will continue to play.)
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Santa Teresa Intermodal Facility will apply advanced technol ogy to speed truck and rail freight between New Mexico and Mex ico. Demonstration project, ITS, and STP funds have been used for initial feasibility studies, preliminary engineering, and environmen tal work.
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, have recognized the importance of improving economic, environmental, and social conditions through a strong, integrated transportation system. All levels of government in the European countries support intermodal freight transportation policy planning and program development, and it is being done in a way to benefit economic, social, and environmental needs.
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To meet these challenges, one of the first goals is to improve cooperation between interests favoring economic development and the environment. It is also evident that both government and industry are willing to make major investments in intermodal transportation (DOT 1994)
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1995. Intermodal Freight Transportation, Volumes I and II.
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was the first major attempt to embrace intermodal and multimodal issues. To continue the work begun under ISTEA -- in NEXTEA or whatever legislative form a successor takes -- the federal government needs a reliable means to identify and prioritize the most important intermodal freight projects.
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The primary objective of a working definition is not theoretical or political correctness but usefulness in helping find and support the most cost-effective freight transportation projects. Whereas any definition of projects of national significance should be theoretically correct, practicality is crucial.
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, forcing the project promoters to deal with the private competitive balance; and · Stormy relationships with the cities through which the corridor will pass, suggesting a potential clash between local and regional or national interests. Chicago Intermodal Connectors Chicago is the intermodal freight transportation hub for the nation.
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connector projects grouped together because of the common involvement of substantial intermodal freight traffic (CATS 1996)
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Urban traffic congestion would be reduced and safety improved, benefiting both passengers and freight. Additional benefits to freight transportation users, principally truckers, would include weigh-in-motion technology and weigh station bypass, dispatching assistance, improved operations management information, and paperless regulation and commerce.
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An estimated 70 percent of port traffic goes via rail to or from inland points via 34 intermodal trains per day in each direction, giving this corridor the same national/international aspect as the Alameda Corridor. The project has active support from the Washington State Department of Transportation, the Puget Sound Regional Council, state legislators, BNSF, and UP.
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The Southwest Passage proposal illustrates · A conscious effort to package a variety of projects under a common name and organizing principle, and · A corridor-based project definition that clearly transcends regional and state boundaries. Seattle Traffic Report In the Seattle area, commuters or truck dispatchers can obtain continuous traffic condition maps, photographs, video images, and bulletins at an Internet website sponsored and maintained by the Washington State Department of Transportation.
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The problem has been recognized within the intermodal freight industry for more than a decade and has been the subject of a multiyear discussion among Santa Fe (BNSF's predecessor) , the Chicago Area Transportation Study (CATS, the local MPO)
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· Identifying, analyzing, and justifying freight projects will be hampered by the lack of data and standard measures for economic effects and other factors. Private Infrastructure Projects Examples of projects that are significant in the national transportation network and that are undertaken privately can be found.
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Freight transportation projects are almost invariably proposed as responses to perceived problems, so a list of problem types is a good place to start. Intermodal Freight Problem Types A Cambridge Systematics report on intermodal impediments described five categories.
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When CATS solicited proposals for intermodal freight projects, none of the 47 proposals received concerned restrictions, rules, or regulations. The National Commission on Intermodal Transportation discussed the need for the restructuring of federal agencies but did not cite regulatory or legislative impediments.
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A final industry negotiations round culminated in the Intermodal Safe Container Amendments Act of 1996. Several potential institutional improvements for intermodal freight were compiled by the Volpe National Transportation Systems Center: · Remove funding barriers to investing in improvement projects involving multimodal and multijurisdictional operations and commonuser terminals, and help realize the provisions in ISTEA for funding flexibility for such projects.
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In the light of serious unmet needs for freight transportation planning tools and data, it may be necessary to create an "analytic infrastructure" before we can do a good job of traditional concrete and steel infrastructure projects. Among the possible metaprojects are · Data collection and database development in support of project identification and evaluation, · Model and simulation development for project design and evaluation, · Standards development and dissemination, and · Creation of planning tools and guidelines.
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Transportation and logistics have come under closer scrutiny as private-sector competitors realize they can leave no potential advantage untapped, and the public sector has embraced the larger idea of global competitiveness as a public goal. Increased awareness of traffic congestion and safety issues has also focused attention on freight transportation as transportation planners attempt to untangle urban traffic.
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National Involvement The major historical reasons for government involvement -- usually federal government involvement -- fall into these categories: · Public goods: Public goods are, roughly speaking, goods or services that benefit the public but whose cost cannot be readily recovered through user fees. The example usually cited is national defense, and the existence and importance of public goods is one of the basic justifications for the very existence of national government itself.
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The following arguments can be made for the projects discussed earlier: · The Alameda Corridor, the Chicago Intermodal Connectors, the Mexican Gateways, the Kedzie Stoplight, and the Big Valley Corridor are of national significance because so much of the traffic at stake is international or interstate freight destined to or from other regions. The available mechanisms are insufficient for the localities to recapture the cost through user fees without undue risk or delay.
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and approved and rejected the same projects, arrived at the same project priorities, and developed the same project scopes, there would be no need for federal involvement. National Transportation Policy Elements In addition to a national interest in freight transportation, there are national goals or policy elements.
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different from what would be encountered if each mode were treated in isolation. Efficiency and Global Competitiveness Efficiency, the use of the fewest possible resources to conduct freight transportation activity, is almost certainly a social good.
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Global competitiveness is an elusive concept. Global competitiveness is the sum of national capabilities and efficiency, and freight transportation efficiency can give exporters additional leverage in world markets.
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The Chicago Intermodal Connectors and the Alameda Corridor both contain elements designed to mitigate the local effects of national freight flows. With heightened local awareness of transportation effects and activism by local interests, it can be anticipated that every major freight transportation project will have to devote significant resources to reducing local adverse effects, whether that requires noise barriers, grade separations, wider intersections, or environmental mitigation.
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Michael Huerta of the Office of Intermodalism has suggested that "national significance" may be synonymous with "worthy of federal support." "Worthy" implies a criterion of merit, which we have provided in requiring net public benefits. But federal support is a scarce resource, to be used only when necessary, so we must also apply the second criterion to determine whether the net public benefits can be realized without federal involvement.
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A broad definition of projects consistent with national policy elements would include proposals that · Improve access, · Improve connectivity, · Increase efficiency, · Promote coexistence or mitigate adverse impacts, or · Improve public planning and decision making for freight transportation and that allow the development of comparative modal advantages with modal and competitive neutrality. Note that this definition does not include a measure of significance.
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. Freight issues are complex, and as long as MPO staffing and resources for freight issues are scarce the nation runs a grave risk of making fundamental errors in freight transportation policy and projects through lack of familiarity with the industry.
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An MPO analyst attempting to locate cost-beneficial freight projects or evaluate the proposals submitted cannot generally determine in any definitive way · The identity or demographics of freight shippers or receivers in the region; · The commodities, quantities, origins, or destinations of the goods moving to, from, or through the region; · The number, identity, or demographics of freight transportation firms in the region; · The economic value of freight transportation activity; · Current freight movement patterns or likely changes, or · The unit value of time or distance saved because of freight transportation improvements. Moreover, there are few publicly available models or simulations of freight movement demand or activity for use in transportation planning, unlike the numerous travel demand models published and available to MPOs.
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Freight transportation infrastructure itself is a public-private mix, with the public right-of-way connecting the private terminals and other facilities. Using public money to improve access to private freight facilities is unsettling, even though we do it every time we improve an intersection for a new shopping center or widen a street past a major employer.
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We risk losing projects that would convey substantial net public benefits, however invisible they may be, if they also convey substantial and visible private benefits to "freight interests." This would be perilously close to foregoing progress to preserve fairness. What is often lost sight of is that we are all "freight interests." For the same reason that freight transportation is vital to the nation, it is also vital to everyone in it.
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"MPOs are required to consider 15 planning factors when prioritizing projects to include in state transportation plans, only two of which relate to intermodal freight transportation" (GAO 1996, 3)
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Giving the package a name such as Alameda Corridor, Southwest Passage, or Chicago Intermodal
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Major Freight Hubs Major freight hubs can be the organizing principle, as they are with the Chicago Intermodal Connectors. Other rail hubs include the traditional interchange points between eastern and western rail systems, each of which could define a freight hub and a nationally significant improvement package: Chicago, Kansas City, New Orleans, St.
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. Major Freight Flows If national transportation policy is dedicated to increasing global competitiveness, we might use that as an organizing principle.
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A search for candidates would take one or both of two forms: (a) a data-driven analytic effort by federal employees or contractors to locate freight transportation bottlenecks, improvement opportunities, promising technologies, potential information applications, and other potential projects; or (b)
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Moreover, neither federal agency personnel nor contractors will have intimate knowledge of local and regional freight transportation issues across the country, leading to a likely shortfall in the identification process and questionable analytic accuracy. The success of a national proposal process depends on the ability of and incentives for public and private interests to identify candidates and present a compelling case for consideration.
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From page 231... ...
A key feature of these rules is the last item, which ensures that proponents do not perceive the agency as a "black hole" into which proposals disappear indefinitely. The bottom-up approach appears particularly suited to identifying projects in which national considerations would justify a higher priority for a project than local or regional considerations alone, or in which national considerations would dictate a broader project scope.
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From page 232... ...
1996. Intermodal Freight Transportation.
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From page 233... ...
1996. Implications of Intermodal Freight Movements for Infrastructure Access, Capacity, and Productivity.
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From page 234... ...
The current state of the art is for actors in the freight transportation sector to use information technology to manage shippers' and consignees' inventory. This allows them to leverage information about these requirements together with higher visibility of their 234
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From page 235... ...
Intermodal freight transportation is freight transportation involving the use of two or more modes of transport, for example motor carrier (truck) and ship.
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From page 236... ...
Next, estimates of the potential savings that straightforward applications of IT to transportation can have on freight transportation expenditures are discussed, and the microeconomic basis for these benefits is explained. How future gains from IT are likely to come from the coordination of transportation and the supply chain is examined, and the information components needed for this coordination are described.
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From page 237... ...
As a result, P&G was forced to hold extra inventory and then ship large quantities on short notice. Uncertainty about total demand and large changes in periodic demand increased manufacturing, inventory, and transportation costs.
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From page 238... ...
Moreover, in both cases transportation could be used to make the balancing between production and demand dynamic through quick response and use of the transportation pipeline as inventory. These examples indicate that to participate in a seamless supply chain, actors in freight transportation must be able to receive electronic information about demand (e.g., the order)
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From page 239... ...
-- meaning that the percentages given above are incurred repeatedly as the production process converts raw materials to finished goods. These percentages suggest that between one-fourth and one-half of freight transportation costs are information flows -- meaning that information flows in the transportation industry can consume up to 3 percent of GNP.
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From page 240... ...
With freight transportation expenditures accounting for $367 billion in 1992, this implies a reduction of between $45 billion and $90 billion. As a proportion of total freight in the transportation system, intermodal freight is becoming increasingly important.
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From page 241... ...
Coordination that reduces both shipper and consignee inventory results from IT that integrates the carrier as the essential connection in the supply chain, using the transportation pipeline itself as the primary inventory. Improvements in intermodal transportation that provide more reliable and timely door-to-door pickup and delivery have caused some firms to spend more on transportation.
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From page 242... ...
Much of the future gain in freight transportation efficiency from IT will come from integrating the information systems of shippers and actors in the freight transportation sector so that pickup and delivery are timely and reliable and, in addition, the transportation activities are invisible to the different actors in the supply chain. Investing in transportation support for the supply chain is important because of the large proportion of freight transport that is repeat business, such as P&G shipping to Wal-Mart or Chrysler obtaining parts from its suppliers.
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From page 243... ...
For example, although deregulation has allowed intermodally integrated direct carriers to compete against facilitators, carriers that are nonintegrated can work together with facilitators as a virtual network organization.2 IT COORDINATION COMPONENTS FOR TRANSPORTATION IN THE SUPPLY CHAIN The supply chain's IT support needs correspond with phases in commercial trade: · Precontractual, when requirements are determined, sources are discovered, offers are made, and negotiation takes place; · Contractual, when purchase orders are issued and other conditions are agreed upon; · Logistic, when transportation and distribution details are planned and executed; and · Postdelivery, when invoicing, settlement, and reporting to industry associations and government are completed. The Supply Chain Council, an industry group whose goal is to improve supply chain operations, has developed a framework called the Supply Chain Operations Reference model (Insight 1996)
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From page 244... ...
Thus, in a seamless supply chain warehousing is absorbed into the supply chain rather than dissolved, giving suppliers access to production schedules. Information systems required to support transportation management have to incorporate logistics planning, cargo information, the bill of lading, and regulatory and customs requirements.
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From page 245... ...
Thus, the elements most critical to intermodal are those related to the additional handoffs: the logistics plan and the in-transit information in transportation and warehouse management. TRANSPORTATION SYSTEM ORGANIZATION AND IT To obtain gains in freight transportation efficiency from IT, the information systems of shippers and other actors must be integrated to support a supply chain in which the activities during transport are invisible to the shipper and consignee.
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From page 246... ...
246 POLICY OPTIONS FOR INTERMODAL FREIGHT TRANSPORTATION two organizational structures to support the supply chain in this manner. The first is to integrate via ownership -- for example, a single carrier owning assets to transport in different modes, and possibly owning the terminals for intermodal transfers.
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From page 247... ...
The networks possible in freight transportation could incorporate different modes of transport, different regions, intermodal terminals, ports, third parties, and warehouses to serve shippers and consignees. In an integrated firm the controls over activities by different units are provided by ownership and employment relationships within the firm.
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From page 248... ...
Examples include the logistics plan and cargo information. While the shipment is under way, the logistics plan and cargo information must be updated by in-transit information from the inbound carrier and communicated to the terminal and the outbound carrier.
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From page 249... ...
Surveys of the freight transportation industry indicate that the adoption of EDI has not been at all universal in any dimension. Carriers that 3Other examples include the Beta and VHS standards in videocassette recorders and different bandwidths of Integrated Services Digital Network (ISDN)
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From page 250... ...
. The driving force behind adoption of EDI in the freight transportation sector has been the exercise of shipper channel power, rather than carriers attempting to attain greater efficiency (Crum et al.
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From page 251... ...
EDI requires organizational standardization -- standardization that would reduce many advantages of successful firms, such as barriers to entry, know-how, and specialization. PUBLIC INVOLVEMENT Government involvement in the national freight transportation system should be based on what the private sector can be expected to do and what it cannot.
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From page 252... ...
. For example, government can begin by determining, in concert with the transportation sector, the levels of security and bandwidth required in a communications network exclusively serving freight transportation.
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From page 253... ...
Customs and Regulation Systems Some centralization of information systems is needed for coordination between different actors in the transportation sector and between these actors and regulators/customs. One success noted above is the Automated Manifest System of the U.S.
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From page 254... ...
Government can play an important role in helping firms overcome these obstacles by supporting education in this domain through direct outreach programs and through support to industry groups. There is a related problem whereby the freight transportation sector has produced much redundant software and other technological components (Andel 1997)
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From page 255... ...
However, public policy has a significant role to play in providing IT infrastructure as an electronic platform for communications to coordinate freight transportation activities, in providing systems initiatives for firms' routine documentation exchanges with customs and regulatory bodies, and in providing outreach education and support for technology transfer in the freight transportation sector.
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From page 256... ...
1995. Intermodal Freight Transportation -- Overview of Impediments.
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From page 257... ...
1995. Communications in Intermodal Freight Operations.
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From page 258... ...
Since no national public financing program has ever been designed specifically for intermodal freight transportation, much less institutionalized, it suffers from a lack of "organizing principles." There is no standardization of financing types and techniques, as is usually found in the analysis of an individual mode of transportation. At the same time, because the concept of intermodalism deals with making several components integrate to accomplish a purpose, it offers one of the better examples of blending abutting, but diverse, interests and the 258
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From page 259... ...
The approach taken in this paper is to examine first the rationale for public financial involvement in intermodal freight projects and then to examine what it takes to make such an intermodal project "financible," offering a number of examples and analogies. It is assumed that there is a large degree of public interest in making the freight flow better through a particular facility (most likely a seaport, railhead, or airport)
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From page 260... ...
As a general proposition, the creative application of existing federal grant programs to meet specific intermodal projects appears to provide the needed resources and flexibility. DEFINITIONS AND DISTINCTIONS Intermodal freight has been defined by one expert as "transporting freight between different modes in such a way as that all parts of the transportation process are efficiently connected and coordinated, offering flexibility" (Muller 1996, 1)
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From page 261... ...
Technology and economies of scale are driving much of the demand for better and larger intermodal facilities. Major international shippers are continuing to consolidate and to purchase larger ships.
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From page 262... ...
The appropriate remedy depends on the diagnosis, the nature and severity of the problem, the degree of public interest involved, and the priorities of the policy makers. As a practical matter, the evolution of transportation in the United States, as elsewhere, means that governments are already knee-deep in all forms of freight transportation and intermodalism by virtue of their regulatory powers and the various facilities that they own and operate.
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From page 263... ...
The rationale for providing more governmental assistance to intermodal freight revolves around the benefits to society and the economy anticipated from accelerating and ensuring improvements in the existing freight-handling system. The key specific "public good" benefits ascribed to improved intermodal transportation may be summarized as follows:1 · Lower transportation costs; · Reduced energy consumption and improvements in air quality and other environmental conditions; · Reduced congestion and less time lost; · Higher returns from public and private infrastructure investment through more efficient use; · Better options for shippers, less damage to shipments, reduced paperwork, and so forth; · Safer operations by reduction of fatigue and congestion; and · Enhanced national military and economic security.
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From page 264... ...
The difficulties involved in cost-benefit analyses as applied to intermodal projects are examined, and it is noted that economic benefits are not the same thing as financial feasibility. The gap between economic benefits of a public nature and the financial feasibility of a given project in a private market environment is a major argument for public financial involvement.
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From page 265... ...
Intermodal facilities in the rail and trucking industries are usually privately owned, whereas those in water shipping and air transportation are mixed, and there is a large element of public ownership and control at major airports and seaports. Of the various types of freight terminals, only those at airports have received some federal (as opposed to state and local government)
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From page 266... ...
Most intermodal improvements are made without direct federal involvement, and even major projects may really be a matter between the benefiting companies and the host state and local jurisdictions. The new package consolidation intermodal facility at Willow Springs, while in some respects novel, was a public-private cooperative effort between United Parcel Service, Santa Fe Railroad, the Illinois Department of Transportation, and the Illinois Toll Road Authority.
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From page 267... ...
. FEDERAL AID FOR INTERMODAL FREIGHT The traditional structure of federal aid to transportation has been along fairly strict modal lines, and most aid mechanisms continue to be modular in character.
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From page 268... ...
The accompanying box provides a brief overview of the highway programs authorized under ISTEA that are potential funding sources for intermodal freight projects. Spending progress has been slow, according to the General Accounting Office (GAO)
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From page 269... ...
Priority Intermodal Projects (Demonstration Projects) Total funds: $437 million over 6 years.
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From page 270... ...
Moreover, public planners are not used to dealing with freight problems and find it difficult to get information about freight movements from private firms, which consider it to be proprietary (GAO 1996a, 2) .4 Advocates of intermodal freight have argued for expanded eligibility to compete with the broad spectrum of highway-oriented programs (National Commission on Intermodal Transportation 1994, 4)
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From page 271... ...
The SIB proposal represents an effort to make bond financing and credit enhancements, as are discussed later, more important financing tools at the state and local level, where more heavy lifting will be required to match national transportation needs and goals. SIBs would have great flexibility in terms of types of programs and assistance they might render, as is discussed later.
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From page 272... ...
Developing guiding principles is difficult because intermodal facilities come in diverse packages and incorporate financing techniques that are tied to the individual transportation media that may be involved. At the outset, several questions are to be answered: · Who benefits from the improvements?
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From page 273... ...
Finally, since public financial involvement is the key consideration in this paper, involvement in the most effective manner is a chief concern. User Pays Versus General Support In the ideal world of the economist, all goods and services can be rationally categorized into components that benefit private individuals versus the public at large, and costs can be apportioned among individuals and socially to match the benefits.
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From page 274... ...
Public-Private Partnerships in Ownership and Operation of Facilities The question of self-supporting projects raises several related issues concerning the metes and bounds of public versus private ownership and operation and when and how the two may be blended into partnerships. If, in fact, a project can be self-supporting, why is it in the public sector at all?
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From page 275... ...
Also, by private ownership it may be subject to taxes. (An example of this type of public-private partnership in the transportation area is the Dulles Greenway toll road project in Virginia.)
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From page 276... ...
However, in the United States, extensive privatization of capital-intensive activities faces a significant obstacle. In most cases, state and local governments can finance facilities much more cheaply because of tax exemption and their ability to borrow large amounts for a very long term.
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From page 277... ...
use to 10 percent and the payments on debt service 7 The "private activity" provisions in the federal tax code are very complicated and controversial, but the substance is that aside from some narrowly defined exceptions, it is uneconomic for governments to finance facilities that will be used for private business purposes. This tilts the cost considerations in favor of the state and local governments if they are willing and able to undertake the activity.
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From page 278... ...
standard of 25 percent, that the list of exempt facilities should be increased (to include toll roads, for example) , that certain exempt facilities need not be publicly owned to qualify for tax exemption (such as terminals and docks)
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From page 279... ...
Nonetheless, the two perspectives begin to merge when it comes to financing a project, since the capital markets will charge a marketdetermined cost of capital for a given level of risk it sees in a project, and it is up to the public or privately sponsored proponents to come up with the revenues to make those payments. This merger is even more complete when the project is intended to be in some significant way self-supporting and operated as an enterprise.8 An illustration of the difference between the public perspective on cost and benefits and the financial cost and revenues is found in the case of the Auburn intermodal project feasibility study done on behalf of the Federal Railroad Administration (Hickling Lewis Brod 1995)
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From page 280... ...
The Auburn intermodal facility could produce, given its projected revenues and costs (including debt service costs at a 10 percent rate of interest) , an average financial rate of return of only 9.8 percent, and there was only a 90 percent probability that the return would exceed 5.3 percent.
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From page 281... ...
Besides Auburn, two intermodal projects, the Cincinnati Third Rail and the Pennsylvania Double-Stack are summarized (FRA 1996, Section 5)
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From page 282... ...
Generally, the more a firm can 11 These are, of course, generalizations and abstract from the effect of the tax code, for example, on the private sector decision maker. Nonetheless, the sovereign has the overarching ability to control the legal framework, levy taxes, and regulate, powers that are denied the private sector.
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From page 283... ...
For example, most governments must borrow in the private capital markets, either in the bond market or from banks, and in those markets a counterpart to a calculation of perceived risks versus demanded reward is found in the various factors that go into the determination of credit quality on state and local government debt. The analogy to the private sector becomes most critical when the borrowing government is using self-supporting revenue debt that is secured by project earnings.
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From page 284... ...
The idea is that the first security (source of debt service payment) is the project's revenues.
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From page 285... ...
Special taxing districts have been used extensively among modes in the case of highways, where road districts have been used in developing areas in the state of Texas. Depending on the flexibility permitted under state statute and constitution, taxes and charges can be levied on all sorts of bases, including property value, front footage, and estimated trip generation of the land use.
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From page 286... ...
revenue bonds. Tax-Supported Bonds There are several types of tax-supported bonds, including the following: · General obligation bonds are backed by the full faith and credit of a state or local government and are usually the highest-rated debt of a state or locality.
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From page 287... ...
· Toll facility revenue bonds are paid from toll revenues. · Port authority bonds are paid for by users of the facility in the form of rental charges and fees.
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From page 288... ...
· The additional bond test is a restriction on the conditions under which additional debt may be issued. · The lien position is an agreement as to the priority of the payment of debt service on a particular debt among the various other payments that are to be made.
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From page 289... ...
· Under state aid intercept programs, future state aid receipts are pledged by the borrower. In case of an actual or pending shortfall in debt service, the funds are sent to bondholders.
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From page 290... ...
Intermodal projects could use state aid intercepts to lower debt service costs (via the higher bond rating) and increase market acceptance of their bonds.
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From page 291... ...
Proceeds of bond issues are used to fund various transportation facilities with the participating counties. The debt service on the bonds is paid from amounts deposited into a sinking fund main tained by the state comptroller.
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From page 292... ...
Therefore, entities issuing GANs must be able to demonstrate that even if no future federal grant funds are received, alternative sources will be adequate to make debt service payments. 14 Of course, it may be argued that the whole exercise, by permitting access to the tax-exempt securities market, represents a clever circumvention of restrictions on the use of that "tax loophole" and thus fosters inefficiency in the allocation of resources.
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From page 293... ...
Under the 1993 DOT appropriations act, the Secretary of Transportation was authorized to enter into an agreement to make loans to the San Joaquin Transportation Cor ridor Agency in an aggregate amount of up to $120 million. In the San Joaquin Hills case, loans of up to that amount are available to the extent that revenues from toll operations and standard reserves are insufficient to make debt service payments on debt issued to finance the project.
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From page 294... ...
First, by taking the junior lien, the senior lien can be of higher credit quality and enjoy higher coverage (see the discussion in the accompanying box)
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From page 295... ...
The Alameda Corridor is the most celebrated and costly intermodal freight project. The project is of national significance since the two ports involved, Los Angeles and Long Beach, together account for 25 percent of all international trade that enters the United States by sea.
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From page 296... ...
If the project terminates without completion and sale of the project bonds, the issuer has until 2021 to repay the balance in equal debt service installments. This loan structure acts as an enhancement for intermediate and long-term financing, allowing the Alameda project to draw down the $400 million as needed.
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From page 297... ...
Rail freight revolving loan programs exist in Illinois and Nebraska, but they were established to aid local rail service lines threatened with closure. The state of Florida uses a revolving fund to assist in toll road construction by its local governments.
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From page 298... ...
In candor, the author believes that there are few nationally significant intermodal projects. Intermodalism is important to encourage, and projects should not be allowed to fence off competing modes as was once done when motor freight and railroads competed for longhaul business (and as is still the case for rail and barge)
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From page 299... ...
The Ports of Seattle and Tacoma are completing a deal with the Burlington Northern Santa Fe Railroad to resurrect a previously abandoned major freight link across the state of Washington that will relieve congestion and expand capacity to support increased freight movements through the ports. The added tracks are badly 17 Among the hostages taken have been Oriole baseball fans, whose special rail service to Camden Yards baseball stadium was canceled when negotiations bogged down.
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From page 300... ...
A few inland intermodal projects have displayed innovative skills in thatching together funding sources. One of the few examples of the eclectic approach to financing is found in the Stark County intermodal facilities (see the accompanying box)
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From page 301... ...
In expanding, the firm invested $24 million of its own funds to construct a new distribution center next to the intermodal facility. The economic development argument was key in lacing the deal together.
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From page 302... ...
In addition, the CMAQ "loan" made for the Stark County Intermodal Facility is not a loan in strict terms, but rather an "advance" in that there is no fixed repayment schedule and interest will not be charged. FHWA's TE-045 process facilitated receiving approval to use loan repayments to create a revolving loan fund for financing other future transportation projects.
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From page 303... ...
The results of recent toll road financings that involved essentially start-up operations have been disappointing in the short run because projected volumes of usership have not been forthcoming. In a recent review of toll road projection results, analysts at J.P.
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From page 304... ...
Where there is an assumption of rapid revenue growth, there is a greater possibility of trouble. The greater the degree of congestion in the corridor to be served and the higher the income level and economic activity already in place, and the more modest the assumptions about revenue growth, the better the prospect that toll roads will meet their expectations.
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From page 305... ...
However, to obtain permanent financing, approximately $6 million is expected to be spent on preconstruction costs, including an environmental impact statement, engineering studies, and a financial feasibility study. CRIC, Inc., a special-purpose corporation that has been set up to oversee the project, is arranging a bridge loan from a commercial bank to cover these on the front end.
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From page 306... ...
The accompanying box with its diagrams indicates key aspects of the loan guarantee structure. In March 1997, FHWA and NMHTD had approved an advance construction Section 129 loan for the CRIC project.
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From page 307... ...
At the time the bank loan is made, CRIC, Inc., will also enter into a Section 129 loan agreement with NMHTD, but no funds will change hands pursuant to that loan. At maturity of the bank loan, if CRIC, Inc., is unable to obtain permanent financing to pay off the preconstruction loan (as well as to fund construction)
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From page 308... ...
How much the federal government chooses to become involved in such competition among state and local jurisdictions for the location of facilities is a difficult and ultimately a political question. ASSESSMENT OF PUBLIC-SECTOR FINANCIAL INVOLVEMENT The area of public financial involvement in intermodal facilities is not standardized, nor are the means of financial assistance institutionalized.
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From page 309... ...
When done in conjunction with the straightforward financial feasibility study (such as contained in a revenue bondbacked enterprise project) , they provide a logical, quantified backdrop as to why the public sector has an interest and is involved in the project.
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From page 310... ...
In other words, in the absence of a broad geographic incidence of "intermodal freight facility problems," it is really not desirable to crank the local terminal factor into federal distribution formulas. If the political will is there and the basic economics justify it, then sufficiently flexible funding should accommodate states' using their own money (and federal transportation grants)
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From page 311... ...
The author's limited information indicates that the number of significant international intermodal seaports is two or three on each coast and that the number of key border crossings is similar. An economical solution appears to be designation of the ports of entry and limited assistance along the lines of the credit provided for the Alameda Corridor.
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From page 312... ...
GAO 1996a. Intermodal Freight Transportation: Project and Planning Issues.
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From page 313... ...
Hearings Before the Surface Transportation Subcommit tee, House Committee on Transportation and Infrastructure.
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Key Terms
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