2010 and BeyondA Vision of America’s Transportation Future

21st Century Freight Mobility

ICF Consulting

in association with DELCAN

AASHTO Annual Meeting

September 20, 2004

Context

Changing economic structure Trade and globalization From a manufacturing to a service economy

Technology Enabled significant decreases in marginal logistics costs Could serve as the catalyst to major changes in freight

systems

Intermodal freight systemsPolicy context is broadeningNetworks are being reshaped

Freight System Performance Growing congestion on critical highway segments

Increased transport costs due to delay

Unreliable travel times that affect logistics and level of service

High “last-mile” costs due to congestion in urban areas

Congestion at terminals and border crossings

Effects of security requirements

Inability to quickly increase system capacity

By 2020 freight volume may nearly double in some sectors (FHWA)

Potential long-run rail capacity problems

Rail infrastructure downsizing, service disturbances, and insufficient on-dock or near-dock rail capacity

Concern about the future performance of the freight system

Freight Transport Externalities Air quality

Diesel exhaust is a primary source of PM and air toxic contaminants, which are deemed as major health threats especially to children

Diesel exhaust is a primary source of NOx emissions, a precursor to ozone

Community livability and environmental justice Location of many freight facilities may lead to a disproportionate impact on

minority and economically disadvantaged communities

Transportation safety In 2002, 434,000 large trucks were involved in traffic crashes in the U.S., of

which 4,542 were involved in fatal crashes

Homeland security The vulnerability of the freight system, especially given globalization, is a

major cause for concern when it comes to terrorism

Transportation and the EconomyEfficient Transportation

Infrastructure Investment

Increased Transportation Capacity, Efficiency, Reliability, and Level of Service

Transportation Cost Savings Transit Time Savings, Reliability Improvements

Business Expansion,Relocation, and

Restructuring

Increased Productivity

Increased Competitiveness

Higher Standard of Living

How do firms react?

Improvements in Network

Connectivity and Density

Industry Investment in

Advanced Logistics

Industrial Reorganization and Enhanced Productivity

Firms reduce stocking points, increase JIT processes, and increase shipping distances

Firms react to reduced late-shipping-delays, valued highly by shippers, by investing more in logistics

Inter-industry trading patterns are affected

U.S. Domestic Freight Movement (2000)

Source: AASHTO, Freight-Rail Bottom Line Report

0

2000

4000

6000

8000

10000

12000

Billions ofDollars

Billions ofTon-Miles

Millions ofTons

Truck

Rail

Barge

Air

Historic Growth Rates by Mode(Ton-Miles)

3.90%

3.50%

-2.50%

5.20%

-4% -2% 0% 2% 4% 6%

1

CA

GR

(1

99

0 t

o 2

00

0)

Air

Rail

Truck

Barge

A Plausible Annual Growth Scenario (2000 to 2020 in Ton-Miles)

2.50%

2.00%

0.70%

4.00%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00%

1

Fo

rec

as

t G

row

th R

ate

(2

00

0-2

02

0)

Air

Rail

Truck

Barge

0

1000

2000

3000

4000

5000

Truck Rail Barge Air

What do these forecasts mean?(Billions of Ton-Miles)

2000

2020

64%

49%More than double

15%

Primary Freight Demand Drivers Growth in economic output

U.S. production of goods for domestic and international markets

Imports of goods for domestic consumption

Trade Globalization – Pacific Rim, Europe, South America

NAFTA and FTAA (maybe)

Advanced logistics Enabled by technology

Carrier productivity Affected by regulation

Economic Output

1987 to 2000 Growth Rate

GDP* 3.19% GDP Mfg.* 1.68% GDP Mfg. + Imports* 4.26% Federal Reserve Board Mfg.** 3.60% BEA Mfg.** 3.25% * Value based ** Based on a combination of value and quantity

President’s budget estimates 3.5% average annual growth in GDP from 2004 to 2009.

This is the number that matters most.

Trade – U.S. Port Container Traffic

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Con

tain

er T

EU

s ('0

00)

East Coast Ports

West Coast Ports

Gulf Coast Ports

Source: American Association of Port Authoritieswww.aapa-ports.org

Wal-Mart estimates it spent $15 billion on Chinese-made products in 2003.

Advanced Logistics

Transportation as an input to production

As the cost of transportation falls, firms substitute more transportation for other inputs This is what economists refer to as the

factor substitution effect

The producer can now generate more output at the same level of cost This is what economists refer to as the

output effect (productivity gain)

End results: An increase in the demand for

transportation from the initial drop in transport cost

A change in the long-term structure of that demand from the reorganization effect

Advanced Logistics Systems…

0.00

0.20

0.40

0.60

0.80

198119

8219

8319

8419

8519

8619

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

01

YEAR

Rat

io o

f T

ran

spo

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og

isti

cs C

ost

s

0

200

400

600

800

1000

1200

Lo

gis

tics

Co

sts

($B

)

Transport as a fraction of Logistics Costs Logistics Costs

Source: Cass State of Logistics Report, 2002

…enable the substitution of other logistics components for transportation.

Carrier Productivity

50

60

70

80

90

100

110

120

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

1997

= 1

00

General freight trucking, long-distance Line-haul railroads

Trucking productivity has leveled off since 1995 Steady increases in rail productivity, but not enough to make

up for revenue losses due to competition

Freight Capacity Issues Trucking Rail Infrastructure-based

Urban bottlenecks Congestion on rural highway

corridors Border crossing delays Terminal specific congestion

Mainline capacity Deteriorating bridges and

tunnels Height clearances (e.g. double-

stack access) Highway access from terminals Intermodal terminal capacity Inefficient interchanges at rail

hubs

Regulatory- or Institutionally-based

Truck size/weight regulations Hours of Service (HOS)

regulations Regulations slowing project

delivery/capacity improvements (e.g. EIS)

NAFTA harmonization Driver retention Project financing

Organized labor Scheduling challenges Dedicated service vs. mixed Steady decline in rail revenues

on a ton-mile basis due to competition

Return on investment has fallen short of cost of capital, affecting railroads’ ability to generate funds for infrastructure investment

Freight Capacity Issues, cont. Ports and Inland Waterways Air Cargo Infrastructure-based

Land-side access Channel depth (dredging) Road and rail access to

terminals Congested locks and limited

inland waterway infrastructure

Airport capacity (major issue

pre-9/11) Landside connections Air traffic control Cargo/passenger conflicts

Regulatory- or Institutionally-based

Lack of national/regional

focus for port planning and development

Inefficient pricing due to port competition

Jones Act

Landing rights restrictions Cabotage restrictions (Open

Skies) Belly cargo safety concerns

Why is capacity such an issue? Demand across all modes is expected to increase

significantly

Shippers and carriers optimize logistics and supply-chain management around transportation system performance Congestion could force costly redesigns of logistics systems

leading to decreases in productivity

The freight system is evolving to be truly multimodal Capacity shortfalls in one mode strain performance of other

modes

Shippers are mode neutral demanding efficient, reliable, and inexpensive service

Case in point… If investments in our rail system are not made, the

effect on our roadway system will be significant

Equivalent Truck VMT

No-Growth Scenario +31 billion

Constrained Investment Scenario +15 billion

Base Case Scenario --

Aggressive Rail Investment Scenario -25 billion

Shift Relative to Base Case Scenario, 2000-2020 Totals

Source: AASHTO Freight-Rail Bottom Line Report

Another case in point… West Coast docks dispute

Led to 10-day lockout and the 23-day recovery period

Prevented $6.28 billion in goods from being shipped through the ports of Long Beach and Los Angeles

Shippers were affected

Hewlett-Packard made selected use of airfreight to meet commitments to customers

Mattel worked around the problem by having its containers placed where they would be unloaded first from ships

Effects of West Coast docks dispute could have been far worse had the shutdown lasted longer

What does this tell us about port security?

Los Angeles (CA) 6,105

Long Beach (CA) 4,524

Oakland (CA) 1,707

Tacoma (WA) 1,470

Vancouver (BC) 1,458

Seattle (WA) 1,438

Manzanillo (COL) 634

Anchorage (AK) 463

Portland (OR) 256

Fraser River (BC) 101

Ensenada (BCAL) 53

Top West Coast Ports by TEUs (000s), 2002

Source: AAPA

What could be on the horizon?

Widening of the Panama Canal (likely)Effects on U.S. port dredging needs, port competitiveness

Continued explosive economic growth in China (likely)Effects on US/Mexico trade POEs, West Coast ports

“Second wave” of the IT/internet revolution (likely)Effects on logistics systems, freight networks

Major system disruptions (possibly)Effects on system performance, U.S. and local economies

Where do we want to be 10 or 20 years from now?

An efficient, reliable, and integrated freight system, enabled by technology, thatOptimizes generalized logistics costsHelps to maximize manufacturing productivityHelps to minimize the prices of importsEnhances efforts to make our homeland more secureEnhances our ability to deal with congestion in urban areas Is energy and environmentally efficientLimits effects on community livability and cohesivenessMinimizes the probability of accidents and associated

fatalities and injuries

Policy Themes

We need a national vision for our freight system that is the basis for Federal policy

We need regional/local freight transport decisions that are consistent with national goals, objectives, and strategies

We need strong, well-coordinated leadership to forge effective policy

Addressing National System Bottlenecks

Develop and implement a National Strategic Freight Transportation Investment Program Grant program, not administered by a modal agency, to

select and fund freight projects of national significance

Designed to address major capacity bottlenecks and to accelerate the development of projects that enhance the performance of the nation’s freight system

Craft detailed and strict guidelines for project selection, monitoring, and evaluation, including an Annual Report to the President

Addressing the Need for Meaningful Freight Planning

Develop and implement an Innovations Program for State and Local Freight Transportation Decision-Making Grant program to select and fund innovative multimodal

freight planning and programming at the State and local levels

Designed to address issues related to Collaborative institutional arrangements Public/private partnerships Freight-passenger interferences Regional freight networks (e.g., freight villages, city logistics) Land use needs Freight analysis data and tools Operations

Addressing Ports’ Needs Stemming From Changing Trade Patterns

Develop and Implement a National Harbor Improvement Program A program to select and fund channel dredging projects

and ensure rational investment decisions for ports Designed to address current lack of national and/or

regional focus for port planning, as well as needs related increasing/changing trade patterns and to post-Panamax vessels

Include an efficient user fee that adheres to trade treaties, and chose projects according to the national interest

Other Mode-Specific Policy Ideas

Develop a National Freight-Rail Investment Program

Develop a National Dedicated Truck-Lane Highway System

Create opportunities for efficient coastal shipping Repeal the Jones Act

Adopt the Open Skies initiative

Change Truck Size & Weight regulations