Freight Capacity for the 21st Century: Special Report 271 (2003)

From 1991 to 2001, the U.S. economy experienced the longest uninterrupted expansion in its history. The emergence of capacity constraints in some sectors of the economy during the decade is not surprising. Certainly shippers experienced effects of constrained capacity in the freight transportation sector. Rail service disruptions, driver and equipment shortages in trucking, peak season congestion at west coast ports, strains on the air traffic control system, and extraordinary delays for traffic at U.S. land borders all contributed to the impression that the freight transportation system was under unusual stress.

Are recent episodes of capacity shortages in freight transportation normal cyclical phenomena, or are they symptoms of detrimental long-term trends pointing to persistent freight transportation capacity problems in the future? The answer to this question has considerable economic importance. The history of freight transportation in the United States has been one of nearly continuous, often dramatic, productivity improvement. The performance of the freight transportation sector has been instrumental in allowing the United States to become the world’s largest integrated market and to participate successfully in global trade. The sector has in this way advanced economic welfare, and interruption of the historical trend of productivity improvement would be a substantial loss. The economic stakes are magnified because freight shares infrastructure with passenger traffic, so freight congestion adds costs to passenger travel.

In the past the freight transportation system has kept up with the growth of commerce while at the same time improving productivity

through private-sector market-driven capital investment, public capital investment directed by the political process, technological progress, and management innovation. In addition, government institutions have been able, at critical junctures, to respond effectively to changing circumstances. To allow the freight system to continue to develop, all these means must continue to be available and applied effectively.

The Transportation Research Board (TRB) convened the Committee for the Study of Freight Capacity for the Next Century in response to observations of participants in the transportation industry about the possibly detrimental implications of certain trends in freight capacity. In this chapter the charge to the committee is described, the developments in freight transportation that motivated the study are identified, and the report is outlined.

The committee was charged with two tasks: first, to examine the trends that have been the sources of concern in order to determine whether they indicate a risk that the efficiency gains in freight transportation of recent decades might not continue; and second, to propose changes in government policy that will improve the efficiency of freight transportation, especially over the long term. Government in the United States is responsible for provision and operation of major components of freight system infrastructure and for regulation of private-sector transportation firms. The committee considered pending government decisions or immediate issues within established programs that have repercussions for freight capacity, and possible initiatives or departures from established practices.

From a practical point of view, the committee was concerned with three kinds of inefficiencies in the freight transportation system:

• First, cases where expansion of facilities would be economically worthwhile (that is, benefits to users would exceed the cost of the expansion) but the investment for expansion is not taking place. In the public sector, where investment decisions generally are not directly connected to the revenues that particular facilities generate, failure to invest may be the result of a shortage of funding or failure to recognize the investment opportunity. In the private sector, failure to make a worthwhile investment may be the result of regulation that blocks entry into a market, restricts pricing adjustments, or adds unnecessarily to costs. (Of course, the opposite circumstance also occurs—where facilities ought to be downsized but are not.)

• Second, cases where failure to consider the effects of transportation activities on the public as a whole cause a facility to be improperly sized, sited, or operated. For example, a rail line from a port through a city may function well from the point of view of the carrier and its cus-

tomers, but the costs to residents from noise, pollution, and blockage of streets might cancel the shipper and carrier benefits.

• Finally, cases where existing facilities are poorly managed. Perceived transportation capacity shortages arise commonly from management problems. For example, a road with heavy congestion may appear to be a candidate for widening, but if a state-of-the-art traffic signal system sufficiently reduced users’ costs, the widening would no longer appear attractive. Private-sector transportation firms manage use of their facilities through traffic control technology and through pricing (for example, charging higher rates in peak periods), which is essential to get the greatest benefit from existing capacity. The public sector uses technology but almost never pricing.

The committee’s work was aimed at determining the prevalence of these sources of inefficiency, their costs, and whether changes in government policies could correct them.

Increases in freight transportation prices or declines in infrastructure spending that are caused by increases in the prices of the resources used to produce freight services generally are not problems requiring government intervention. Thus, for example, if transportation labor costs rise because workers with the skills transportation employers seek become more heavily in demand throughout the economy, or if land for terminals in cities becomes more expensive because its value for recreation or housing increases, then freight rates will rise. In response, shippers will economize on their use of freight by changes in the organization of production (e.g., maintaining larger inventories and shipping in larger quantities) and the location of facilities (e.g., moving manufacturing closer to consumers). These adjustments will be the best way to minimize total production costs in the face of the rise in labor or land costs. There is no need in such circumstances for government to respond by attempting to drive freight rates down through subsidies. The committee has not been concerned with these kinds of cost increases in private-sector freight transportation activities because shipper and carrier management can respond appropriately to them.

The committee did not devise measures of system freight capacity. A generally accepted definition of system capacity is not available. The public policy decisions with which the committee was concerned, regarding incremental additions to capacity and effective management of capacity, do not depend on such measures. The problem of defining capacity is discussed in Chapter 2.

Physical plant is not the only potential capacity constraint on the freight transportation system. The institutional and management environment determines whether the physical plant is used efficiently. For example, the reduction of federal and state regulation of rates and service

in the 1980s affected how the railroads use their plant; and road authorities’ pricing and user fee policies affect the trucking industry’s use of roads. Technological progress (e.g., increasing use of information technology to manage transportation systems) also can increase the effective capacity of existing physical plant. Short-run capacity constraints are more likely to be equipment or labor shortages than shortages of road space or trackage. Labor and equipment supply are primarily short-run problems that carriers, suppliers, and workers can resolve in private markets. Public policy does influence these markets; for example, government education programs and regulation of workplace conditions may be important for the labor outlook.

The committee has addressed its conclusions to federal and state government legislators and administrators, private-sector executives and industry associations, and the public. Significant change in the public sector’s approach to provision and management of freight capacity would require legislation, which could only come about at the demand and with the support of industry, the public, and transportation professionals.

In reaching its conclusions, the committee relied on four kinds of information:

• Aggregate trends and projections of freight traffic volumes, the extent of freight infrastructure, capital spending, and freight system performance.

• Case studies examining specific freight projects and planning efforts, to learn about the perceived needs these activities are responding to, the obstacles they have had to overcome, and the causes of success and failure. Cases reveal factors that cannot be observed in aggregate trends—capacity problems are predominantly local, and institutional bottlenecks generally underlie physical ones.

• Interviews with participants in the freight transportation industries, including carriers, shippers, and public-sector infrastructure managers, to discover how they perceive capacity problems today and threats in the future.

• Conclusions of several recent objective studies of related transportation questions from the federal government, the National Research Council (NRC), and others.

Recent problems in the performance of the freight system are perceived in different ways by shippers, carriers, public officials responsible for government-supplied infrastructure, and travelers who experience the consequences of competition for capacity between freight and passenger traffic. Nonetheless, the apprehensions most commonly expressed by

the affected parties relate to certain trends in markets, performance, and investment patterns that appear to be unsustainable:

1. Stagnant highway spending combined with continual traffic growth: From 1970 to today, highway travel has more than doubled, while inflation-adjusted annual capital spending for highways has barely grown at all. Highway trucking is the major freight mode in terms of expenditures for freight services, and combination truck traffic is growing at a rate 50 percent greater than other highway traffic.

2. Railroad infrastructure downsizing and service disturbances: The number of ton-miles of freight carried by Class I railroads increased by 87 percent from 1970 to 1999, while miles of roadway operated by Class I railroads declined by 43 percent. Shippers complain of service deterioration in the past several years, including unusual disruptions following rail mergers in the 1990s. Rail capacity constraints and recent service problems are discouraging to the hopes of state and federal officials, environmentalists, and motorists that rail can relieve highways of part of the burden of truck traffic growth.

3. Growing congestion at terminals and border crossings: Congestion at container ports, Mexican and Canadian border crossings, terminals where containers are transferred between rail and truck, and air cargo terminals has been the object of special attention in part because these transport nodes are vital to some of the most dynamic sectors of the U.S. economy.

4. Lengthening delivery times and rising costs of infrastructure projects: Major infrastructure projects commonly require one to two decades to plan and complete. Therefore, infrastructure adjustment to changing markets will be slow, and investment decisions must be based on highly uncertain long-term forecasts. Infrastructure projects costing from 100 million to several billion dollars are becoming more common, especially in urban areas. Increasing population density, community opposition, and stronger environmental regulations are among the factors that have added to the uncertainties of infrastructure development.

5. Urban congestion and freight–passenger conflicts: Most major freight nodes (ports, airports, and railheads) and the origins and destinations of most shipments are in cities. Freight must compete with passenger traffic for use of transport facilities and with all other land uses for space for expansion.

These observations, which have indicated to many observers an outlook for unprecedented tight capacity in parts of the freight transportation system, were the starting point rather than a conclusion of the committee’s work. Certainly, circumstances similar in some respects have existed in the past and have always been cited by transportation officials and

private-sector transportation companies and shippers arguing for increased public spending. In a 1949 study of postwar national highway needs (MacDonald 1949), the federal Commissioner of Public Roads observed that:

Of course, the nation responded effectively to this circumstance in the 1950s with a large and innovative public works program, the Interstate Highway System, created by the Federal-Aid Highway Act of 1956.

The assertion that forecasts of traffic growth justify public works spending has always been controversial. It has been argued, by environmental advocates and others, that conventional public works capacity planning (sometimes characterized as “predict and provide” planning) overlooks many of the costs of expanding systems and ignores important alternatives, and that past predictions of capacity crises have been exaggerated (Dittmar and Chen 1996; Department for Transport, Local Government, and the Regions 1998, Chapter 1). Economists as well as traffic engineers have been critical of conventional planning for overlooking the benefits of using pricing and technology to derive greater benefit from facilities. For example, an NRC study of the inland water-way system observed that “Rather than wait a decade for relief from … congestion by expanding the locks, shippers … could enjoy immediate improvements through better traffic management” (NRC 2001, 3–4); and a recent study of highway congestion by a market-oriented public policy organization argued that “innovative highway redesign, separation of types of traffic, toll financing, variable pricing, and electronic toll collection will allow us to offer auto drivers and truckers real alternatives to gridlocked freeways…. we need not be so pessimistic and defeatist about traffic. A large part of the problem is in the area of ideas” (Samuel 1999, Executive Summary).

The task for this study was to examine the validity of present-day perceptions of system needs and the implications of recent trends for freight system capacity and performance in the long run. The committee asked the following questions: Are any of the present trends genuinely unprecedented, or are they consistent with past traffic growth and with historical patterns of development of transportation facilities?

Will the government and private sector be able to respond to growth as in the past, or are there new economic, demographic, or social factors that will render traditional solutions impracticable in the future and necessitate new kinds of solutions?

In Chapter 2 the assumptions and principles that guided the committee’s study and conclusions are stated. They concern definitions of freight capacity, the proper way of judging the adequacy of capacity and the performance of the freight transportation system, and delineation of the responsibilities of government related to freight capacity. In addition, immediate policy issues important for freight transportation, most of which concern pending government decisions in existing programs, are identified, and selected recent proposals for reform of government policies related to freight capacity are reviewed. Results of the committee’s assessment of three information sources to which it referred are summarized in Chapter 3: aggregate trends data on freight traffic, infrastructure, and system performance; the case studies of freight infrastructure projects or planning activities; and the industry interviews. A review of the evidence regarding the five perceived trends listed above is included in Chapter 3. The committee’s conclusions and recommendations are presented in Chapter 4.

NRC National Research Council

Department for Transport, Local Government, and the Regions. 1998. A New Deal for Transport: Better for Everyone: The Government’s White Paper on the Future of Transport. United Kingdom, July 20. www.dtlr.gov.uk/itwp/paper/.

Dittmar, H., and D.D.T. Chen. 1996. Crying Wolf: The False “Crisis” of America’s Crumbling Roads and Bridges and Why Special Interest Highway Lobbyists Like It That Way. Surface Transportation Policy Project, Oct.

MacDonald, T.H. 1949. Highway Needs of the National Defense. House Document 249, 81st Congress, 1st session. U.S. House of Representatives, June 30.

NRC. 2001. Inland Navigation System Planning: The Upper Mississippi River–Illinois Waterway. National Academy Press, Washington, D.C.

Samuel, P. 1999. How to “Build Our Way Out of Congestion”: Innovative Approaches to Expanding Urban Highway Capacity. Reason Public Policy Institute Policy Study 250. Reason Foundation.