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Background: Context for Rail Freight Planning G-11 achievable over time and marks the transition to more purposeful applications of public-private partnership in the production of freight capacity. Limited investments with parochial justifica- tion and major initiatives both fit into a framework of this sort, because it allows a methodical but variable way of capitalizing on the joint possibilities for rail. Relevance of this Guide This guidebook develops these possibilities. It is designed for public and private planners whose interests range from the local, to the coordinated, to the larger scale employment of freight rail partnerships. It supplies basic analytical tools to novices who are uncertain about the role of rail, and systematic techniques and approaches for sophisticated users. Its methods facilitate the use of freight rail in answering the nation's need for transportation capacity and for reining in the progress of congestion. 2.2 Diversion Obstacles The diversion of freight traffic from highway to rail is a basic objective in congestion relief projects. Diversion is restrained by a series of obstacles that can be overcome, but only if they are recognized and addressed. They can be encapsulated in eleven types of barriers which relate to market viability factors, institutional readiness factors, and public issues inhibiting modal shift. These categories of factors are discussed below (see also Exhibit 2-1). Market Viability Constraints Market viability factors affect the acceptability, competitiveness, and logistical efficiency of rail service for the customers. The major diversion barriers are four, and reflect on the immediate practicality of projects for planners: 1. Equivalent Service is the comparability of the rail product to over-the-road alternatives with respect to the requirements of supply chains. Comparability of service is measured from the shipper's door to the receiver's door and encompasses many factors, including (1) trip times and reliability; (2) the typical yet not universal perception of rail as an inferior good; and (3) the ability of rail to meet the explicit delivery windows required by customers. 2. Access Limitation concerns the requirement for rail-truck intermodal operations or for transloading and drayage of carload freight, when direct rail service door-to-door is unavail- able. Access limitations relate to the need and specifications for transfer facilities; the length, efficiency and circuitry of truck pickup and delivery; the time and cost penalties associated with these elements; and the urban problem. The urban problem refers to the fact that metropolitan roadways are especially vexed by congestion, yet if railroad access occurs primarily via truck drayage, then it is precisely the urban areas that railways will find most difficult to relieve. 3. Interoperability is the ability of rail to interchange smoothly with marine and motor carriage for either transload or intermodal operations. It embraces particularly the compatibility of Exhibit 2-1. Diversion Obstacles.

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G-12 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion equipment, the domestic appeal of service, the breadth of the addressable market, and the integration of rail in the operating networks of ship and truck lines. 4. Density is the concentration of traffic volume in specific corridors or lanes; its influence shapes the frequency of service and the productivity of assets. Traffic density is the critical factor in determining if a given traffic flow will support trainload operations, require or avoid interme- diate staging, or permit the production of service economies. As a result, it has profound effects on competitive performance and the sustainability of service. Institutional Readiness Constraints Institutional readiness describes the capability of railroads in physical, financial, and organi- zational terms to attract and retain additional volume from highways. There are five prominent barriers to diversion: 1. Capacity is the magnitude of line, terminal, and siding infrastructure for the physical and func- tional accommodation of train operations, including factors like signaling, clearances, and weight limits. It is a tangled consideration in networks, and it has become a significant hin- drance to railroad growth. Labor, power, and carrying stock also are components of capacity; shortages of qualified manpower are common in much of the freight industry and increasingly are a challenge in rail. An instructive example of the intricate nature of capacity and its inter- ference with diversion comes from a Class I railroad in 2004. A premium intermodal train for a major motor carrier, designed to produce highly com- petitive 3 to 4 day transcontinental service, created system congestion and delays for other trains. Limitations of track, siding, signaling, and labor capacity, coupled with the need to create headroom (a clear lane) for the much faster intermodal train, created cascading disruption for other opera- tions, which lasted up to a week. 2. Capital is the constraint of funds for investment in capacity and new services, which leaves railroad networks undersized and divertible traffic on the roads. Because rationing of capital pushes internal hurdle rates to high levels, there are important consequences for retention of operations and prioritization of projects: profitable opportunities may not be profitable enough, new business can drive out old, and capacity can be subject to allocation. 3. Institutional Commitment is the in-place investment of financial and human resources in a course of action or way of doing business. It causes change to be encumbered and new ways of operating to face higher asset costs and fewer network benefits than continuance of the old. Partly, it manifests the business franchise that companies build up through the years, with their customer relationships and interlinked traffic and asset deployments; and partly, it depicts the engrained implications of capacity and capital restraints. 4. Institutional Structure acts as a barrier when company and industry organization cause the railroad network to function in balkanized segments, instead of an integrated whole. Due to service and efficiency benefits, railroad market sharei tends to be materially higher in terri- tory where carriers offer single-line service, and this can discourage some interline operations. There are motivational aspects as well: railroads interchanging traffic have shorter hauls than if they handled the traffic themselves, and they must divide profit contributions. This pro- i The authors of this report conducted private studies in the mid-90's that showed this, and are aware of others also done pri- vately that produced the same conclusion.

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Background: Context for Rail Freight Planning G-13 duces the under-served markets of the so-called watershed areas, that straddle the territories of two rail systems,ii and it has an influence on the opportunities and relationships between short line and Class I railroads. The Alameda Corridor offers another perspective on the motivational com- ponent. There, the local authority purchased the right of way to be upgraded, and it bought out all of the competing routes, so as to ensure that the user rail- roads would not favor their own track ahead of the public facility. 5. Sustained Performance is a cross over issue between the categories of viability and readiness. If a railroad can introduce but not maintain competitive service, or if it withdraws service in favor of another use for its assets, then traffic diversions are lost. Sustained performance touches on market viability in that the projected demand for a service may not fully materi- alize, or there may be institutional dynamics and economic incentives at work that depress the volume of business. Start-up risk is a specific and important instance of this barrier at work. Departments of oper- ations frequently are cost centers for railroads and other freight carriers alike. Start-up services impose most of their costs long before they generate most of their revenue. Customer utilization of new services builds and matures through time (following a typical product life-cycle curve), and traffic shifts do not reach their peak for a long while after a competitive operation commences. Moreover, traffic activity rarely is consistent day to day, and train starts have a high fixed cost. There is a powerful daily incentive in operating departments to delay or consolidate line haul departures for the sake of more volume, and this normally means a penalty for on-time performance. Unreliable service then undermines the retention of new business, creating more reason to hold departures for volume, and in time the start-up is killed entirely for lack of traffic. This vicious cycle can be overcome with discipline and financing, but it is a frequent problem in freight transportation, not just at the lane level, but companywide when there is an organizational movement to raise performance. New ventures consequently may have to run at a loss until they earn customer confidence and attract adequate business, and their operating expenses should be treated essentially as investments. Public Barriers While public obstacles to the use and support of freight rail appear elsewhere in this guide, two public barriers will be cited here for emphasis, because they exacerbate the challenges of readiness and viability that this section has discussed. 1. Public Acceptance is the first obstacle. For almost any kind of freight, the reluctance to accept traffic in populated districts seems to be widespread, and there is a preference for "out of sight, out of mind." Citizens want fewer trucks on the road but not more trains, and the construction of new lines as well as new facilities face local as well as environmental concerns,iii with delays stretching into years. This has caused some railroads to view facility capacity as fixed. The cru- cial difficulty is that this not only prevents acceptance of substantial new volumes, it also spurs the process by which the railroad traffic mix is culled for only the most profitable traffic. The public and the carrier financial interests are not necessarily aligned in these conditions. ii The lane between Nashville TN and Dallas TX is one of many examples. The 660-mile total distance is a haul length where rail- roads are active, yet the lane crosses between the service regions of eastern and western rail systems. With a 210 mile run in the east and 450 miles in the west, the business opportunity is less appealing to both carriers. iii For example, the break-up of Conrail saw great resistance to higher train volume through Cleveland, OH. In Virginia's I-81 study, the construction of certain routes was ruled out by the state, because of citizen resistance in well-healed rural areas.