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G-14 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion 2. Competitive Reckoning is the second barrier. Diversion is two-sided because it involves com- petitive interaction, and competition is about relative position. While the competitive reper- cussions of rail projects can be mitigated by the ability of motor carriers to use rail for their own benefit, in the reciprocal case, there is little mitigation. The consequences of public road projects for rail are typically subtle, but detrimental and cumulative, and, with some excep- tions, public planning does not consider these consequences. It seems improbable that this behavior will change, yet the failure to take into account the competitive effects of highway projects is an entrenched barrier to rail diversion. 2.3 Diversion Levers The countering case against barriers to diversion is found in the levers that aid diversion. This section introduces a selection of five public levers, some of them commonplace and some not. The selection is more illustrative than comprehensive, and it does not treat the many commer- cial options available to railroads for attracting traffic. 1. In light of the discussion of competitive reckoning, the most obvious lever is the two-sided character of diversion. Actions or inaction that influence the efficiency or service quality of motor carriage affect the competitive balance with rail. It is not in the public interest to inter- fere with the performance of truck transportation when it is the way most goods travel to market, including a large number that travel part of the distance by air, water, or rail. Con- versely, there are initiatives that on balance may be judged to be in the public interest, but nevertheless impose a penalty on truck lines. Tolling of roads is an example of this. Another was the modification of federal hours of service regulations for truck drivers.iv This was designed to improve road safety, but it also reduced labor productivity for some classes of truck shipments and probably produced a benefit for rail. 2. Public financing is another obvious mechanism, suited to the equally plain purpose of removing capital and capacity constraints. The issues surrounding its use are presented else- where in this guide. However, in this section's consideration of barriers and levers, there are two points to underscore: Funds can be used to elicit a quid pro quo from the recipient. Therefore, financing agree- ments can be linked to steps that reduce the barriers of interoperability and institutional commitment and thus widen the market to which publicly backed rail services may appeal. Start-up risk can be mitigated with limited-duration operating subsidies, protected by per- formance and marketing covenants. Alternately, to avoid public absorption of operating expense, a combination of project-related equipment financing, and tax credits for fuel and possibly labor could be applied to accomplish the same objective. 3. Market strategy is a lever not normally associated with the public sector, which never- theless can be part of comprehensive statewide and regional plans. For instance, DOTs who support the pursuit of bulk traffic by their shortline railways are keeping the heavi- est trucks off the roads and shortlines healthy, but they are also pursuing a vertical market strategy that specializes in the bulk industry. An example of a geographic market strategy favoring intermodal diversion would be the support of enlarged breadth and depth for ter- minal coverage throughout a geographic region. Its repercussions would fall on the load availability experienced by motor carriers and could induce their consideration of rail alternatives. A depiction of how this dynamic has worked historically appears in the accompanying box. iv Initiated by the Federal Motor Carrier Safety Administration in 2004.

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Background: Context for Rail Freight Planning G-15 Prior to the advent of fast-stack train service from the west coast to the interior of the country, those lanes were a long-haul truck market. When stack trains arrived, the traffic they captured substantially reduced the num- ber of loads available to motor carriers delivering on the coast to return their trucks inland. Regional work could be found, but a truck that came from Chicago could not get back to Chicago, nor to anywhere close. The difficulty was not that the railroad took all of the business, but that it took enough of it for the remaining loads to be fewer and further between. This resulted in trucks laying over longer while they awaited their next load and traveling a greater distance to find one. The coastal geography with mountains and rural areas for hundreds of miles eastward acted like a peninsula to trap truck fleets along the Pacific. Layovers and empty miles meant declining utilization, and coupled with rates dropping toward the railroad price points, the business was no longer profitable. Many motor carriers withdrew from the west coast market, ced- ing it to the railroads and to the first truckload lines to seriously adopt rail intermodal as a strategic alternative. Trucks flowed and still flow over the road, especially for time-sensitive traffic like California produce, yet the rail- roads effectively took the market and kept it. The critical ingredients in the historical example were good quality rail service, its cover- age of all the important lanes (which were long, busy, and few), and the peninsular condi- tions that prevented truck lines from easily finding their loads elsewhere. These conditions can be reproduced in open geography by a terminal network whose coverage areas densely overlap, so long as service levels are competitive and extend to enough of the major lanes. The diversion dynamic is that reduction of a significant portion of available market loads, and elimination of nearby alternatives, disturbs truck use to the point that rail options have to be considered. The effect will be strongest in the most concentrated part of the network, motor carriers actually can be allies in bringing it about, and it is not necessary to serve all lanes in order to have a noticeable influence on load availability. As a potential public strategy to encourage rail traffic, the key elements are the number, serving radii, and overlap of terminals (which may have to be determined from gate surveys), and the proportion of large lanes these ter- minals operate with competitive service. The lever is public investment in terminals and other capacity. Since the diversion effect is produced regionally, the strategy works best with multi- state coordination, although geographic barriers can fortify it. 4. Manipulation of density can be undertaken from vectors and points. Inland ports and forward distribution programs transfer the location from which traffic is dispersed, from a gateway or production region to a spot closer to the consuming markets. The lane from that production or gateway region to the new dispersal center consolidates traffic into a dense vector, which may support trainload operations and non-stop service. Both kinds of program are active in the public (and private) sector; the Port Inland Distribution Network sponsored by the Port Authority of New York and New Jersey is one of many examples. Point density, which affects pickup and delivery efficiency, is produced overtly by public terminals or land development concepts like the freight village; however, purposeful city plan- ning and zoning can lead with a lighter hand to a comparable result. The operative dynamic is concentration of multiple shippers in a geographic pocket. The pocket then may become