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G-68 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion in freight. Transit advocates face a similar dilemma in selling their projects. Their argument is that a parallel system like transit guarantees people a certain minimum threshold of mobil- ity in the face of worsening roadway congestion. Freight rail can argue (and has) that it slows the growth of congestion or retards the rising incidence of trucks or that it guarantees mobil- ity to supply chains by offering a parallel system in freight. The point is to consider the popu- lar perceptions of a project's objectives and direct those perceptions toward what the project can finally accomplish. Transaction design thus solidifies the approach to projects and the roles of participants. It is concerned to assure their success, and the way that success will be determined. 4.6 Winning Support Drawing support to public freight rail projects organizationally, politically, and financially is vital to their likelihood of implementation. Two avenues for doing this are explored in this sec- tion: methods of influencing program priority and utilization of multi-party coalitions. Program Priority The program priorities for multimodal projects in the public sphere can be heavily governed by their ability to delay or eliminate the need for new road capacity. Rail projects answer well to this requirement when diversion is concentrated on particular roads due to high-volume ship- pers or confluent traffic, but, in other locations, the same diversion effect can be diluted across the road network. To contend with this, the value of rail can be asserted for program prioritiza- tion in three ways: 1. Reformulation. First, it should be questioned whether the effects on the passenger-driven highway spending program are the right way to judge freight projects. When the capacity problem is reformulated as congestion specifically affecting the freight system, the rail solu- tions become more potent because they address it directly. For example, if highway condi- tions determine the advantage of diversion, then results for the class of traffic which departs the highway are excluded, yet this traffic should experience the greatest benefit from a rail project. Reformulation of conditions in terms of the system for freight, and including all affected commercial traffic because the modes are interactive, is a more relevant method of deciding program priority. 2. Containment. Second, the utility of rail should be stressed for managing congestion as a worsening and generalizing condition. For example, intercity lanes represent the new zones of congestion in the decades ahead. Exhibit 4-5 is a projection of this. It depicts highway level of service deterioration spreading through the years, until the corridors linking major cites degrade to the most congested rank almost end to end. Even if they are focused at greater lengths of haul, rail options help to respond to congestion because of its proliferation. 3. Broader Criteria. Third, rail benefits that resonate with the voting public should be advanced as additional program criteria, focusing especially on economic competitiveness and safety in the form of traffic separation. For instance, in the major hub center of Chicago, rail freight has been shown to be worth whole points of gross regional economic product. While the influence of rail in more typical locations will be less, this large-scale example shows the strength of the connection to economic well-being, with its implication of jobs, income, and political interest. Other advantages from rail can act in a comparable role: in Europe, railroad environmental performance wins preference at the policy and program level, and some American communities may choose to act similarly, because of air quality non-attainment, climate concerns, or local opinion.

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Guidelines for Public-Private Dialogue G-69 Exhibit 4-5. Illustration of Projected Congestion Growth Along 1-10 Corridor. Multi-Party Coalition An essential question for a railroad and its public partners is whether or not their pooled finan- cial resources are large enough to support their desired projects, and, given the many demands on their treasuries, this question will be perennial. A promising solution in some cases is to expand the two-party partnership by inviting or recognizing the involvement of other private- sector entities in the provision of rail capacity. Certain railroad customers for decades have been contributors to capacity in narrow but meaningful ways: Electric power utilities own coal-bearing hopper cars and purchase dedicated trainload serv- ice from carriers. This ensures their generating plants a steady supply of fuel by guaranteeing the availability of equipment and service, and it affords them a form of inventory storage. For the railroad, it ensures full productivity from the fixed cost of a train start, limits their mobile asset investment to locomotives, and may supply the baseload traffic for a branch line. Chemical shippers normally lack the volume to purchase whole trains, but by maintaining large fleets of private tank cars, they protect their supply of specialized equipment, ensure the safety and compatible usage of the tank, and possess a method of product storage. Railroads gain by avoiding ownership of equipment whose use often is restricted. In the intermodal business, steamship lines provide containers and chassis and purchase train- load service on some high-density lanes. Some motor carriers run their private trailers and containers by rail, and while they have lacked the individual volume to take on a train, some are developing the size and density to be capable of it, alone or on a shared basis. Steamship lines cross the threshold of trainload quantity because of the great mass of American con- tainerized imports, funneled through relatively few ports in huge vessels. Motor carriers are beginning to cross the threshold because of the amount of traffic several are coming to con- trol, aided by purposeful marketing to approach the volume level for train lot consolidations. Thus, there is precedence for additional parties entering the rail capacity picture. The exis- tence of non-rail private direct investment in the intermodal sector is especially significant because of the importance of this class of service for highway traffic diversion. Moreover, while many intermodal users depend on the railway for all equipment and operations, railroads pre-

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G-70 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion fer those who bring assets to the table and favor them when capacity is tight. Commitment of assets also produces a vested interest in the rail operation and usually in the quality of service, since service affects the use of equipment and therefore its return on capital. When the volume or operational requirements of the asset owner begin to warrant investment in trains or termi- nals, this interest can become compelling and create an additional full partner for a cooperative relationship. Railroads can have misgivings when a private partner begins to look like a private operator. When purchasers of trainload intermodal services have resold space on trains, railroads have asked whether they are competing with themselves. The dilemma is like that of ocean lines with Non-Vessel-Operating Common Carriers (NVOCCs), who improve the use of ship capacity yet are rivals with the lines for some business. Nevertheless, while railroads prefer to retain full con- trol of trains, they are apt to prefer profits more and can reach an accommodation with private players who will not severely commoditize rail service. A multi-party approach to public-private partnership brings a clear set of advantages to rail projects. Traffic Assurance. Truck lines, ship lines, and shippers all command volume they can tender to railroads, and this brings assurance to project traffic levels. Even if quantities fluctuate, their existence reduces project risk and makes railroad and public money safer to invest. Public Relations. The influence of alliance members on public relations and the courting of public favor is a second advantage. When the pairing of railroad and government expands to take in transportation users, the partnership begins to have evident market support, and if the users are well known to the community or prominent in the industry, it can take on the aspect of a grand coalition. This establishes an impression of solidity and prestige that is beneficial to a project, by helping to sway decisions for it in a political environment. Capital. The most obvious advantage is the enlargement of sources of capital. The funding minimums required to make new projects operational become easier to reach, more proj- ects reach fruition, and the money available from public and railroad coffers goes further. The new partners will have characteristic inclinations, derived from their own business functions, which tend to slot them into certain roles: for example, a motor carrier will com- mit fleet equipment but is not likely to invest in track. While seemingly restrictive, these roles can be complementary to the public interest, so that taken together, the parties may fund a rail initiative more completely than any would alone. How this could function is dis- cussed next. Funding Roles The funding roles that the parties in a coalition may play are pictured in Exhibit 4-6. It shows in a general way the rail cost composition of intermodal service and each partner's area of involvement and potential contribution. Public-sector actors normally will make rail investments in infrastructure, mirroring their function on the highway side. Specifically, they will contribute toward track and right-of-way (ROW), yards, terminals and access, and potentially terminal transloading (lift) equipment. Private-sector actors invest principally in payload equipment: trailer/container units or railcars. Some may be brought into terminal investment, perhaps on a shared basis with a railroad or public agency (as shown in Exhibit 4-6). While this is not normally done today, ship lines with on-dock rail or industries with private spurs are stepping in this direction, and motor carrier- owned terminals outside of the rail sphere are commonplace. Train starts are possible targets of investment for both public and private players, individ- ually or on a shared footing. A train start is a commitment of crew, locomotives, and

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Guidelines for Public-Private Dialogue G-71 Exhibit 4-6. Illustration of Funding Roles. operating resources on a set schedule. Although it is not a capital commitment per se, it imposes a material fixed cost that railroads approach with care, and a purchaser of train- load services can defray it. Shippers, container lines, independent operators, and public agencies all have undertaken this to varying degrees, and motor carriers have now begun to do so. The party that is best able to accept the train start risk is the one who controls enough traffic to support the train. The public agency function can be to bring several pri- vate entities together to reach a volume threshold or to guarantee against a volume short- fall as an inducement to the cooperation of others, especially during the ramp-up phase of a project. Railroads invest everywhere, sustaining the system--the network, fleet, personnel, controls, transactions, and organization--that makes contributions by others effective. A public invest- ment in track, for instance, represents a subset of the hundreds of miles of track that trains may travel in providing service to that investment. Similarly, a train start draws on a pool of qualified labor and a string of locomotives maintained and positioned in the right district by the carrier. The relative significance of roles in the cost composition of intermodal rail service is illustrated somewhat better by the graph in the following Exhibit 4-7.v The previous pie chart displays the distribution of expenses for a mixture of longer and shorter haul traffic, with a weighted average of around 1,000 miles. The graph depicts how this distribution changes with distance. A conse- vThe costs presented in both graphics are long-term variable costs, which contain major capital components. When some components fluctuate in price, they affect the weight of other factors. (Fuel is a key example; the graphics represent fuel prices in 20032004.) Numbers are calculated per shipment for typical train sizes, imply- ing for instance that atypically short trains would bear a greater locomotive expense, allocated over fewer ship- ments. Finally, the costs are for a shipment across its entire rail journey (pickup and delivery drayage is excluded). Thus, it will pass through at least two terminals and cross many miles of track. A normal rail project will con- tribute a portion of such expenses but not all of them, although it will do so for many shipments. As a result, where the chart shows public investment in track and terminals affecting costs that account for 37% of the total, it means that those areas of contribution are substantial in the railroad cost structure, and it does not mean that the public is covering all of those costs. Source: Global Insight, based on the Surface Transportation Board Uni- form Rail Costing System.

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G-72 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion Exhibit 4-7. Distribution of Intermodal Rail Costs by Mileage. quential point for public planning is how important the terminal and equipment components are at the lesser lengths of haul, encompassing half the costs under 500 miles. Since terminals and equipment also are the nexus where private non-rail and public roles meet (as shown in the pie chart), it stresses how helpful, and even critical, a multi-party alliance can be, at the distance ranges where railroads traditionally have not competed. In addition, the chart reinforces the notion advanced earlier that investment can be targeted to sensitive components in order to divert a given traffic mix. As the exhibits suggest, the roles that the parties tend to fall into are complementary and mutu- ally supportive. They are not limiting roles, so that a public agency could act differently--perhaps by purchasing locomotives to ensure a project's power supply. However, they are essentially natural parts for each actor to play, delineating a partnership structure that can be followed, and diluting the capital demands of railroading by spreading them according to segmented interests. Winning support for projects concludes the process of public-private dialogue in the devel- opment of rail responses to road congestion. Detailed steps of analysis should be conducted in parallel with this process in order to demonstrate the viability and value of rail initiatives and their preferability as a use of public resources. Those steps form the subject of the next chapter.