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CHAPTER 2 Background: Context for Rail Freight Planning This chapter provides information for readers seeking an introduction to rail freight planning. It first discusses the process of rail freight planning, and associated planning and policy issues. It then discusses the various negative factors (constraints) and positive factors (levers) affecting rail/truck diversion. Finally, it provides examples of projects that enabled rail to handle a greater share of freight, including discussion of the different ways in which these projects were justified in terms of their potential public benefits. 2.1 Rail Freight Planning and Policy Issues Underlying Planning and Policy Themes A central theme in the public discussion of freight transportation today is the adequacy of capac- ity. For much of the past half century, this was not a major concern. The U.S. railroad network underwent prolonged rationalization, and public agencies were more concerned with preserving than with expanding rail lines and service. In highway planning, the construction of new roads and lanes could be counted on, and freight largely could be left to look after itself. In recent years, this began to change. Three things occurred in the highway sphere: Emergence of Freight Planning. The effective ability to build more road capacity was reduced, while congestion mounted steadily. Highway planners started to consider what this meant for the components of stalled traffic and whether they required a differential response. Since the needs and options for freight stand apart from other traffic and present distinct consequences when mobility declines, it is productive for freight to be treated differently, and this began to happen. Logistics Technology Development. The movement of American industry to fast-cycle sys- tems of logistics over the previous quarter century replaced inventory with information and high-performance transportation. This was a beneficial trend for the competitiveness of indus- try, the globalization of supply chains, and the cost of goods. Enabled by the digital revolution and advances in mobile communications, it created great dependency on the reliability and speed of the transportation network. This dependency then came into inexorable conflict with the spread of congestion. While freight operations can manage to work around sluggishness in the network, this is done by accepting a loss of efficiency, and congestion gradually is threat- ening to compromise the new logistics systems. Concern about Truck Roles in Congestion. The resounding success of motor carriage as the preferred mode of freight transportation was facilitated by erection of the national highway network, and yet to a large extent this infrastructure was designed for a lesser proportion of truck traffic than it now bears. Higher volumes of truck traffic are a serious concern to the traveling public. Real or perceived, the discomfort produced by unavoidable proximity to G-7

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G-8 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion large, heavy vehicles engenders animosity toward truck transportation and limits citizens' sup- port for investments that would increase truck traffic. Role of Railroads in Freight Planning Rail transportation, as an alternate form of freight capacity, offers a potential means of miti- gating roadway congestion. The rail system already carries a significant part of the nation's goods, especially those heavy loading commodities that travel long distances. To the degree that those goods would otherwise travel by highway, rail transportation limits congestion and highway maintenance, as well as the traffic tie-ups that highway maintenance imposes. Growth in rail can slow the advance of congestion, and, in given localities, directly relieve it, by diverting freight from the road system. When rail succeeds in winning new traffic, it does so with service that suits the competitive requirements of shipper supply chains and that boosts the efficiency of motor carriers who can employ it. Truck lines hemmed in by labor shortages, by power utilization dragged down by congestion, and by mounting fuel prices may find a reprieve through rail. Rail usage furthermore diminishes the interaction between trucks and automobiles by moving freight onto the naturally separated rail right of way. Apprehension about the safety of shared roadways thus finds a remedy in rail, and roads that are becoming truck-dominated routes may be helped to avoid or postpone that destiny. Finally, freight rail promises a series of public benefits beyond its effect on overloaded highways. Maintenance and security costs, for example, are borne by the public for highway freight and are privately provided on rail. The environmental advantage and fuel efficiency of the railroad motive system accrue to the public welfare, and their value may be more acutely felt as the 21st Century progresses. Economic development and competitiveness are a common justification for public rail investments, especially in seaport and hub markets where traffic is dense and service extensive. Benefits of this sort imply that congestion relief does not have to be sufficient grounds for a rail project in order to be an attainable result, because projects justified by other objectives can reduce road volumes as well. Public Policy Issues The public interest in transport capacity is bigger than freight. Passenger mobility is the need uppermost in the minds of average citizens, which rail can aid by stemming the growth of com- mercial traffic on roads, removing some of the current truck volume, and preventing the diversion of rail freight. Since the handling characteristics of trucks as well as their size give them an exag- gerated footprint on the highway, a reduction in trucks has a magnified influence on passenger traf- fic flow. Moreover, there is a second magnification at the margins, because incremental traffic is a greater detriment to system performance in already congested networks. This implies that the diversion or heading off of additional trucks is more productive as congestion worsens, and rail alternatives will be worth more in the future. Even so, the greatest transportation capacity benefits offered by the freight rail network are for the movement of goods. This is important in the public valuation of rail options, because their effect on goods movement capacity can be substantial even while their effect on highway passenger capacity may be less substantial. This means that the more freight is accorded independent importance in public planning, the more useful the rail options will appear. The rail industry also requires continuing investment in equipment and facilities in order to handle the projected growth in freight traffic. For much of the 20th century, the rail system underwent rationalization that resulted in a smaller network with higher density mainlines, fewer branchlines, larger and more efficient classification yards, and new facilities for handling bulk and especially intermodal traffic. For most of this period, advances in rail technology provided

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Background: Context for Rail Freight Planning G-9 tremendous boosts to capacity by allowing heavier cars and longer trains. However, beginning in the mid-1990s, the rail system began to experience congestion, to which the industry responded with a combination of demand management and investments within its resources. Additional track and facilities were constructed to handle the extra train traffic, particularly in parts of the network where growth in coal and intermodal was strongest. Given that railroads are private companies, they must be able to earn enough to cover their cost of capital if they are to continue to make capacity investments. They also have strong incentives to invest for traffic classes where the return is the greatest, which tends to be bulk, long-distance, or high-volume traffic. Since capital is limited, they do not necessarily have the ability, even if they have the desire, to provide capacity for shorter-haul traffic that is susceptible to diversion from truck. These limits can be expanded with public contribution, which acts as leverage on the rail- roads' capital by lowering their blended cost of funds and further improving returns. Better returns then attract more interest in rail from the capital markets, but, just as important, because it is profitable growth that the markets reward most, public investment helps to stimulate such growth. These conditions create a convergence of interests between railroads and the public sector. For the public, it is attractive to supply capacity in any productive way, and rail is the most promi- nent of the multimodal alternatives. For railroads, there is new receptivity to public investment as a way to ease the rationing of capacity and to open the doors wider to growth. This is a sound basis for public-private partnerships formed in response to common needs. Both railroads and local and state governments are interested in specific changes to local and regional rail systems that will provide more efficient and more profitable operations for the railroads and their customers and achieve better environmental, land use, and mobility benefits for the public. Some of these changes can produce network-level effects that elevate railroad performance widely and have national import, and some can be coordinated among local jurisdictions to produce regional benefits. Capacity alternatives can be pursued jointly for local purposes or amplified and organized for broader results, even if countrywide investments are not undertaken. Public-Private Cooperation Public investment in rail is little different from the public-private partnerships devoted to roadway projects visible around the nation, with the active support of government policy and legislation. Both kinds of partnership--rail and road--are motivated by a desire to use capital for the expansion of capacity and by the recognition that conventional sources of funds and capacity are not satisfying traffic demand. There are public goals and legal requirements to be met in both cases, service commitments to be assured, and private returns on investment to be realized. The conditions of infrastructure ownership between road and rail are divergent to begin with, but this divergence is contracting because the roadway options today extend to long-term leases and agreements with a private responsibility to build, own, and operate. The pressure to find and fund capacity is transforming the way the public sector is willing to do business. The catalyst for partnership is public capital justified by public benefits. By the public shoul- dering part of the capital burden, the high capital expense to railroads is reduced, and returns on the carrier portion of investment are rendered more competitive for internal and other private funds. Carriers then are enabled or induced to pursue business that is attractive but below hurdle rates, business development is made possible that rail carriers could not justify on their own, and they can address more projects with public benefits. The policy rationale for doing this is that pub- lic benefits normally do not invite private capital, but are a proper use of government revenue and deserving rail projects may realize certain of these benefits better than other uses of government money. Public advantages--including road relief--in this way can be brought within reach.

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G-10 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion Railroads and public agencies will approach joint projects with different objectives in mind, and reasons for conflict will be mingled with reasons for cooperation. The development of rela- tionships among people and institutions in the two spheres will therefore be critical. Tradition- ally, public agencies have given scant attention to rail freight, and carriers have been guarded with the public, resulting in little experience with and limited expectations for cooperative projects. Complicating this picture is the multitude of public agencies with minimal obligation to work together. Moreover, public agencies responsible for rail are unlikely to have much familiarity with options for expanding the capacity of the rail freight system, which involves much different issues than arise in dealing with light-density lines, abandonments, and passenger service. Similarly, the customary railway government affairs department was restricted, dealing with such things as line reduction, safety, and taxation; they were not called on to work with public agencies to nurture new investment opportunities. Now both groups are changing, and there is ample moti- vation for relationships to be woven by a rail industry that needs to grow and a public sector that wants this to happen. Partnerships in rail are appropriate, realistic, and increasingly valuable for the two parties. Rail will not stop road congestion, but it can blunt it. Rail is not always a remedy for freight capacity, but in fitting conditions it is competitive and effective. Public money is not the whole answer for railroad growth, but it is part of the answer in an era when needs and opportunities are ripe. The questions of when rail partnerships are useful, of evaluating and making the case for them, and of treating barriers to rail effectiveness are some of the matters for which this book is a guide. To the basic questions of whether the public should look to the private rail system for capacity, and whether that can work, the response should be yes. If public investment in private infrastructure produces a public benefit, making the investment ought to be a straightforward proposition. There are institutional obstacles at many levels of government, but there are solutions as well, just as solutions have been found for roadway partnerships. When public funds moderate the capital intensity of railroading, new services become possible at a lower cost. When the new services are competitive with highway transport--as many can be--their cost position creates a persuasive advantage and rail wins traffic. In short, good service at a lower cost wins freight business, public funds used with discrimination can help that to happen on rail, public benefits can result, and rail- roads can grow. Directions for Incorporating Rail Planning with Highway Planning What is the place for rail freight in public planning? From the conventional standpoint of highway stewardship, public agencies care about rail for its influence on road conditions. The preservation of rail traffic, the diversion of trucks, and the moderation of their growth all help to combat road congestion and maintain mobility. However, beneath the stress of capacity and fiscal constraints, the conventions are being transformed. The resort to public-private partner- ships in the highway sphere is an indication of this, and railways are another multimodal exam- ple. The primary foundation for partnership between the railroads and the public sector is created by intersecting needs, and the catalyst for their partnership is capital: each party gains advantage from the other's contribution, and together they are able to sustain growth. While maturation of their institutional relationships is necessary in order to build on this foundation, the recourse to rail for transportation capacity will be better accepted as freight is valued more in public planning. The crucial place of logistics in the global economy, its vulnerability to net- work degradation, and emerging concerns about mixed-use facilities underscore the independ- ent requirements of the freight system. This system will benefit from local rail projects pursued for conventional motivations. It will benefit more from many such projects, orchestrated by regional strategies of network improvement and public advantages, which are backed by sus- tained programs of investment--even moderate investment. This makes bigger objectives