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G-84 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion high-priority, fast trains (passenger or intermodal) to overtake slower trains. These models can include disruptions related to weather or maintenance; similar models are used by some railroads to assist in real-time dispatching of trains. · Train scheduling models. These models are similar to dispatching models in that they create a schedule for trains operating over a route, given the scheduled departure times, route char- acteristics, and train priorities. · Terminal performance models. Simple models estimate terminal processing time and cost requirements as functions of traffic volumes, schedules, and processing capabilities; more complex simulation models can analyze the effects of changes in layout or processing capabilities on performance. · Track maintenance models. These models predict maintenance requirements as a function of the traffic mix and volume, equipment characteristics, track components, and maintenance strategies. · Network simulation models. These models can simulate the operation of a terminal area, a region, or an entire system. · Rail cost models. Service unit costing is commonly used to estimate rail costs; this technique is an example of what is currently called "activity-based costing," as it relates costs to activities or service units such as train-miles, car-miles, cars handled at yards, and ton-miles. · Rail service models. These models relate trip times and reliability to schedules, terminal capa- bilities, and traffic volumes. · Equipment utilization models. These models predict cycle times for freight cars (which is the number of freight car-days required to move a load and to reposition the car for its next load). Fleet sizing, empty car distribution, and fleet management are very important matters for achieving efficient rail service; equipment costs can be very critical for some market segments. 5.2.6 Required Resources The various types of truck and rail carrier cost estimation methods all require data (or assump- tions) about factors such as · Typical travel distance; · Vehicle fuel use rate and associated distance-based costs; · Typical travel times and speeds; · Crew or driver time-based costs; · Typical terminal requirements; · Terminal time and expense costs; · Typical vehicle (truck or train car) requirements; · Vehicle ownership and maintenance costs; and · Typical taxes, tolls, and fees collected by agencies. Realistic data are required to ensure appropriate comparisons of the rail and truck costs for various different classes of freight travel. 5.3 Analyze Overall Logistics Costs 5.3.1 Overview This step develops estimates of the direct shipping cost and overall logistics cost considera- tions as viewed by shippers involved in evaluating rail and truck alternatives. The basic concept is that if a project can improve rail service or operating efficiency, then it can reduce logistics costs sufficiently to induce some customers to shift from truck to rail. Alternately, if service is attractive but capacity-constrained, a project could allow utilization of rail by customers in

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Methods for Detailed Analysis G-85 greater volume. However, before modal diversion can be estimated, it is first necessary to develop measures of the logistics cost and service features associated with rail and truck alternatives. 5.3.2 Components The analysis of logistics costs involves two elements: · Logistics Cost Analysis to estimate the total cost of shipping via applicable truck and rail freight shipping options; and · Service Features Analysis to identify differences in capacity, reliability, and other features that also affect the freight mode decisions of shippers. 5.3.3 Background Freight flows result from the interaction of many thousands of customers seeking sources for their raw materials and markets for their outputs and many hundreds of carriers offering trans- portation services. It is therefore useful to view freight transportation as a component of a broader logistics system that includes warehousing, location of factories, choice of suppliers, and selection of markets. Freight shippers and their customers are not necessarily looking for the cheapest or the fastest transportation, but the transportation that best fits their overall logistics objectives. A shipper interested in minimizing total logistics costs will be concerned with various aspects of the services that carriers offer: (1) shipping rate charged, (2) shipment trip time and reliability, (3) size of the shipment, (4) costs to the customer for ordering and paying for a shipment, and (5) costs to the customer for loading and unloading the shipment Therefore, to understand logistics decisions, it is necessary to understand elements of the serv- ice provided by the carriers. For shippers of bulk products, the transportation rate per ton might be the dominant concern. For high-value commodities, where inventory costs are important, customers will also be very interested in shipment sizes, trip times, and reliability. For many sit- uations, ordering costs or loading/unloading costs will be critical. In general, to understand why freight flows on particular modes, it is useful to understand how each carrier's costs and service affect the logistics costs of potential freight shippers. 5.3.4 Factors Freight mode choice decisions are based to a large extent on logistics costs, which include ordering costs, inventory costs, loading and unloading costs, and loss and damage, as well as the rate charged by the freight carrier (Exhibit 5-2 illustrates this). Exhibit 5-3 portrays the factors covered in the preceding exhibit into three categories: com- modity, customer, and transport characteristics. These factors can be used to estimate the logistics costs for a particular shipment by each of the available modes. Depending on the situation, options could include express package, air freight, truckload (TL), less-than-truckload (LTL), rail-truck intermodal, rail carload, rail multi-car, rail unit train, and barge. Within each of these modes, there could be multiple options regarding shipment size or service quality. For any particular shipment, the choices can quickly be narrowed down to two or three of the most relevant modes. 5.3.5 Methods The logic for logistics cost analysis might be straightforward, but the differing factors and information requirements can be overwhelming, especially when there can be thousands of dif- ferent types of shipments that might be moving along a congested highway. Clearly, a sound

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G-86 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion Exhibit 5-2. Elements of Logistics Cost. methodology and some simplifying assumptions are needed for dealing with the data problems. In fact, there are four approaches to assembling inputs for a logistics analysis: Approach 1 ­ Use Rules-Of-Thumb Values Prepared by Experts for Prior Studies The crudest form of logistics cost analysis is to ignore differences among commodities and merely identify the average costs of rail and truck alternatives. For example, rail unit trains generally have Exhibit 5-3. Factors Influencing Logistics Costs.

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Methods for Detailed Analysis G-87 a cost of about $0.01 per ton-mile compared to $0.025 for general freight service or $0.05 for heavy trucks. These costs can then be compared to differences in delivery schedule and reliability needed for shipping of the relevant commodities in order to derive cost-delivery tradeoffs. The limitation of this approach is that it ignores delivery schedule and reliability requirements that are vastly different among various commodities, so it is most useful only when an area's freight shipments are dominated by one or two commodities (e.g., incoming wood and outgoing lumber or paper products). The additional importance of delivery schedule reliability for products that commonly move by truck is demonstrated by findings of NCHRP Study 2-18 (Development of an Innovative Highway User-Cost Estimation Procedure), which surveyed trucking companies and confirmed findings of prior studies that they place a value on freight transit time savings that is far beyond the equivalent hourly driver wage rate alone. A compendium of value placed on avoiding time delay for truck deliveries is also provided in findings from NCHRP Report 463: Economic Impli- cations of Congestion (2001). Approach 2 ­ Use Commodity-Specific Logistic Factors Prepared by Experts Many studies have been conducted concerning all aspects of logistics analysis for specific com- modities. Reports have compiled the characteristics of thousands of individual commodities, giv- ing typical density, shelf life, and value. Studies have documented customer characteristics for many different industries, and the basic parameters of mode performance are well understood. Many prior studies have used general concepts, such as "high," "medium," or "low-value" commodities, and coarse characterizations are likely to be sufficient, at least for preliminary analysis. Therefore it is possible to identify and to use typical values for all of the factors required. Care is required in selecting typical values, so this is a task that should be assigned to someone with considerable prior experience. Approach 3 ­ Use Values from Experts Familiar with the Present Study The next level of effort is to assemble an advisory group for a particular study; the group should include carrier officials, customer representatives, planners, and consultants. The mem- bers of the advisory group might be able to provide guidance concerning what ranges of values to consider for many or all of the various factors required. Approach 4 ­ Conduct a Survey of Customers and Carriers Involved in the Present Study Potentially affected carriers and shippers can be surveyed to determine whether the cost and service changes associated with an investment project are likely to influence their modal choices. For example, a study of freight investments in Chicago involved surveys of rail users to estimate expected changes in shipping costs associated with changes in the quality of freight survey (Reebie and EDRG, 2003). These data were used to estimate how costs associated with different investment alternatives were likely to fall on each industry group. These costs were then entered into an economic simulation model as changes in the cost of doing business by industrial group. Because businesses were directly asked about how investment scenarios would affect overall costs, the approach implicitly allows for the possibility of modal substitution. Unlike the tradi- tional approach (which focuses only on carriers), this approach captures the different sensitivi- ties of individual sectors to changes in cost structures (i.e., different effects on output and employment depending on competitiveness of market). By assigning cost reductions across industry groups, this approach also reflects that many firms have in-house trucking services and therefore do not outsource or outsource only a portion of their transportation requirements to carriers. The downside of this approach, however, is the cost and difficulty of obtaining data on

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G-88 Guidebook for Assessing Rail Freight Solutions to Roadway Congestion shipper responses to changes in freight cost and service, which can only be gathered using survey techniques. Considerations for All Approaches Whichever approach is used, it is important to focus on the customers and commodities that are most relevant. When seeking rail solutions for highway congestion, it is only necessary to consider those shipments for which rail and truck are both reasonable options. There are two broad categories of shipments of interest. First, there is a range of containerizable shipments for which rail, truck, and intermodal options are the major choices. Containerizable commodities include general merchandise and many other commodities that could move in a boxcar, an inter- modal container, or a (normally dry van) trailer. Within this group of potential shipments, rail and intermodal become more attractive as distances increase and as costs become more impor- tant to customers than service. The second category of shipments is bulk commodities, with rail increasingly favored over truck as distances increase. Rail options, whether for bulk or for con- tainerizable shipments, become more attractive as annual volumes increase; with higher vol- umes, inventory costs become less important and the large shipment sizes offered by rail can be used effectively. Since most freight customers are concerned with minimizing total logistics costs, it is possi- ble to develop a simple mode-split model based on the factors and relationships shown in Exhibits 5-2 and 5-3. A spreadsheet can be used to compute total logistics costs as a function of the commodity, customer, and mode characteristics. The shipment size, which in theory could be continuously variable, in practice will be determined by the characteristics of the equipment. Bulk shipments will fill the truck or rail car to limits imposed by space or axle loads. General mer- chandise shipments that are rail competitive will generally either be truckload or carload, with loads limited by either space or axle loadings. The economic order quantity (EOQ) can also be used to determine if a smaller shipment size is justifiable because of inventory savings. In a head-to-head comparison of intermodal rail against over-the-road truck service, many logistics features will be comparable in the eyes of shippers and can be canceled out of the calcu- lation because they have an equivalent effect on both sides. Equipment types, order sizes, han- dling characteristics, and even loss and damage can be negligibly different between the truck and intermodal modes. The logistics factors then simplify down to trip time, reliability, and transport costs. In high-service intermodal lanes, the time and reliability differences also may become less important, allowing for an even greater simplification of the analysis down to cost considerations. 5.3.6 Required Resources To study the relative costs (and characteristics) of shipping by truck or rail freight, it is neces- sary to develop data for typical shippers who move freight over a corridor, through a city, or within a region. The database needs to have customer, commodity, and carrier characteristics for a representative set of movements. Using such data, the logistics costs can be estimated for each mode used, and it will be possible to identify movements where rail can be a viable alter- native to truck. The effects of a proposed project, change in operations, or new pricing strategy must then be translated into changes in the commodity, customer, or carrier characteristics, so that the logistics costs can be re-estimated. Carriers seldom have access to detailed information concerning the total logistics costs for particular types of shipment. Moreover, they are likely to be thinking in terms of "shipping lanes," e.g., New York City to Chicago or Atlanta to Jacksonville. Each lane is made up of many different kinds of shipments from many different types of customers. Lanes are relevant to carriers, because they relate to how they organize and manage their operations and their networks.