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16 Public and Private Sector Interdependence in Freight Transportation Markets
Private Sector Decision Making
Private sector decision making for freight is driven by several factors, some of which are more
related to the public sector than others. The factors that affect private sector decision making
reflect the fact that companies ultimately need to survive in a competitive marketplace, generate
a return for their owners, and satisfy their customers, all while operating under the law.
Drivers of Private Sector Decision Making
Market and Shipper Demand. Transportation carriers want to operate where and when
their customers want them to be--employing the workers, equipment, and technology to best
meet these demands. Investment follows market demand. For example, the implementation of
tracking technology is now a requirement for some freight markets.
Financial Performance Metrics. Return on investment (ROI) and other measures of prof-
itability are primary considerations, particularly for publicly traded businesses. Market share and
revenue growth are also key performance factors.
Efficient Management of Volumes, Schedules, and Costs. Ground-level operating decisions
respond to these tactical management factors.
Regulatory Issues. Compliance with regulations in a way that minimizes costs and disrup-
tions to operations influences other management decisions. An example is the influence of toll
rates on the routing of trucks.
Decision-Making Categories
To better understand private sector decision making, it helps to categorize private sector deci-
sions and to group them by type of activity. Among the most important decision categories are
investment decisions and operational decisions. Other categories of decisions include those for
marketing and technology.
Investment decisions ultimately determine how companies deploy their limited financial
resources. They are the key to the long-term survival and success of these businesses. Freight
transportation company investments can be made in infrastructure and in operations. The mix
of infrastructure and operations investments varies widely by mode of transportation depend-
ing on how much of the infrastructure used is provided by the public sector. The best example
is to contrast the very high investment in private track network infrastructure by the railroads
with the very small truck terminal infrastructure investments by truckload trucking companies
who rely heavily on the public highway system infrastructure. Investment decisions are made in
the context of public tax policy where higher taxes will usually reduce the level of private invest-
ment while tax credits can encourage higher levels of private investment.
Operations (and maintenance) decisions for equipment and facilities are also driven by finan-
cial considerations. The time horizon used to make operating decisions is typically shorter than
that for investment decisions. Factors such as maintaining system performance and regulatory
compliance also influence operating decisions. Costs are generally the most important factor in
private sector operating decisions, and private companies are usually very good at assigning costs
to every part of their operations.
Private sector decisions can also be classified broadly as tactical or strategic in nature. Tactical
decisions are commonly those with short-term impacts, often of an operational nature. Strategic
decisions are those made to achieve the longer-term objectives of companies. Financial decisions,
