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Freight Transportation Decisions and Considerations 17 such as investments, are in this category. The difference between these two types of private sector decisions is important to understand because it affects the decision-making timeframe. Levels of Decision Makers Within the private sector, there are many levels of freight transportation decisions made every day. Decision making in freight transportation businesses commonly extends down from the Board of Directors and the CEO all the way to the individual equipment operator (e.g., the truck driver or boat captain). Responsibilities and authority for decisions are ideally optimized for the most efficient operation and cost minimization. Immediate operational decisions are those delegated as close as possible to the transportation activity of individual equipment operators. As the timeframe, scale, and consequences of decisions increase, the decisions are made at a higher level in the management structure. Different types of public and private decisions are made at different points in time and at different points in the management hierarchy (see Table 4). The private sector's interaction with the public sector for each type of decision follows the pat- tern of bigger-consequence decisions. They are made at a higher level in the management structure of the organization. Intersection of the Public and Private Sectors Public and private decisions relating to freight transportation overlap in many areas. At times, the interest and responsibilities converge and facilitate cooperation. However, at other times, the responsibilities and interests can diverge, creating conflicts and inefficiencies. This section will further explore the differences and the commonalities between private and public decision Table 4. Timeframe and hierarchy of decision making in each sector. Decision Public Timing Responsibility Mode Example Interaction Congestion, Traffic Avoidance of Centers, Local Short-Term: Traffic, Planning and Drivers, Local Primarily Hourly, Construction, Scheduling, Terminal Staff Truck Daily Events, Construction Physical Access to Permits and Customer Scheduling Repeat Routing Local, State, Mid-Term: Local, and Scheduling, Federal, Weekly, Regional, All Fuel Routing, Planning, Monthly, Some Modes Technology Use, Operations, Annual Corporate Customer Access Regulatory Hours Local, State, Longer Facility Location, Federal, Term: All Corporate Fleet Size, Planning, Annual Modes Schedules Policy, 35 Years Regulatory Very Long Local, State, Equipment Term: Federal, All Purchases, Annual Corporate Planning, Modes Market Entry, Beyond 35 Policy, Facility Ownership Years Regulatory

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18 Public and Private Sector Interdependence in Freight Transportation Markets making. Steps that can be taken by public officials to further facilitate cooperation will be dis- cussed in Section 3. Overlapping Roles and Responsibilities Public and private sector decision processes intersect at many critical points in the nation's freight system. The intersection of decision making reflects the joint ownership and provision of freight transportation services in the country as well as in areas such as safety regulations. The roles played by the public and private sectors vary by mode of transportation though the public sector always sets the regulatory environment and the private sector always operates the freight equipment (see Table 5). Comparison of Decision-Making Drivers and Processes A comparison of freight decision-making issues between the public and private sectors reveals differences in the drivers of decisions between the two sectors. A list of areas for improvement between the two sectors can be derived directly from the checklist in Table 6. Given the differing emphasis on decision making between the two sectors, the current gaps between the decision-making processes can be better understood. There are significant differences between the private and public sectors with respect to freight transportation that can make the relationships between the two sectors difficult. There is a diver- gence in attitudes, processes, scale, geography, timing, and objectives that affect how decisions are made. This is due to fundamentally different roles and responsibilities and differing objec- tives between the two sectors. This situation leads to conflicts in working toward the common purpose of improved freight transportation for the nation (see Table 7). The scale of investments by the private sector is limited to the resources companies can assem- ble, either individually or collectively, but can span political boundaries and geographies in search of markets. Government agencies can look more broadly at investments at a state or national level that benefit all participants within the economy, but are generally limited geo- graphically to political boundaries. Table 5. Sector responsibility or ownership by function and mode. Inland Pipeline Rail Truck Deep Sea1 Air Ai Water Infrastructure Road/Rail "Line None/ None/ Private Private Public Public Haul" Network Public2 Public3 Infrastructure Public/ Public/ Public/ Terminals Private Private Private Private4 Private4 Private4 Equipment/ Operations Private Private Private Private Private Private Regulatory Environment Public Public Public Public Public Public 1 Also applies to U.S. Coastal and Great Lakes shipping. 2 Public component includes aids to navigation, channel maintenance, and safety. 3 Public component includes the air traffic control network. 4 Frequently represents privately developed terminals on publicly owned property. Source: Association of American Railroads 2008.

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Freight Transportation Decisions and Considerations 19 Table 6. Comparison of freight decision-making issues. Driver of Driver of Freight Decision Issue Public Private Decisions Decisions Land use planning/zoning that accommodates ports, rail yards, and distribution centers Investing in capacity to ensure profitability and efficiency Investing in or addressing voter concerns Investing public funds in social, equity, and environmental justice issues Implementing cost saving technology as soon as practical Managing budgets and priorities that dramatically and rapidly shift Managing budgets with strict performance criteria accompanied by steady capital plans Managing investments to ROI and hurdle rate standards Pricing transportation to fully cover all costs and benefits Managing executive turnover that coincides with national, state, local elections Private sector decision making is often hierarchical with one decision maker or a small board making final decisions with large impacts. Decisions with smaller financial and operational impacts are made further down the hierarchy. Public decision making is primarily collaborative. It takes into account many stakeholders and interests that have influence over those making pub- lic funding and policy decisions between executive and legislative branches of government. The public sector process is thus more time consuming. Private sector decision making is often more focused than public sector decision making on the near term with short-run operating and financial decisions complementing longer-term strategic decisions. The near-term focus is driven by the fundamental objective of earning returns for the company owners through a combination of business revenue growth and higher profits. At the same time, strategic investments in infrastructure can focus on the future. The public sector, with its multiple objectives and functions for society, works in an environment that takes into account many stakeholder concerns including social and political issues in addition to the business aspects of decisions. Political power ultimately controls public decisions regardless of whether the conse- quences for business or the economy are fully understood or considered. Table 7. Key public and private sector differences in freight decision making. Differences Public Sector Private Sector Scale of investment Entire system within its One company at a time jurisdiction but international Ge o g r a p h y U.S. political boundary Global market Process of reaching decisions Collaborative Hierarchical Planning horizon and timing Longer-run, slower Shorter-run, quicker Objectives of decisions Social and political as Increase shareholder well as economic value through higher development profits/revenues Attitudes Attempts to address all Satisfy owners, stakeholder concerns customers and employees

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20 Public and Private Sector Interdependence in Freight Transportation Markets Comparison of Decision-Making Areas The nature of the intersection between the public and private freight interests influences how successful the two sectors are in working together. When objectives are closely aligned and there are managers on both sides frequently interacting, the two sides can work well together and take actions that improve the overall system. When the interests and objectives of the two sides diverge, or when the private freight system is not a high priority for public agency decision mak- ers, the relationship between the two sectors has suffered. Areas Where Public and Private Interests Align Two areas of alignment of public and private sector interests that are illustrative are (1) safety and security issues and (2) economic regulation. These are not the only areas of common interest. Though there are differences between the two, safety and security issues regarding the private portions of the freight system are generally of common interest to the public and private sectors. Increasing security is desirable for both government and business, even if process details can lead to disagreements about the approach and who pays for security. Safety regulation and enforce- ment by the public are backed up by safety requirements for private companies so that they can obtain insurance. Industry improvements in these areas achieved to date are partly a result of public agencies interacting regularly with the private sector freight system users to achieve objec- tives. Both sectors want to protect people, property, and infrastructure. Economic regulation of freight transportation has largely worked well in the last quarter century because the industry was mostly deregulated by the early 1980s. While some shipper groups object to aspects of the remaining regulations, or the lack thereof, the overall real costs of freight trans- portation and logistics in the economy have fallen over this time period as shown in Figure 13. The remaining economic regulatory functions are carried out within the bounds of the regulatory sta- tus quo by public agency staff dedicated and focused on the private freight transportation sector. 14% 12% 10% 8% 1984 1987 1990 1993 1996 1999 2002 2005 2008 Source: Council of Supply Chain Management Professionals, 18th Annual State of Logistics Report Value of U.S. Logistics (Transportation plus Warehousing) Costs as Percent of U.S. Gross Domestic Product; IHS Global Insight's forecast after 2006. Figure 13. Cost of logistics as a share of U.S. GDP.