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North American Marine Highways (2010)

Chapter: Chapter 4 - Conclusions and Suggested Research

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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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Suggested Citation:"Chapter 4 - Conclusions and Suggested Research." National Academies of Sciences, Engineering, and Medicine. 2010. North American Marine Highways. Washington, DC: The National Academies Press. doi: 10.17226/14406.
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35 In order to develop a potential path to success, it is helpful to determine which of the hurdles standing in the way would have the greatest positive impact if removed. The primary issue at hand is that the NAMH industry has not been cost-competitive to date. Therefore, it would make sense to address the basic eco- nomic issues (such as capital and total shipment cost) first— directly or indirectly. Only once this has been accomplished can the other identified or perceived hurdles be solved. Accelerating the development of NAMH will require a new business model and new policies. The following conclusions provide the building blocks for the new paradigm. Success will require the best technology available; innovative business models; and favorable government policies. The conclusions flowing from the research can be divided into two broad categories: 1. Economic framework and 2. Planning and operations. These categories can be further divided into three broad subcategories: 1. Potential actions for industry and planning organizations, 2. Potential actions for the public sector (non legislative), and 3. Potential legislative actions. Some of these subcategories can be further classified into regional issues. Where an action is specific to a region, such distinction is noted. Although the success or failure of actions in one category could affect the implementation of actions in another category, they are treated as independent actions for the purpose of this analysis. Economic Framework Industry and Planning The potential industry and planning activities related to the economic framework are shown in Figure 11 and Table 5. These figures associate the potential actions with the obsta- cles they address. Address Labor/Manning Issues Labor cost and restrictive labor policies were seen as burden- some to the development of NAMH at several levels. A viable labor model needs to be developed that will avoid burden- ing marine highway operations with costs that disadvantage the industry vis-à-vis other modes. Buy-in from organized labor is critical to creating a cost-competitive NAMH service in terms of both vessel and marine terminal operations. In order to accomplish this goal, labor interests on the dockside would need to be of the opinion that the opportunities from new cargo are sufficient to merit special consideration, even if the per unit profitability from serving NAMH services is lower than that of existing services. Reducing required manning levels for self-propelled blue- water vessels is important for NAMH to have a competitive cost structure. Talks would need to be undertaken with author- ities in both Canada and the United States to develop manning requirements that reflect the differences in coastal shipping and cross-ocean shipping. One of the goals could be to elim- inate the discrepancy in manning levels between barge config- urations and small vessels. Furthermore, NAMH SHORT SEA operators in the past who have attempted to retrofit or recon- figure vessels have been burdened by the ad hoc process of modifying crewing requirements. One benefit of establishing standards for NAMH vessel fleets would be that the manning requirements could be set at the onset of the new service. Vessel capital and crew costs as well as marine terminal expenses would need to be set at “best in class” levels for U.S. operations for NAMH to be price-competitive with ground transport alternatives on a door-to-door basis. The best way to control costs and scheduling is to use ter- minals that are under the control of the operator. In a similar vein, an operator could employ its own draymen exclusively to pick up/deliver as a means to control drayage costs and make them more predictable. C H A P T E R 4 Conclusions and Suggested Research

36 Negotiate new labor/manning policies with Unions, Coast Guard and terminal operators Handling costs significantly affect throughput costs Intensify vessel design research and set NAMH construction design guidelines Cost of vessel construction & need to standardize Redundant cargo “touches” decrease service viability ID best operational framework Ocean terminals currently give preference tolarge carriers Need to determine best practices for Ro/Ro and Lo/Lo models Potential Actions Obstacles Addressed Figure 11. Economic framework potential actions—universal: industry and planning. Potential Actions Obstacles Addressed Address labor cost issue Canada & US West Coast: high cost of labor Vessel design research Canada: need vessels for NAMH Identify best operational framework US: container on barge not high probability of success Table 5. Economic framework potential actions—regional: industry and planning. Miscellaneous Operational Strategies Most interviewees who had examined the concept of NAMH from a national focus suggested an initial focus on Ro/Ro for most corridors. Lo/Lo can be considered if crane infrastruc- ture is already in place and lift costs can be discounted for NAMH operators. Less landside infrastructure and equip- ment are required for Ro/Ro, and operations are simpler. Furthermore, the predominance of 53-ft containers and trail- ers in the United States clearly favors the deployment of ves- sels with these capabilities. Intensify Research into Vessel Design and Construction Strategies Several interviewees indicated that some degree of standard- ization on the vessel side would be necessary for the indus- try to emerge as a true competitor to truck and rail. There was marked disagreement, however, over how extensive the standardization could become and what its primary drivers would be. Standardization has been viewed as an advantage for shipbuilders; however, it could also benefit ports that are considering different options for terminal construction or modification. More research is required into what features could be standardized across a range of NAMH vessels. Stake- holder workshops on this subject would also be of value in attempting to form areas of consensus. New Lo/Lo vessels should not be geared (have shipboard cranes). All indications are that there is no real market for such vessels in the NAMH future. Although the per unit cost of using landside container cranes is high, the fully amortized cost of shipboard cranes is even higher since they generally are idle for most of the time. Not only do shipboard cranes add to

initial capital costs, they also increase ongoing maintenance expense considerably. Public Sector (Non Legislative) The potential public sector (non-legislative) actions related to the economic framework are shown in Figure 12 and Tables 6 and 7. These figures associate the potential actions with the obstacles they address. Include Externalities in Taxing and Funding System As truck and rail engines become cleaner, CO2 emissions will emerge as one of the most compelling policy drivers for 37 Provide access to capital to stimulate shipbuilding Lack of qualified vessels & barges Operators need long-term commitments to cover upfront transition costs Incentives to shippers Too much variability in demand Incomplete cost recovery from other modes Include externalities in taxing and funding Need to make externalities part of cost of doing business Need to preserve & develop waterfront Develop waterfront industrial parks Need competitive door-to-door service Potential Actions Obstacles Addressed Figure 12. Economic framework potential actions—universal: government (non legislative).

making greater use of marine highways. The Quebec provin- cial government has established a GHG reduction incentive program that might serve as a model. (See Appendix F for a description of this program.) It might be possible to use this approach as a foundation for compensating shippers for using marine highways and thereby reducing negative externalities. Taxing and revenue policies need to positively impact water vis-à-vis other modes. Increases in fuel surcharges appear to have the greatest likelihood of causing shippers to consider NAMH services as an alternative to trucks. Alternatively, car- bon taxes could have a similar effect in raising the average per mile cost of trucking. Another possible approach is to tax trucks that use highways (as in Germany), especially during peak congestion hours. The Eurovignette directive, for example, has been in place since 1999 and has been repeatedly modified to capture more externalities. The origins of this European policy go back to the early 1990s. A process of trial and error would likely be required in order to properly design a taxing scheme that would account for externalities in the U.S. modal split. In some cases, tolling might be used when fuel taxes are deemed insufficient to fully capture externalities. Externali- ties would include not only emissions but also the traffic bur- den placed by trucks on the general public. One approach would be to set up a tolling system that would vary the charge by the route taken. Revisit Manning Requirements It is important to ensure that government regulations con- cerning U.S. vessel safety and manning levels, as well as U.S. shipyard work processes, are consistent with similar mea- sures maintained by leading maritime nations such as Japan, Germany, and Denmark. (See the discussion under “Address Labor/Manning Issues” earlier in this chapter.) Encourage the U.S. Shipbuilding Industry The U.S. shipbuilding industry could reinvent itself by building a new fleet of environmentally friendly coastal ships. This type of redirection, however, would require a major new concerted effort at the federal level. It has been suggested that the full-scale replacement of the Military Sealift Command would be an initiative of the scale required to create a fleet. If the fleet were designed principally for civilian freight needs but with requirements necessary for military needs in mind, it could create a viable fleet. More research is needed into vessel design characteristics that will be desirable for maintaining the viability of marine highway operations into the future under a variety of fuel costs, congestion, and economic scenarios. Provide Incentives to Shippers and/or Receivers The federal government could provide some form of stimu- lus to make it attractive for shippers and/or receivers to explore the use of a new and (at least in terms of perception) more complex transportation option. It is important to keep in mind that the carriers are not the decision makers—the shippers and receivers are. A wide range of incentives is available. Incentives used for industrial development purposes include items such as property tax rebates, income tax credits for qualified invest- ments, financial assistance in developing site infrastructure, and income tax credits based on actual shipping volume. The government of Quebec adopted a program to pay an amount per ton of GHG reduced as a result of a modal shift. Further information on Quebec’s program is found in Appendix F. In Canada, Change Policy of Full-Cost Recovery for Customs Services Under the current policy, the entity requesting new or expanded customs services must cover the full cost of that 38 Potential Actions Obstacles Addressed Incentives to shippers Canada: difficult to compete against rail Table 6. Economic framework potential actions—regional: government (non legislative). Potential Actions Obstacles Addressed Revisit manning requirements Operators: manning requirements burdensome for certain vessel types Improve Title XI to stimulate shipbuilding Shipyards: Title XI cumbersome and restrictive Table 7. Economic framework potential actions specific to stakeholders: government (non legislative).

expansion or new service. The government could consider a policy of fully funding customs services as an economic devel- opment tool. Have Ports Consider Volume Guarantees Ports could consider strategies for guaranteeing volumes for a fixed period of time to get operations up and running. Legislative Potential legislative actions relating to the economic frame- work are shown in Figure 13, Figure 14, and Table 8. These figures associate the potential actions with the obstacles they address. Federal Government—United States and Canada Institute Effective Subsidies and Grants. Some inter- viewees expressed support for government to help smaller terminals and port entities acquire new capital equipment related to marine highway services and suggested that MARAD was the entity best suited to administer such a program. Although smaller ports are often capable of handling short sea intermodal cargo at low volume levels, the efficiency of the crane infrastructure is often not up to a standard where the level of service could be maintained under higher volumes. Interviewees pointed out that government, either at the national or state level, could look at strategies for making terminal land costs more affordable for marine highway oper- ations on the West Coast, either by providing subsidies that would offset the cost of procuring the required land or by off- setting the opportunity cost of displacing other cargoes already utilizing the area. This might involve simply buying and trans- ferring land or it could involve some type of subsidy or favor- able tax structure for the port or terminal operator that would make them more amenable to working with NAMH interests. One interviewee mentioned that—while certainly extreme— state governments could even use their power of eminent domain to set up marine highway terminals. Interviewees also pointed out that government could take steps to attract private capital and reduce the excessive risk, similar to the approach the federal government took for the railroads in the mid-19th century. This could be done by pro- viding loans with competitive terms—the Alameda Corridor received a $400 million loan that was leveraged to finance the $2.4 billion project. It could also be accomplished via 100% loan guarantees. Federal government entities could do what businesses, states, and local governments do today to raise capital for infrastructure projects—sell bonds and leverage the proceeds. 39 Mode switching can be induced by price incentives, such as an “ecotax” on truck fuel (a tax proportional to the amount of pollution associated with transport), or by changes to the total cost structure for a mode. Interviewees repeatedly stated that it would be a better solution to lessen the existing subsi- dies for trucking as opposed to creating new subsidies for water transport. Provide Tax Incentives. More consideration could be given to tax incentives for intermodal supply chains that include water. For example, federal tax credits might be restricted to designated marine highways projects (most likely to be designated by MARAD). Qualified expenditures could include design, construction, or modification of vessels; development or improvement of shoreside infrastructure; cargo handling equipment; intermodal connectors; or any expenditure that reduces emissions. (The solar energy invest- ment tax credit might be a good model to emulate.) Accel- erated depreciation for participants in designated marine highways projects could focus on the first three years of oper- ation. This might better align tax obligations with expected cash flows. Establish “TIFIA for Ports.” A program could be estab- lished for marine activities similar to the program established under the Transportation Infrastructure Finance and Innova- tion Act of 1998 (TIFIA), but with a lower minimum amount to make it more accessible to small ports and terminals. The TIFIA program is a federal credit program for eligible trans- portation projects of national or regional significance under which U.S.DOT may provide three forms of credit assistance— secured (direct) loans, loan guarantees, and standby lines of credit. The program’s fundamental goal is to leverage federal funds by attracting substantial private and other non-federal co-investment in critical improvements to the nation’s surface transportation system. It would be useful to be able to access these funds for port infrastructure (docks, warehouses, and equipment) as well as for connecting infrastructure such as rail lines and highways. Consider CO2 Reduction Program. Future environmen- tal taxes based on CO2 emissions could provide the ration- ale to subsidize NAMH or to reduce shippers’ incentives to utilize trucks by levying higher taxes. In addition, any sort of emissions trading system would put the coastwise mode in an advantageous position and stimulate its popularity among shippers. In Europe, carbon taxes and cap and trade programs have been established as a means of incorporating greater modal equity into the market. Discussions with congressional staffers indicate that this would probably need to be an entirely new program. Some have proposed modifying the CMAQ scheme, but this would

40 Effective subsidies & grants High start-up costs High start-up costs Tax incentives (including property tax relief) Lack of capital for vessel acquisitions TIFIA for ports Need to “right size” capacity Make fees equitable across modes Unfair truck & rail advantage Consider changing HMT HMT is hindrance to business development Copy FTA’s new starts program High startup costs Allow use of highway money Need flexibility to pursue best alternative Potential Actions Obstacles Addressed Figure 13. Economic framework potential actions—universal: legislative.

be very difficult to change. CMAQ specifically focuses on addressing nonattainment issues, not overall air pollution. Part of the thinking behind the current CMAQ allocation scheme is that many metropolitan areas are contending with pollution created elsewhere, and therefore require additional funding to address nonattainment issues. Fund Marine Infrastructure on an Equal Footing with Land Infrastructure. Most government planning and fund- ing processes are geared to highway transportation. Congress could provide incentives and requirements for metropolitan planning organizations and state departments of transporta- tion with marine services within their jurisdictions to more actively consider such services in their planning. Federal Government—Canada Assist Smaller Canadian Ports in Constructing Ro/Ro Facilities. Most of the literature indicates that a high per- centage of ports could handle Ro/Ro traffic with very few mod- ifications or upgrades. (4, 8, 45, 46) However, it appears that several of the smaller Canadian ports lack such facilities or the financial means to construct them. (16) Canadian authorities could look at assisting with the construction of Ro/Ro ramps where new or expanded services are proposed. Consider Removing Various Marine-Only Fees or Make Fees More Equitable across Modes. This is a complex issue that goes beyond the scope of this study. However, it seems 41 CO2 reduction grants Need to make externalities part of cost of doing business Put marine funding on equal footing with land Unfair truck & rail advantage Improve Title XI Lack of qualified vessels & barges High start-up costs Consider using CMAQ for marine highways Need to preserve & develop waterfront Consider assistance to shipyards Lack of qualified vessels & barges Establish short overweight corridors Handling costs significantly affect throughput costs Figure 13. (Continued).

42 Canada: lack of qualified vessels Remove vessel import duty Canada: lack of shipyard capacity Build Ro/Ro ramps in small Canadian ports Canada: smaller ports don’t have necessaryramps Change full recovery of customs costs Canada: too many marine fees versus truckingfees US: high start-up costs Consider using ferry boat discretionary funds US: need to preserve & develop waterfront Potential Actions Obstacles Addressed Improve Title XI US: high cost of vessels due to Jones Act Consider using CMAQ for marine highways US: need funding to overcome high start-up &transition costs Figure 14. Economic framework potential actions—regional: legislative. Table 8. Economic framework potential actions specific to stakeholders: legislative. Potential Actions Obstacles Addressed Make fees equitable across modes Operators: port & marine fees are a barrier Improve Title XI to stimulate shipbuilding Shipyards: Title XI too cumbersome & complex

that in order to treat the various modes equitably, it will be important to be able to identify all of the various fees and taxes imposed by transportation services using a given mode, provide the rationale for the fee, and explain how the revenue will be used. It is desirable to have consistency in how fees and taxes are levied for the modes to be able to compete on the merits of their services rather than on costs affected by gov- ernment actions. Consider Removing the Vessel Import Duty in Canada. Eliminating the 25% vessel import duty would be a means of lowering the initial capital cost of vessels and increasing the supply. If the duty is left in place, then consideration could be given to using the receipts to seed a revolving fund that would aid operators in acquiring vessels for NAMH services. Federal Government—United States Consider Changes to HMT for all North American Non- Bulk Shipments. Eliminating HMT for all North American non-bulk shipments would improve the cost structure of services and enable NAMH services to compete for high- value cargoes. If the HMT scope is not changed, a non-refundable tax credit could be offered for NAMH operators. Such a scheme could include the following characteristics (this is not a definitive list): • The credit could be offered to companies engaged in trans- porting either products or people between any two U.S. ports, or originating in a port in either Canada or Mexico and ending in a U.S. port. • The credit could be incremental, meaning that companies would claim the credit on their corporate tax returns based on the increase in products or people shipped in the current tax year over a base period of the preceding three tax years. • The credit could be the greater of 10% of the increase in value of items shipped for the tax year, or an amount based on the increase in tonnage of items shipped. This tonnage portion of the credit could provide different credit amounts per ton for grain, coal, sand, salt, iron ore, or other bulk cargo. • The credit could be nonrefundable, meaning that it would offset only positive current tax liability of the carrier. If the carrier has a tax loss for the year, the credit could be carried back two years and forward for five years. (47) Research Possible Amendments to Title XI. Because of the difficulties with Title XI funding, further research is needed to quantify the actual benefits and to understand the successes and failures of the program. At a minimum, the application and compliance processes could be simplified and the debt/ equity ratio requirements relaxed. Consider a Program Similar to the FTA’s New Starts Program. Grants could be targeted to improve ports and terminals, including the purchase or lease of equipment, con- struction of intermodal connectors, and vessel construction or modification, with a mandate to meet high environmen- tal standards. Consider Using a Portion of CMAQ Funds to Fund Marine Highways Projects Approved by MARAD. The federal gov- ernment could promote the use of CMAQ funds for projects contained within one state or that involve two or more non- attainment areas in different states. Research is needed to deter- mine the potential rule changes that would be required. Allow States to Use Highway Money on Marine Projects with a Beneficial Effect on the Highway System. Research is needed on the specific characteristics that would need to be included in NAMH projects to make them eligible for high- way funds. Consider Assistance to Shipyards. As discussed earlier in this report, government could provide some means of lowering the capital risk for investors in U.S. ships through programs such as the currently unfunded federal Title XI Program, although further research would first be needed. Additionally, as it has in other cases, government could pro- vide tax incentives such as accelerated depreciation for invest- ment in new shipbuilding infrastructure. Research is needed into the feasibility of compensating NAMH operators for including militarily useful features in new ship construction. Any such program would need to contain a contingency plan for continuing to serve shippers in the event of a mass deployment. It might be possible to use the small shipyard grant pro- gram more effectively by targeting it toward the construction of marine highway vessels. Further funding along the lines of ARRA and the Omnibus Appropriations Act of 2009 could use essentially the same guidelines with the proviso that the con- struction of marine highway vessels would receive priority. Consider Targeting Some FBD Funds for NAMH (Freight) Transportation Options. Currently, the FBD program focuses on passengers and their vehicles. Government could consider amending it to specifically include freight transport. Local Initiatives Offer Property Tax Relief Local authorities could consider offering property tax relief for those companies developing or renovating ports and termi- nals for the NAMH market. Such effort would create employ- ment and generate tax revenue that contributes to the social good of the area. 43

Establish Short Overweight Corridors In Texas and on the West Coast, state governments have established short overweight corridors between specific origins and certain consolidation or distribution areas that allow com- plete overweight supply chains. State governments could con- sider this approach for specific ports, as it would enable shippers to enjoy the full advantage of the lack of weight restrictions in marine transport. Examples of this approach include areas discussed in the following paragraphs. Brownsville, Texas. In 1997, the state legislature passed legislation that permitted overweight freight haulers from Mexico to use two state roads to reach the Port of Brownsville. Under the program established by the Port of Brownsville, shippers can order specialized oversize/overweight permits online. The permits cover travel between Gateway Inter- national Bridge or the Veterans International Bridge at Los Tomates and the Port of Brownsville for vehicles weighing no more than the Mexican Legal Weight Limit or 125,000 lb and not exceeding the allowable permittable axle load. Addition- ally, the dimensions of the load and vehicle may not exceed 12 ft wide, 15.5 ft high, or 110 ft long. Chambers County, Texas. In 2005, the Texas legislature authorized haulers of ocean-going cargo containers to carry loads up to 25% over the 80,000-lb legal weight limit on por- tions of two state roads (5 mi) connecting the Cedar Cross- ing Business Park to a barge terminal. This location across the Houston Ship Channel from the Port of Houston posed a chal- lenge for shippers who wanted to use the maximum capacity of cargo containers but were precluded by state weight limits. To be legal, they had to divide loads and have trucks take a 20-mi detour to the port. San Francisco, California. The Port of San Francisco, in conjunction with the San Francisco Department of Parking and Traffic, has established an overweight corridor that con- nects all of the major cargo handling facilities and also is accessible to the many trucking and warehousing facilities situated along Third Street between the freeways and the waterfront. It is permissible, under permit, to haul vehicles with a total weight of 93,000 lb, as opposed to the 80,000-lb limit applicable to roadways strictly under State of California jurisdiction. This allows cargo payloads of approximately 50,000 to 60,000 lb. The San Francisco Department of Park- ing and Traffic grants the truck permits per tractor at a cost of $90, and they are valid for one year. The permits stipulate the following authorizations: • Any style chassis is okay, • Permits are valid for one year, • Only one permit is required per tractor, • Any tractor is okay, • No signs or placards are required, • Auto liability insurance of $500,000 is required, • Usable 24 h, • Normal speed limits apply, and • Both 20-ft and 40-ft containers are okay. Los Angeles/Long Beach, California. The LA/LB heavy container corridor was created to aid in the movement of overweight 40-ft or larger ocean-going containers on des- ignated city streets in and around the Port of Los Angeles. The City of Los Angeles, City of Long Beach, and State of California Department of Public Works approved a measure that allows permits to be granted for overweight container loads in the port area. The permits allow the gross vehicle weight of the truck, chassis, container, and contents to be at 95,000 lb or 43,130 kg (with proper equipment). Oroville, Washington. Washington State allows large trucks to use a stretch of roadway in the northern portion of the state that was previously not allowed. SB 6857 opened up a 4-mi stretch of State Route 97 to large trucks. The new law authorizes the Washington State Department of Transporta- tion (WSDOT) to designate the portion of roadway from the Canadian border to the city of Oroville as a heavy-haul indus- trial corridor. The bill allows overweight vehicles to travel along the designated stretch of roadway. The heavy-haul dis- tinction would authorize WSDOT to issue special permits to overweight vehicles operating in the corridor up to a gross vehicle weight of 137,788 lb. Special permits would cost $100 each month, or $1,000 (including a $200 discount over the monthly rate) annually. Planning and Operations Industry and Planning The potential industry and planning activities related to planning and operations are shown in Figure 15, Table 9, and Table 10, which associate the potential actions with the obsta- cles they address. Select the Market, Then the Vessel It is critical for operators to identify their markets (cus- tomers) first and then acquire the equipment to meet the need, rather than obtaining a vessel and trying to impose a set solution on the marketplace. There does not appear to be a true lack of capital for ven- tures that have a first-rate business plan. The main obstacle appears to be that of convincing potential investors of the worthiness of a business proposition. It is very difficult to redeploy a vessel asset as opposed to truck or rail equipment. 44

45 Select the market, then the vessel Inadequate vessels hurt NAMH credibility Consider initial market orientation Need to match market, equipment, & need Emphasize reliabililty Shippers need reliability most (after low cost) Incorporate market conditions for success Too much reliance on single vessel Start small High start-up costs & working capitalrequirements Potential Actions Obstacles Addressed NAMH seen as trucking competition Work with truckers & freight forwarders Operators need long-term commitments to cover upfront transition costs Need to right size capacity Understand terminal requirements Need competitive door to door service Figure 15. Planning and operations potential actions—universal: industry/planning. (continued on next page)

46 Give domestic cargo a high priority Need volume & services compatible withexisting infrastructure Develop waterfront industrial parks Lack of vessels & cost of new vessels Figure 15. (Continued). Table 9. Planning and operations potential actions—regional: industry/planning. Potential Actions Obstacles Addressed Understand terminal requirements Canada: some ports may need Ro/Ro infrastructure Explore operational strategies United States: need to determine if container on barge for international freight will work Table 10. Planning and operations potential actions specific to stakeholders: industry/planning. Potential Actions Obstacles Addressed Consider initial market orientation Operators: ocean carriers may or may not be good business Explore operational strategies Operators: “shoestring” budgets vulnerable to unexpected market conditions Work with truckers & freight forwarders Operators: need effective supply chain & marketing mechanisms It was emphasized by several interviewees that it is important to have long-term contracts in the early stages of business development. This allows the operator to weather any down- turns in the business cycle or any unforeseen obstacles, such as natural disasters or rate wars. It is important to create greater cargo demand rather than vessel supply. Stimulating vessel construction without cargo should be discouraged. Consider Market Orientation Great Lakes NAMH has its best potential for success in two areas: the bulk commodity market and short-distance Ro/Ro and container service. The bulk commodity market is excluded from this analysis, so the focus is on Ro/Ro and container service. However, there are no dedicated container vessels currently operating NAMH service on the Great Lakes. Thus, at least in the short run, NAMH on the Great Lakes must focus on the short-distance Ro/Ro market (which can be served by tug-barge combinations and by ferries with truck Ro/Ro capability). The general cargo market seems likely to be a very difficult market in which to expand cross-border NAMH operations for a variety of reasons. The general cargo markets generally involve smaller individual shipments that will need to be con- solidated for water movement and thus increase the overall time involved in making a shipment. This, coupled with the effects of advance manifest rules and other security procedures, makes cross-border general cargo moves even more difficult and costly than they are in the already competitive domestic markets. Several studies and interviewees suggested that it would be prudent to start by targeting overweight and empty containers. They are harder for traditional services to manage and would therefore be less subject to strong competition from other modes. When pursuing feeder services, it is prudent to market directly to ocean carriers and not to individual customers. Ocean carriers typically arrange the service and pay for it.

It should be noted that efforts to establish the appropriate market orientation would be greatly aided and improved by the availability of baseline market data and freight flows at the national and regional levels to understand the best markets for marine highway services. Emphasize Reliability Operators must guarantee schedule reliability. This will almost certainly involve the use of more than one vessel in the service. Operators need to develop fleets, not bank on one vessel being sufficient. Reliability is the most important service factor—even more so than the actual transit time. Even just-in-time enterprises are built on delivery windows, not actual speed of delivery. It is delivery time that counts, not transit speed. Barges can sail over weekends when truck- ers are not active. Furthermore, there are often huge delays at rail interchange points. Because of this, barges can some- times offer faster delivery times than the other two modes. Incorporate Market Conditions for Success into Plans Policy makers and NAMH entrepreneurs should concen- trate on the following opportunities: • Routes where NAMH can help to overcome traffic or border congestion (enabling it to be highly competitive with ground transportation in terms of both cost and transit time); • Routes where there is no adequate rail alternative or where interline transfers would be required (one major shipper stated that rail infrastructure is poor in the Deep South but shippers tend to be fairly distant from the ports); • International routes that are not subject to either Canadian or Mexican cabotage legislation or U.S. Jones Act restrictions, which could alleviate severe congestion and which (in the case of Canada) would not be restricted by the closure of the St. Lawrence Seaway; • For coastwise NAMH operations, freight movements that have origins and destinations relatively close to coastal ports; • Traffic corridors with enough density to enable relatively large vessels that provide scale economies in terms of oper- ating and capital cost to be deployed with high enough ser- vice frequency to be competitive with trucking and/or rail (cargoes must be of sufficient volume to provide breakeven levels to start and, ideally, contracts should be for long-term periods rather than “spot cargo”); • Heavy and/or hazardous shipments currently moving over the road, such as chemicals; • Close proximity of terminals to major cargo origins and destinations; • The availability of sufficient terminal capacity for a dedi- cated domestic NAMH terminal; and • Competitive handling costs at origin and destination ports. Inland COB service may emerge in “seam” markets that are a long dray from major intermodal hubs and can derive ade- quate volume from agricultural or industrial activity, especially from ethanol and steel mini-mill projects. Start Small Enter a new market with the smallest vessels that meet the economic requirements of the service and then grow the service by increasing ship size or number (and frequency) of vessels. Work with Truckers and Freight Forwarders This is a critical area for further assessment. The European experience has shown that successful marine highway oper- ators consider both rail and trucking as partners. (48) The need for cost-competitive services in North America would indicate that the same should be true on this continent as well. Operators should target large trucking companies with broad geographic scope, who have tractors in both origin and dis- charge ports. The bottom line is that NAMH must work with truckers to develop door-to-door services. Understand Terminal Requirements When considering where expanded NAMH operations may have the highest probability of success, it is important to look at several factors, including the following: • Modal access—Potential NAMH ports/terminals must have effective, efficient access to other modal networks (highway and rail). This is critically important because trucks and/or rail will be used to make the final door- to-door delivery of products moved by NAMH. There must be efficient access to the interstate system and either Class I rail mainlines or short-line railroads that provide efficient interchange services. • Berth availability—As discussed earlier, NAMH operations calling at some major deepwater seaports often do not receive a high priority for berthing, particularly in comparison to large, ocean-going containerships. Ports that can regularly offer berths may be better able to attract NAMH traffic. • Efficient operations—Potential NAMH ports/terminals must have the ability to load and offload ships and barges quickly and efficiently. For international (Lo/Lo) move- ments, cranes are usually required. Ro/Ro movements, more 47

common for domestic shipments, often do not require as much cargo handling infrastructure. Other factors to consider include: • Unobstructed water access with navigation and depth along- side of at least 9 ft for inland operations and 15 ft for coastal, • Availability of a dedicated waterfront terminal with suffi- cient acreage and independent gate, • Availability of adjacent area to provide off-terminal park- ing for truck lines, • Proximity to large distribution centers and truck termi- nals, and • Proximity to major intermodal yards. Give Domestic Cargo a High Priority Public-sector transportation planning organizations should concentrate their NAMH shipping initiatives on domestic cargo, which tends to be Ro/Ro cargo. Many international shippers (that tend to use ocean containers on Lo/Lo vessels) are not interested in NAMH operations, customs require- ments for international shipments can introduce delay, and there are issues with managing the positioning of containers, making NAMH a less attractive option in comparison to other modes. Miscellaneous Operational Strategies Several other strategies might prove productive: • Offer operator-provided incentives such as extended free storage time for cargo beyond what is ordinarily provided. • Try to eliminate “touches” where possible. When dealing with feeder services, look into direct ship-to-barge trans- fers to eliminate the port in the process. • Focus on Ro/Ro initially. Less landside infrastructure and equipment are required, and operations are simpler. Intensify Research into Vessel Design and Construction Strategies Eliminate high-speed vessel design from research programs. The types of vessels that are capable of high speeds experience strong degradation in speed and efficiency with large cargo loads. The routes that are being proposed such as New York to Florida would never work with high-speed vessels because one could never operate a ship like that in winter weather. The literature suggests that investments in vessel capacity and cargo handling equipment may yield better returns and better level of service than investments in ship propulsion. (49) Govern- ment could sponsor more research into what could be stan- dardized across a range of marine highway vessels. Public Sector (Non Legislative) The potential public sector (non-legislative) actions related to planning and operations are shown in Figure 16 and Table 11, which associate the potential actions with the obstacles they address. Encourage Hazardous Materials to be Carried Offshore and Away from Population Centers Each day, 800,000 shipments of hazardous materials occur within the United States. Moving potentially dangerous car- goes offshore would not only help alleviate landside congestion but would also spur coastal shipping operations. Removing the transportation of hazardous materials through some of the nation’s most crowded urban centers would make sense from a safety and security perspective. If the policy is struc- tured correctly, this is an opportunity to work with railroads. Although handling hazardous cargoes can be a profitable enterprise for railroads, in many cases the risk of sending hazardous shipments through rapidly urbanizing areas is making the long-term benefit/cost ratios of these operations less appealing. In examining projections of urban develop- ment for the next two decades, it seems highly likely that some of these hazardous shipments now handled by railroads will need to shift either to newly constructed extra-urban rail routes or to alternative modes. Develop a Comprehensive National Freight Transportation Strategy This vision would be national, and perhaps even conti- nental, in scope. It would approach the system from an inter- modal perspective, appreciating how road, rail, and water transportation can fit together to move freight and passengers more efficiently. A national freight policy could be established in the United States and Canada, with funding and incentives properly aligned with the goals of the policy. As suggested earlier, marine transportation might be thought of in much the same way as railroads. Note that there are only a handful of Class 1 railroads. Although there may be a larger number of NAMH operators, the truly profitable routes will be relatively few. As part of the national freight policy, mechanisms could be established for planning and funding multi-jurisdictional projects. Highway and rail planning has provided some good models that could be transferred to the marine mode. One component of a national freight transportation strat- egy might be to require states to build their own freight trans- portation plans and tie the level of surface transportation funding to the existence (or lack thereof) of such a plan. A national strategy would provide a foundation and a unify- ing framework for the various state strategies. For example, a legislative proposal for the new surface transportation bill 48

49 Move hazardous materials offshore Need to capitalize on environmental & safetyadvantages Communities are pushing back against freight expansion Preserve working waterfronts Need sufficient acreage to accommodate new services Improve federal collection of data Need better definition of market Develop waterfront industrial parks Inland destinations present prohibitive draycosts Standardize customs processes at ports Unequal treatment across ports createsconfusion and delay Develop NAMH planning guide Lack of knowledge of market & operationalrequirements Potential Actions Obstacles Addressed Develop national freight strategy Need comprehensive national investmentstrategy Incorporate into Homeland Security plans Need additional funding sources Figure 16. Planning and operations potential actions—universal: government/non legislative. (continued on next page)

has been drafted that calls for a national freight and mobil- ity policy and requires states to develop a state freight trans- portation policy. Preserve Working Waterfronts Industrial ports are in short supply, and will become more important as traffic congestion increases on America’s inter- state highways and rail networks. Once a working waterfront is lost to housing or retail shops it is nearly impossible to bring it back. Ports are an undervalued, but vital, national resource. Foresight is required to prevent their gentrification so that they will be ready to serve America’s revitalized marine trans- portation system. Incorporate America’s Marine Highways Program into Homeland Security and Infrastructure Protection Plans Security could be a plus for marine transportation. It is much more difficult to disrupt marine trade than it is to dis- rupt highway or rail traffic. To disrupt the latter two, one would only need to blow up a bridge or a segment of rail. Marine traffic is more redundant and resilient. Marine assets can be redeployed relatively quickly and can call at a wide vari- ety of ports and terminals, even when highways, rail lines, and bridges are out of service. Furthermore, the vessels and ware- house facilities involved in marine freight transportation could provide support to the Department of Homeland Security in the event of an emergency. Improve Federal Collection of Transportation Statistics Accurate analyses and effective decisions require accurate and organized data. Shipment data collected and disseminated by government could be restructured for easier and more meaningful access. It is especially important to provide better origin and destination data. Harmonize Regulations and Cabotage Legislation among NAFTA Partners There is a need for expanded, and more substantive, coop- eration between NAFTA partners sufficient to achieve tangible progress in moving toward a harmonized marine transporta- 50 Harmonize NAFTA cabotage laws Lack of qualified vessels in N. Am. andrestrictions on international movements Apply the “railroad model” Lack of federal leadership Website to match shippers & carriers Market facilitation Figure 16. (Continued). Table 11. Planning and operations potential actions—regional: government/non legislative. Potential Actions Obstacles Addressed Preserve working waterfronts US West Coast: lack of affordable waterfront property Develop waterfront industrial parks US West Coast: lack of affordable waterfront property Standardize customs processes at ports US: unequal treatment across ports Work out 24-h rule accommodation Great Lakes: difficult to comply with 24-h rule

tion regulatory framework within the free trade area, includ- ing cabotage arrangements, HMT, customs processing, and advanced notification and documentation requirements. Simply amending the Jones Act most likely would be counterproductive. For example, if the cabotage provisions in the Jones Act were unilaterally eliminated, a Canadian interest could buy a very cheap foreign vessel, pay the 25% Canadian import duty, and still “have a leg up” on U.S. interests. Develop Waterfront Industrial Parks Cross-border NAMH services focused on the semi-finished goods market appear to have some early promise. The biggest issue is proximity of the shippers to load points and the restruc- turing of many of these industries (particularly in Canada). One option that might work to help develop this market would be government involvement in the development of water- front industrial parks or sites for production, warehousing, and distribution facilities. This would require government to specifically place economic development and job creation programs related to marine highway development and renew- able energy development ahead of real estate development and speculation. Land-use planning needs to be structured to encourage manufacturers and distribution centers to stay close to the waterfront. The most cost-effective services are those that are able to capture the low costs of water transit without incurring the relatively high costs of drayage, handling, and storage. Consider Applying the “Railroad Model” The way the railroad system was built in the United States could provide the foundation for an approach to build the marine highway system. The proceeds of government loans and grants of public lands furnished a large part of the work- ing capital of the early railroads. The federal and state gov- ernments decided to guarantee the securities issued by the railroads. The federal government even went so far as to pro- vide preliminary surveys in some cases. Because of this aid, the railroads were able to open up great expanses of the “west- ern territory” to settlement and cultivation even before a crit- ical amount of demand had built up. Most of the country was still unsettled and there was little prospect of profitable demand levels, but the government recognized that railroads had to be built in advance of settlements in order to facilitate immigration. A similar approach may be needed to develop a new NAMH system. Keep in mind that the new marine system may have only a few large operators in well-defined routes, similar to Class 1 railroads. Standardize Customs Processes at Ports so That Ports Are Treated Equally Large ports tend to have customs service available for more hours in the day than smaller ports do—as well as weekend service, on occasion. This is a limiting factor for small ports attempting to generate more NAMH service. If hours could approach a certain level of standardization, this would remove customs service as a competitive factor between ports. Work out 24-Hour Rule Accommodation for Great Lakes Due to short trip lengths and other considerations, collabo- ration between U.S. Customs and operators would be needed to develop a system and methodology that will work around the 24-h rule in the Great Lakes region. Consider Designing a NAMH Planning Guide Interviewees felt it would be helpful to develop a NAMH planning guide that would explain all of the various cost and service factors a start-up business should consider. Such a guide, which MARAD might undertake to develop, could sum- marize such information for the benefit of potential entre- preneurs and investors. Sponsor a Website to Match Shippers with Carriers There are subscription Internet sites already in existence that allow carriers and shippers to post and match require- ments. “Internet Truck Stop” charges only $35/month and it is a very active site. Similar sites targeting marine freight may be of value. Legislative The potential legislative actions relating to planning and operations are shown in Figure 17, Figure 18, and Table 12, which associate the potential actions with the obstacles they address. Federal Government—United States Consider Proposed Jones Act Modifications Indepen- dently from Marine Highway Development. Serious dis- cussions regarding marine highway development have often been sidetracked into a debate over the viability of the Jones Act. If Congress attempts to change portions of the Jones Act, the United States could inadvertently place itself in viola- tion of its GATT agreements and then there could very well be international pressure to abolish all Jones Act provisions. 51

52 High start-up costs Consider publicly owned & operated services Lack of available capital Establish short, targeted overweight corridors Difficult to take advantage of weight capacitiesfor waterborne cargoes Potential Actions Obstacles Addressed Figure 17. Planning and operations potential actions—universal: legislative. US: impacts of Jones Act restrictions are uncertain Consider Jones Act independently from development of NAMH US: Jones Act debate delays needed action Encourage evaluation of NAMH alternatives to highway & rail projects States not analyzing NAMH alternatives Potential Actions Obstacles Addressed Figure 18. Planning and operations potential actions—regional: legislative. Table 12. Planning and operations potential actions specific to stakeholders: legislative. Potential Actions Obstacles Addressed Establish framework for planning & funding multi-jurisdictional projects Agency/Government: no practical framework for multi-jurisdictional projects— no systems approach

Furthermore, if provisions of the Jones Act are amended, the issue will arise regarding what should be done with current operators who have established their businesses under the provisions of the Jones Act and are now going to have com- petitors who did not have to follow the same provisions. Finally, since the Jones Act is also seen as a part of a national defense strategy, it is highly unlikely that Congress would consider major revisions. Consider Publicly Owned and Operated Services to Solve Specific Transportation Issues. Publicly owned transporta- tion services already exist—ferry services, regional railroads, and others. These types of operations could be models for establishing publicly owned freight transportation services that would be designed to meet specific needs. The public entity could be a state, a regional commission, a local govern- ment, or a specially constituted authority. If and when such a service becomes steady and profitable, the public entity could then consider privatization options and encourage more pri- vate sector development. Consider Marine Transportation Alternatives When Eval- uating Highway or Rail Projects, Especially When National Environmental Policy Act (NEPA) Processes Are Involved. Under federal law (NEPA), when transportation projects could have a potentially strong adverse impact on the sur- rounding natural and human environment, the planners of the project are required to consider alternatives for avoid- ing or reducing such impacts. However, rarely is a marine transportation service considered as a realistic alternative for lessening adverse impacts. HR 1780 (Smart Planning for Smart Growth Act of 2009) was introduced on March 30, 2009. One of its provisions would require states and metropolitan plan- ning organizations to consider “short sea shipping” as a strat- egy for reducing greenhouse gases in their plan formulations. HR 2454 (Clean Energy and Security Act of 2009) contains exactly the same provision. Potential Topics for Follow-on Research Several distinct topics for future research were noted dur- ing the course of this project. Involvement of Department of Homeland Security and Department of Defense in the Development of NAMH There are several ways in which the Department of Home- land Security or the Department of Defense could be directly involved in the development of NAMH. It would be worth- while to investigate the concept of building in militarily use- ful features in new ship construction (such as roll-on/roll-off ramps and heavy weight-bearing decks) that could be paid for by the U.S. Department of Defense as part of a military sealift contingency program such as the current Maritime Security Program. Research on a contingency plan also is needed for continuing to serve shippers in the event of a mass deployment. Another possibility is to have the military—not the NAMH operator—add specific components. One such scenario would call for the military to own the vessels and allow operators to lease, with contractual arrangement that would prevent the operator from completely losing the use of its vessels in the event of a military call up. Also, research is needed to develop a plan for utilizing marine assets (vessels and warehouses) in the event of a large-scale emergency situation, whether natural or man-made. Lowering the Capital Risk There are several ways the federal government could lower the capital risk for investors in U.S. ships through programs such as the currently unfunded federal Title XI Program. An evaluation of the strengths and weaknesses of Title XI, along with an evaluation of alternative approaches, is needed. Combining and Strengthening Stimulus Funding Research is need into the possibility of combining appropri- ate aspects of Europe’s Marco Polo Program, EPA’s SmartWay Program, and the ARRA stimulus package. Further investi- gation is needed into the legal challenges and how to priori- tize competing projects. Diverting Heavy and Hazardous Shipments to Water From a strictly environmental and public safety viewpoint, it would appear that diverting heavy and hazardous ship- ments to water would be desirable. However, there are several serious concerns. The appropriate level of liability needs to be determined. Do NAMH operators have the appropriate equipment, training, and experience to be able to handle haz- mat safely and efficiently? Should society be concerned about operators attempting to operate on a “shoestring budget” while transporting hazardous materials? If hazmat shipments by water should be encouraged, what is the best way to do so? Developing Scenarios and Expected Outcomes Research is needed that will test the assumptions and mod- els described in this report. It would be very useful to decision makers and society at large to take particular potential actions, assume their implementation, and develop potential out- comes and impacts. 53

NAMH Planning Guide Research is needed into the concept of a planning guide for NAMH. What should be in the guide? Who should develop the guide, and who should the target audience be? How should it be disseminated? Implications of Elimination of HMT This report mentions the possible trade treaty implications of the elimination of the HMT. In addition to trade issues, it is necessary to quantify the effect the elimination of HMT would have on shippers and on the federal government. Building the NAMH Vessel Fleet There are a multitude of issues involved in the concept of building new vessels for use in NAMH services. For instance, some type of standardization is needed. Could the government broker the design? What basic elements should be included in the design? The issue of capacity and financing is important. Which shipyards could be involved in making these vessels? What training, capital, and equipment would they need? How many vessels are needed? How much would it cost to design and then build them? The issue of the operation of these vessels also is important. What will it cost to operate these vessels? Where would they be deployed? How could the military and the private sector share the vessel? Several of the nation’s universities have researchers that are versed in the quantitative, engineering, and economics aspects involved in the building of a new fleet. Research is needed into the best vehicle the government could use to move ves- sel fleet development forward. Evaluating Funding by Mode There is much discussion on the issue of equity in the funding schemes used for the various modes. Railroads pay for much of their own infrastructure. Highway and NAMH operators pay fuel taxes and an assortment of other fees and taxes. Research is needed into taxation and funding schemes by mode, and an appropriate methodology for assessing whether there are equity issues that need to be addressed. 54

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TRB’s National Cooperative Freight Research Program (NCFRP) Report 5: North American Marine Highways explores the potential for moving intermodal containers on chassis, non-containerized trailers, or rail cars on marine highways in North America. The report includes an assessment of the conditions for feasibility; an analysis of the economic, technical, regulatory, and logistical barriers inhibiting greater use of the marine highway system; and potential ways to eliminate these barriers.

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