National Academies Press: OpenBook

Impacts of Public Policy on the Freight Transportation System (2011)

Chapter: Chapter 5 - Case Studies

« Previous: Chapter 4 - How Do Public Policies Affect the Freight Transportation System?
Page 49
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 49
Page 50
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 50
Page 51
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 51
Page 52
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 52
Page 53
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 53
Page 54
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 54
Page 55
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 55
Page 56
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 56
Page 57
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 57
Page 58
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 58
Page 59
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 59
Page 60
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 60
Page 61
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 61
Page 62
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 62
Page 63
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 63
Page 64
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 64
Page 65
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 65
Page 66
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 66
Page 67
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 67
Page 68
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 68
Page 69
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 69
Page 70
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 70
Page 71
Suggested Citation:"Chapter 5 - Case Studies." National Academies of Sciences, Engineering, and Medicine. 2011. Impacts of Public Policy on the Freight Transportation System. Washington, DC: The National Academies Press. doi: 10.17226/14453.
×
Page 71

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

49 This section presents four case studies that explore policy decisions and their impacts in greater detail. The intent of the case studies is to help readers better understand the back- ground and factors that led to a policy action, the positions of stakeholders on the issue, and the impacts of the policy action on the freight system. The policy actions selected for case studies are those that the research team believes have had, or will have, impacts that are unexpected or unintended by the policymakers. They are 1. Local Land Use Policies Affecting Port Facilities and Other Freight Terminals 2. Local Truck Access and Parking Policies 3. Air Cargo Screening Requirements 4. State and Federal Climate Change Policies The first two case studies cover primarily local government actions with a similar purpose. The policies occur in cities throughout the United States, most noticeably in large metro- politan areas but sometimes in smaller cities. In both cases, the freight system impacts are often not considered by the policy- makers or are considered but ignored. The third case study covers a single recent policy decision with direct and potentially large impacts on the air cargo sec- tor, and potentially the trucking sector as well. This case study illustrates how broad public and Congressional objectives (in this case, security from terrorist attacks) can trigger specific policies, and the challenges confronting the government and the freight industry to develop and implement a policy that achieves broader public goals without overly burdening the freight industry. The fourth case study covers a collection of state and Fed- eral policies concerning climate change, some of them enacted but many just proposed. Although the discussion of policy impacts in this example is mostly speculative, it was selected as a case study because of its high degree of relevance to cur- rent policy debates and its potential for freight system impacts. Each case study is organized into four sections: setting, stakeholders, policy actions, and policy impacts. Case Study 1: Local Land Use Policies Affecting Port Facilities and Other Freight Terminals Setting After decades of predominantly outward growth, many U.S. cities are now experiencing redevelopment along their waterfronts and in their urban centers. In part, this trend is a result of “smart growth” policies that promote infill develop- ment as a way to reduce congestion, improve accessibility for residents, and reduce air pollutant emissions. In some cases, the areas targeted for infill development have historically been used for manufacturing and warehousing but now have high vacancy rates, as firms involved in these activities have gone out of business or moved elsewhere. In other cases, however, there may be continuing demand for industrial and ware- housing space in the same areas targeted for infill housing or retail. Such is the case in portions of the South Bay Cities north of the Port of Los Angeles. Rezoning land previously set aside for industrial or freight- related activities can be appealing to local actors, both public and private. Freight-related or industrial land uses generally produce relatively low rents, translating into low land values. Rezoning of such property often means that property owners will earn higher rents or proceeds from property sales. An analysis conducted for the San Francisco Bay Area’s Metropol- itan Transportation Commission found that local government tax revenues for retail, office, and housing developments were 2 to 10 times higher than for warehouse use (see Table 5-1).65 C H A P T E R 5 Case Studies 65Hausrath Economics Group, “Task 4 Report: Existing Conditions and Trends Regarding Real Estate, Land Use and Community Factors with Implications for Goods Movement Industries,” prepared for the Metropolitan Transportation Commission, October 2003, pp. 48–53.

50 Local governments are likely to see tax revenues increase (although demand for public services will also grow). Rezon- ing of freight-related property is likely to increase costs to users of the freight transport system, but these cost increases are more widely dispersed than the perceived local benefits. Sometimes it is not so much the promise of financial gain as it is the adverse impacts of goods movement that prompt local governments to make land use decisions that discourage freight-related uses. These adverse impacts include air and noise pollution, lights from nighttime operations, poor aesthetics, and traffic congestion from truck and train movements. Although it is not usually an intended result, local land use decisions of this kind can limit the ability of urban ports to operate or expand and can have a similar effect on other types of freight facilities such as truck and rail terminals. Although ports are limited to land with access to deep water and usually cannot relocate, owners of truck terminals or distribution cen- ters can respond to changes in land use by moving to outlying areas. The new location of a terminal may be farther from freight destinations such as ports, retail centers, and manu- facturing plants, resulting in an increase in truck VMT and empty miles traveled. In exceptional circumstances, a local government will pur- posely arrange for the relocation of a freight facility out of the urban center. Such an action may be motivated by the freight facility’s contribution to local congestion and air pollution. This last case differs from the first two in that the deliberate aim of the action is to relocate freight facilities—the relocation is not a side effect of local land use decisions. Stakeholders In most U.S. cities, numerous agencies have a role in these kinds of land use decisions. Local planning and zoning author- ities are the primary actors in these situations, although some states have authority over local land use decision-making. State and local economic development agencies also can be involved—either as proponents for preserving land for freight- related uses or for converting the land to other uses. Local elected officials are usually involved in some way; local legis- lation may be required for some land use changes. State and local transportation departments are involved in that they are responsible for managing any infrastructure improvements or modifications that may be needed to accommodate changes in land use. With regard to property near the urban waterfront, port authorities have a strong interest in preserving adjoining land for freight uses, and their interests are usually closely aligned with those of freight carriers and shippers. However, as owners of waterfront property, they may benefit finan- cially from the ability to use that property for higher value, non-industrial uses. Private-sector stakeholders with an interest in the location of urban freight facilities include • Freight carriers and facility owners. Development pres- sure on centrally located property pushes freight facilities to other, usually outlying, locations where rents are lower and space is more abundant. However, the more remote loca- tions also likely entail increased travel times, greater num- ber of miles traveled, and higher fuel costs. In the extreme, freight facilities may move to another jurisdiction. • Freight shippers and receivers. Shippers and receivers benefit from faster and less costly transportation services. Changes in the location of freight facilities may increase costs to them or decrease the quality of freight service, but unless they rely heavily on a particular freight facility, they are not likely to engage actively in this type of land use debate. • Owners of property near freight facilities and real-estate developers. Alternative land uses offer the possibility of financial gain for owners of industrial property and real- estate developers. Table 5-1. Tax revenue estimates for hypothetical development, inner east bay of San Francisco bay area. Land Use Annual Local Tax Revenues to City General Funds Tax Revenues Per Sq. Ft. of Land Warehouse $61,000 $0.28 Light Industrial/Manufacturing $57,200 $0.26 R&D Flex $80,600 $0.37 Retail $306,300 $1.41 Business Park/Campus $189,700 $0.87 Office – 3-story $286,600 $1.32 Office – 8-story $687,400 $3.16 Townhouses $99,300 $0.46 Apt./Condos/Lofts – 45/acre $169,600 $0.78 Apt./Condos/Lofts – 100/acre $384,200 $1.76 Source: Hausrath Economics Group, “Task 4 Report: Existing Conditions and Trends Regarding Real Estate, Land Use and Community Factors with Implications for Goods Movement Industries,” prepared for the Metropolitan Transportation Commission, October 2003.

51 • Residents in the vicinity of freight facilities. Urban resi- dents near freight facilities are affected by traffic and other quality-of-life issues such as noise, dust, odors, and emis- sions from trucks or from on-site industrial activities. These concerns may also draw the attention of environmental and public health advocates. Policy Actions Three key ways in which local land use policies affect the freight system are as follows: 1. Zoning decisions that limit port expansion and redeve- lopment. In making decisions regarding the use of water- front property, local officials and their constituents may prefer other land uses such as retail, office, or residential over industrial uses. For example, land near the Port of New York that was previously vacant or used for freight ware- houses has been redeveloped into high-value commercial and residential property. Freight distribution centers have therefore, moved away from New York to the New Jersey suburbs and eastern Pennsylvania where land values are lower, although access to the container ports in the New York area is more difficult.66 2. Land-use decisions that discourage non-port-related freight facilities in the urban core. Local land use decisions may result in other freight facilities such as truck terminals being located far from residential and retail districts, as well as from areas zoned for light industry or warehouses. This may be the inadvertent effect of allowing land uses near existing terminals that drive up rents and push the terminal owners to relocate. Alternatively, it may result from delib- erate attempts to keep truck traffic away from particular locations. For example, during interviews, trucking indus- try representatives said that some local governments have encouraged construction of distribution centers (DCs), see- ing them as a source of taxes and employment, but have not allowed a trucking terminal as part of the DC cluster. The result can be longer runs for trucks going to and from the DC cluster but no reduction in local truck traffic. 3. Intentional relocation of freight terminals. In rare cases, a local government takes direct action to relocate a freight terminal out of the urban center. This occurs in situations in which there are no more cost-effective ways to further mitigate the adverse impacts of freight activity such as con- gestion and pollution. For example, Florida has proposed spending as much as $650 million to divert freight trains from a rail line running through the Orlando region to another rail line running west of it, while providing CSX with a new terminal to replace the existing one in Orlando.67 The reasons behind this are: to reduce street congestion in Orlando due to trains blocking grade crossings and to make the lines currently used by CSX available for commuter rail. A similar proposal has been put forward in Colorado—the Colorado Department of Transportation is studying a pro- posal to shift freight trains out of the Interstate 25 corridor through Denver to a new alignment on Colorado’s eastern plains.68 Policy Impacts When local government land use policies prohibit the con- struction or expansion of freight facilities desired by industry or encourage redevelopment with non-freight-related land uses in areas close to ports or other major terminals, these policies can result in negative impacts on the freight system. Travel distances and transit times may increase for trucks, thereby raising operating costs. For example, if a truck termi- nal is relocated so as to increase average one-way port dray by 25 miles per load, using the national average figure of $1.73 for truck per mile costs, a conservative estimate for increase in drayage costs would be $43 per truckload.69 Assuming 500 truck trips into and out of the terminal per day, the increase in truck- ing costs would be at least $21,000 per day, or over $5 million a year, assuming 250 working days. In reality, however, the impacts of such a relocation would not be this simple. The negative impacts of a location farther from a port could be at least partially offset by lower property taxes and closer access to warehouses or other destinations. These impacts would change over time if other terminals relocate in response to the same development pressures. Because of the interconnected nature of land use and the transportation system in a metropolitan area, determining the impacts of a land use policy would be impossible to quantify without use of regional land use and travel demand models. Although many MPOs have used their models to test the impacts of alternative regional land use scenarios, the research team is not aware of any regional modeling exercises that sought to understand impacts of freight facility relocation. Transportation infrastructure generally has great visibility and large local impacts. Because of network effects, the negative 66GAO, Freight Transportation: National Policy and Strategies Can Help Improve Freight Mobility, GAO-08-287, January 2008, p.14, http://www.gao.gov/new.items/ d08287.pdf 67“Hopes for Rail Renewed,” St. Petersburg Times, July 13, 2009, http://www. tampabay.com/opinion/editorials/article1017557.ece and also http://www.sunrail. com/ 68“Study: Benefits of Rerouting Freight Trains Across Plains Outweigh Costs,” Denver Business Journal, February 10, 2009, http://www.bizjournals.com/denver/ stories/2009/02/09/daily24.html 69ATRI (2008). An Analysis of the Operational Costs of Trucking.

52 impacts are largely local, while many positive impacts are dis- tributed throughout the transportation network.70 This being the case, it is not surprising that local land use authorities are more attuned to the local benefits of their decisions than to the costs imposed on carriers, shippers, and all those who ultimately benefit from efficient freight transport. Over time, legal, financial, and institutional mechanisms have been developed to balance the broader economic inter- ests against local economic and quality-of-life interests. Some of these mechanisms are Federal (e.g., cost-sharing for trans- portation infrastructure improvements), while other mecha- nisms are in place at the state or regional level. The following two examples illustrate some of these legal, financial, and institutional mechanisms. Port of Miami River The Port of Miami River is a collection of 32 private marine terminals that serves as a shallow-draft port for smaller vessels coming from the Caribbean and Central and South America. These terminals handled nearly 500,000 short tons of freight in 2007, compared to the roughly 7 million short tons handled by their neighbor, the deep-water Port of Miami.71 In 2007, the city of Miami lost three consecutive court decisions over land use designation changes that it made so that large-scale resi- dential developments could be built along the Miami River. The lawsuits were brought by the Port of Miami River’s termi- nal operators, who sought to retain the waterfront for marine industrial uses. In the court decisions, the judges held that the separate amendments to the city’s comprehensive plan, when taken as a whole, amounted to changing the character of the waterfront without proper long-range planning or input from appropriate agencies, departments, and citizen groups.72 In response to the court rulings, the Miami City Commis- sion approved amendments to the city’s comprehensive plan that would permit residential and mixed-use development along the river, despite objections from the marine industry and the city’s Planning Advisory Board. Those amendments were then forwarded to the Florida Department of Commu- nity Affairs, which is responsible for ensuring that local com- prehensive plans and amendments comply with the state’s Growth Management Act. In July 2008 and again in January 2009, the department rejected the city’s amendments. Among other issues, the state agency expressed concern about the proposed changes related to land uses along the Miami River. In particular, the state agency found that, as amended, the city’s comprehensive plan did not include strategies for pre- serving recreational and commercial working waterfronts, as required by state law.73 The city, the Florida Department of Community Affairs, and the Miami River Marine Group are now scheduled to enter formal mediation in October 2009. If mediation is unsuccess- ful, the case will go before an administrative law judge. Ulti- mately, if the city does not bring its comprehensive plan into compliance with state law, the state can withhold infrastruc- ture funding from the city.74 If the City of Miami succeeds in its efforts to redevelop the Port of Miami River area, it is unlikely that most of the marine terminals could relocate to other nearby locations. Even with the crash in residential real estate values in South Florida, land values are unlikely to support creation of new marine termi- nals. Some of the marine traffic currently served by the ter- minals could shift to other port facilities, including those at the neighboring deep-water Port of Miami. Ultimately, some ship- pers would likely see an increase in freight transportation costs as a result of the redevelopment, and the region would most likely lose some of the associated business activity. Port of Baltimore The recent experience of the City of Baltimore, Maryland, provides an interesting contrast to that of Miami and demon- strates the ability of a larger port and its industrial partners to preserve waterfront property for marine industrial uses. The Port of Baltimore is a major East Coast port, handling more than 41 million short tons in 2007.75 In 2004, Baltimore created a maritime overlay zoning district (see Figure 5-1) that largely prohibited residential and commercial development on water- front property adjacent to deep-water shipping channels. The zoning district was intended to help streamline the develop- ment process by avoiding costly and time-consuming delays associated with site-by-site decision making regarding change of use. It was also intended to prevent the “leapfrogging” of mixed-use development into maritime areas that had begun to occur.76 However, by as early as 2007, terminal operators and port- related industries began arguing that the 2014 sunset date for the zoning district was not far enough into the future and was 70Genevieve Giuliano, “The Changing Landscape of Transportation Decision Making,” lecture presented to TRB 2007 Annual Meeting. 71U.S. Army Corps of Engineers, 2007 Waterborne Commerce of the United States, http://www.ndc.iwr.usace.army.mil/wcsc/wcsc.htm 72Risa Polansky, “Miami Changing Land-Use Plan After Court Defeats on River Uses,” Miami Today, November 15, 2007, http://www.miamitodaynews.com/ news/071115/story3.shtml 73Florida Department of Community Affairs, “Objections, Recommendations, and Comments for City of Miami, Amendment 08-1ER,” July 18, 2008. 74Jacquelyn Weiner, “Battle over Miami River Designation Headed for October Mediation,” Miami Today, July 23, 2009. 75U.S. Army Corps of Engineers, 2007 Waterborne Commerce of the United States. 76City of Baltimore Planning Department, Maritime Industrial Zoning Overlay District: 2007 Annual Report.

53 Source: City of Baltimore Department of Planning. Figure 5-1. Baltimore maritime industrial overlay district. therefore discouraging facility upgrades and expansions.77 Port interests argued for moving the sunset date further into the future or making the zoning district permanent. In contrast, property owners and the real estate development community sought to add more flexibility to the zoning district. For exam- ple, they asked that property owners be allowed to request removal of property from the district. In particular, they wanted to be able to redevelop locations within the zoning district that industrial tenants were no longer using. Industry advocates said that giving property owners such an option would break up the integrity of the district and allow development to creep in. Industrialists, developers, and city officials worked for more than a year to develop a compromise. The City Council com- missioned a study by a local foundation, whose conclusions on how to balance the interests of industry and development helped in developing a solution.78 In May 2009, Mayor Sheila Dixon signed a bill to extend the sunset date of the zoning dis- trict to 2024. The legislation allows landowners to petition the City Council for removal from the zoning district starting in 2014, but they will have to prove that removal of a particular property will not adversely affect the district. It is too early to discern the impacts of extending the sunset date of the zoning district. However, had it not been extended, it is reasonable to conclude that capital investment in the indus- trial facilities in the zoning district would have slowed as the original 2014 sunset date approached. Other factors, such as market conditions and the cost of relocating, would also affect the investment decisions. The relative importance of each fac- tor could differ greatly from firm to firm. A 2006 report by the Baltimore City Department of Planning highlighted several firms that had relocated to, or expanded operations near, the Port of Baltimore because of land use conflicts at other ports.79 Summary The relatively small Port of Miami River apparently does not have the political or economic clout to convince city leaders to 77Scott Dance, “Port in a Storm: Financing Scarce for Waterfront Industry’s Expansion,” Baltimore Business Journal, December 21, 2007. 78Scott Dance, “Mayor Dixon Signs Bill Protecting Port of Baltimore’s Maritime Zoning until 2024,” Baltimore Business Journal, May 12, 2009. The Abell Foun- dation’s report, Charting the Future of Baltimore’s Industrial Waterfront is avail- able at http://www.abell.org/pubsitems/CD_BaltWaterfront_0109.pdf 79City of Baltimore Planning Department, Maritime Industrial Zoning Overlay District: 2006 Annual Report.

54 preserve the waterfront for marine industrial uses. However, because of Florida’s state laws protecting working waterfronts, the port has been able to use litigation and administrative processes to counter the city’s efforts to rezone the waterfront for residential development. Conversely, the Port of Baltimore features more promi- nently in the Baltimore economy and is run by the Maryland Port Administration, a state agency. While it does not have the same type of protections in state law that Florida ports have, its economic clout, along with that of port-related companies, is sufficient to obtain protection of waterfront property through city zoning. Case Study 2: Local Truck Access and Parking Policies Setting Trucks are the primary means of transporting goods within urban areas. These vehicles are used to carry out a wide range of services, including parcel and courier serv- ices; pickup and delivery of freight for retail establishments, homes, and offices; movement of household belongings; and transport of all types of waste. The volume of freight activity has increased over time because of its direct links with growth in population and economic output, as well as the adoption of practices in supply-chain management and logistics that rely on smaller, more frequent, and more reli- able deliveries.80 As shown in Figure 5-2, the number of sin- gle-unit freight trucks registered in the United States has grown from 4.5 million in 1990 to 6.8 million today, an increase of more than 50 percent. Although trucks are essential to the modern economy, they present challenges to urban policymakers. Challenges include congestion; safety risks to motorists and non-motorists (e.g., cyclists and pedestrians); physical damage to infrastructure; and environmental impacts in the form of noise, vibrations, and emissions. Such issues with freight delivery have likely chal- lenged governments as long as cities themselves have existed. The oldest known example of a policy requiring off-peak deliv- eries of freight is Julius Caesar’s edict banning commercial deliveries during daytime hours in Rome.81 Given the difficulty of increasing roadway capacity in urban areas and the expected increases in truck traffic, policymakers will be faced with ever greater challenges in managing truck traffic on urban streets. Stakeholders Trucking companies are subject to a complex overlay of Federal, state, and local regulations regarding vehicle routing, loading/unloading times, and parking. Federal regulations prohibit states from restricting commercial motor vehicles that do not exceed the Federal maximum size limits applica- ble to the National Network.82 These vehicles must be allowed reasonable access between the National Network and freight terminals, as well as facilities for food, fuel, repairs, and rest.83 States have authority to restrict truck travel on other routes, provided that these restrictions do not violate the constitu- tional ban on restrictions of interstate commerce. 81José Holguin Veras, “Necessary Conditions for Off-Hour Deliveries and the Effectiveness of Urban Freight Road Pricing and Alternative Financial Policies in Competitive Markets,” presented at the TRB 2008 Annual Meeting, Washing- ton, DC, January 2008. 82The National Network includes (1) the Interstate Highway System and (2) high- ways, formerly classified as Primary System routes, capable of safely handling larger commercial motor vehicles, as certified by states. The total National Net- work system is about 200,000 miles. 8323 CFR 658.19. Figure 5-2. Freight trucks registered in the United States. 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 R eg is tra tio ns (0 00 ) Heavy Single-Unit Trucks Combination Trucks Source: FHWA, Highway Statistics. 80Anne G. Morris, Alain L. Kornhauser, and Mark J. Kay, “Getting the Goods Delivered in Dense Urban Areas: A Snapshot of the Last Link of the Supply Chain,” Transportation Research Record 1653, 1999.

55 With regard to truck routing, some states have designated highway networks that large trucks must use until they reach the appropriate local roads for getting to a shipper or receiver. Similarly, if allowed by applicable state law, cities have desig- nated truck routes within their boundaries. In general, trucks must remain on these designated routes except as necessary to reach a pickup or delivery location. Local rules may also require trucks exceeding certain dimensions or weight to obtain permits. Parking and loading/unloading of trucks is typically regu- lated by local transportation or public safety agencies. Cities typically prohibit or greatly restrict truck parking in residen- tial areas. For commercial areas, cities commonly designate acceptable times and areas for loading and unloading. Local rules regarding truck activity are enforced by local police or parking enforcement authorities. Private-sector stakeholders with an interest in the regula- tion of truck activity in urban areas include • Shippers and receivers. Shippers and receivers in urban areas are interested in timely and cost-effective freight delivery and want to be able to interact with carriers during their normal business hours and with minimal disruption to their ongoing operations. • Freight carriers. Carriers doing pickup and delivery in urban areas want the flexibility to select their routes and pickup and delivery times. They also want adequate space for parking and loading and unloading of freight. • Residents and local advocacy groups. Communities, rep- resented by local residents and/or advocacy groups, are typ- ically concerned with the noise, pollution, safety risks, and parking issues associated with truck traffic. • Other urban travelers. All traffic on urban roads is affected by congestion related to truck activity (e.g., traffic bottle- necks from double-parking of trucks) or the safety risks of traveling in truck traffic. • Local highway or public works agencies. These agencies are concerned about truck traffic increasing the cost of maintaining local transportation infrastructure. Policy Actions The types of restrictions on freight transportation typically imposed by local authorities include the following: 1. Time-of-day restrictions on freight activity. Trucks often have restricted time windows for delivery and pickup in dense urban areas. Near residential areas, cities may pro- hibit nighttime truck activity. For example, in Dallas, trucks are not allowed to travel off a designated truck route on streets adjacent to single-family and duplex residences between 10 P.M. and 6 A.M.84 In central business districts (CBDs), cities may restrict loading and unloading during peak travel periods as a way of easing traffic congestion. Recently, more attention has been given to the use of variable pricing mechanisms to encourage traffic (includ- ing freight vehicles) to move to non-peak travel periods. A prominent example is London’s cordon pricing system, which applies to both passenger and freight vehicles. New York City proposed implementing a similar system, but the New York State legislature did not provide the necessary approvals. Individual freight facilities such as ports have also begun to use variable pricing to encourage shifts in freight traffic. For example, the PierPASS program at the Ports of Los Angeles and Long Beach offers financial incen- tives to move cargo at night or on weekends. 2. Route and access restrictions by vehicle weight and size. In cities such as New York, Chicago, Dallas, and Seattle, trucks of certain dimensions or weight are required to remain on designated truck routes to the extent feasible. Trucks exceeding a city’s size and weight limits often must obtain an oversize permit prior to traveling.85 Route restric- tions based on vehicle size and weight are often motivated by roadway characteristics such as pavement condition, road geometry, and bridge heights. The impacts of truck traffic on residential areas are also an important factor in the selection of truck routes. In some cities such as Los Angeles and Miami, the level of concern about the impacts of truck traffic has prevented the cities from designating official truck routes, although de facto truck routes already exist.86 3. Restrictions on loading and unloading. A major con- straint on loading and unloading freight in urban areas is the availability of loading and unloading zones for com- mercial vehicles. Many cities restrict truck parking to desig- nated curbside loading zones and set time limits for parking there. If carriers find the supply of designated loading and unloading areas to be insufficient, they often opt to park illegally and pay any resulting fines. Local land use planning and zoning authorities can also affect the ability of trucks to load and unload freight through specifications on the number and size of docking facilities at large buildings. Carriers may incur delays if the number of loading bays at commercial buildings is too small to accommodate the volume of freight activity. In 84Edwards and Kelcey Engineers, Inc., Truck Route Management and Commu- nity Impact Reduction Study, Technical Memorandum 1: Traffic Policies and Regulations, March 2007, p.82, http://www.nyc.gov/html/dot/downloads/pdf/ tm1trafpolicies.pdf 85For example, see New York City Department of Transportation, “Oversize/ Overweight Permits for Commercial Vehicles and Trucks,” http://www.nyc.gov/ html/dot/html/motorist/oversize.shtml, accessed September 8, 2009. 86Edwards and Kelcey Engineers, Inc., Technical Memorandum 1, p.83.

56 addition, carriers may find it necessary to break loads into smaller shipments or use smaller delivery vehicles if dock- ing facilities cannot accommodate larger trucks or receive large pallets.87 The effects of these types of policies on freight transporta- tion can be exacerbated by urban development patterns. The CBDs in many U.S. cities were originally developed with networks of alleys and loading zones to accommodate urban goods movement. As the economic structure of many cities has shifted from manufacturing to service industries, the value placed on these access facilities has diminished. Urban redevel- opment efforts have often consolidated smaller parcels and eliminated alleys and other facilities for truck access, encour- aged by changes in development practices that value rentable space over truck access. Policy Impacts Cities impose truck access and parking restrictions to fur- ther goals such as congestion relief, traffic safety, improved air quality, reduced noise, and infrastructure preservation. However, these policies impose direct and indirect costs on actors in the freight transportation system. These costs are detailed below. Time-of-Day Restrictions Time-of-day restrictions may require trucks to operate dur- ing more congested travel periods than carriers would other- wise choose to deploy their vehicles. Congestion-related delays increase the cost of labor and fuel per goods movement. A study by the American Transportation Research Institute (ATRI) estimated that the marginal costs for the trucking industry were $1.73 per mile and $83.68 per hour in 2008. This includes an average labor cost of about $25 per hour.88 There- fore, a conservative estimate for the average cost of 1 hour of delay each day per truck would be more than $20,000 per year (assuming 250 working days). Carriers’ capital costs may also increase if they opt to use more vehicles to make the same number of goods movements. Carriers offering time-definite delivery services would be most likely to invest in additional vehicles and drivers. Given that congestion is likely to affect all carriers operating in a particu- lar city, these costs probably are passed on to a carrier’s cus- tomers. For example, it is common practice for carriers to assess a “New York arbitrary” congestion charge of at least $150 for each vehicle destined for the five boroughs, Long Island, and Westchester County.89 Policies intended to push freight movement to off-peak periods can result in different types of freight system impacts. If these restrictions push deliveries outside the nor- mal working day, carriers may incur higher costs to provide evening, night, or weekend service. Carriers, particularly the private carriers, expeditors, and LTL firms, may have more difficulty finding drivers to work off-peak hours and may need to pay wage premiums as a result. In the case of off- peak incentive programs such as PierPASS at the Ports of Los Angeles and Long Beach, negative impacts have fallen primarily on drayage truck drivers (who work longer hours without a change in pay) and on warehouse operators (who must adjust hours and absorb higher costs), as noted in Section 4.90 Route and Access Restrictions Route and access restrictions may increase a carrier’s costs by increasing the number of miles traveled and time required per goods movement. These restrictions may also impose delay costs to the extent that they prevent trucks from seeking less congested alternative routes. For example, a 2007 study determined that only 5 percent of New York City’s streets were designated as truck routes and that most of the truck routes were operating at or near capacity. The study also found that New York City had experienced a 35 percent increase in truck volumes during the preceding 20 years but had not added any miles to its truck routes.91 A carrier can avoid having to comply with route and access restrictions by using smaller vehicles, but the carrier will face higher operating costs to break down shipments and transfer them to the smaller vehicles. As mentioned above, a carrier’s operating and capital costs will also increase if it purchases more vehicles to make the same number of goods movements. Using ATRI’s figures for vehicle operating cost per hour and assuming smaller vehicles, each vehicle added to the fleet would cost over $100,000 more per year to operate. Carriers face the same types of decisions when dealing with urban customers who have docking or curb space that cannot accommodate large pallets or large trucks. To handle deliveries 87Anne G. Morris, Alain L. Kornhauser, and Mark J. Kay, “Urban Freight Mobility: Collection of Data on Time, Costs, and Barriers Related to Moving Product into the Central Business District.” Transportation Research Record, 1613, 1998. 88ATRI, “An Analysis of the Operational Costs of Trucking,” 2008. 89Anne G. Morris, Alain L. Kornhauser, and Mark J. Kay, “Urban Freight Mobil- ity: Collection of Data on Time, Costs, and Barriers Related to Moving Product into the Central Business District.” Transportation Research Record 1613, TRB, National Research Council, Washington, DC, 1998. 90Genevieve Giuliano and Thomas O’Brien, “Impacts of Impacts of the Long Beach and Los Angeles Ports PierPASS Program,” Presentation at the National Urban Freight Conference, December 5, 2007. 91Edwards and Kelcey Engineers, Inc., Truck Route Management and Community Impact Reduction Study, Executive Summary, Prepared for New York City, 2007.

57 0 2 4 6 8 10 12 Atlanta Boston Chicago Dallas New York Seattle Lo ad in g Ba ys p er M illi on S qu ar e Fe et Source: Anne G. Morris, “Developing Efficient Freight Operations for Manhattan’s Buildings.” Prepared for the Steven L. Newman Real Estate Institute, Baruch College, CUNY, Spring 2009. Figure 5-3. Minimum number of loading bays required for large commercial buildings. to these customers, carriers need to break loads into smaller shipments and use smaller vehicles for the last leg of the deliv- ery, which increases operating costs.92 Another option for carriers is to subcontract the last leg of the trip to local niche carriers who have smaller trucks and understand the gamut of restrictions on truck activity in a par- ticular city.93 This option requires transfer of the freight as well as the administrative costs of engaging another company in the delivery process. Restrictions on Loading and Unloading Parking restrictions may make it harder for trucks to find parking or may require drivers to park farther from their destinations, thus increasing operating costs by adding to the amount of time needed for each pickup or delivery. Another option frequently chosen by truck drivers is to park illegally and risk receiving parking tickets. In the 12-month period end- ing June 30, 2006, commercial delivery companies received an average of 7,000 parking tickets per day in New York City, resulting in more than $102 million in fines. UPS received about 15,000 tickets a month and paid nearly $19 million in fines. FedEx was second with fines totaling $8.2 million.94 These two carriers also incurred the most parking tickets in San Francisco during the same period. In that city, UPS paid $673,334 in fines and FedEx paid $434,046.95 In addition to the cost of the tickets themselves, carriers also incur the administrative costs of paying them. In addition, trucks that obstruct a moving lane when parking illegally impose delays on other road users, including other trucks. Local land use planning and zoning authorities affect the ability of trucks to load and unload freight through specifica- tions regarding the number and size of docking facilities at large buildings. As shown in Figure 5-3, a 2009 survey of zoning offi- cials found a relatively wide range in the minimum number of loading bays that cities require for new commercial buildings. New York City, the most densely populated of the cities sur- veyed, had the lowest requirement for the minimum number of loading bays at large commercial buildings.96 Researchers have cited the insufficient number of loading bays and an inadequate number of freight elevators as major contributors to increases in freight turnaround times at New York City properties. The authors surmised that commercial real estate developers do not provide more loading bays because they would rather use the valuable street-level space for commercial tenants.97 Pickup and delivery activities of large trucks can exacerbate traffic delays if the trucks are parked in ways that impede the flow of traffic. A 2004 study estimated that lane-blocking pickup and delivery activities in urban areas resulted in nearly one million vehicle-hours of delay in 1999. However, this impact was minuscule when compared to the traffic impacts of roadwork, weather, accidents, and other causes of traffic delays. According to the study, truck pickup and delivery activ- ities caused less than 0.03 percent of total vehicle-hours of delay, the smallest impact from any source in the study.9892Anne G. Morris, Alain L. Kornhauser, and Mark J. Kay (1998). “Urban Freight Mobility: Collection of Data on Time, Costs, and Barriers Related to Moving Product into the Central Business District.” Transportation Research Record 1613, TRB, National Research Council, Washington, DC, pp. 27–32. 93Morris, et al., 1999. 94The Associated Press, “Parking Fines a Big Cost for Delivery Firms,” Septem- ber 1, 2006. 95Rachel Gordon, “Parking Tickets by the Truckload: 18 S.F. Businesses Rack Up Thousands of Citations, Pay City on Monthly Plan,” San Francisco Chronicle, February 24, 2007. 96Anne G. Morris, “Developing Efficient Freight Operations for Manhattan’s Buildings,” prepared for the Steven L. Newman Real Estate Institute, Baruch College, CUNY, Spring 2009. 97Ibid. 98Oak Ridge National Laboratory, “Temporary Losses of Highway Capacity and Impacts on Performance: Phase 2,” prepared for the U.S. Department of Energy, November 2004, p.87. The study assumed that 20 percent of all pickup and deliv- ery events involve illegal parking that blocks a lane.

58 The Product Supply Chain If policies regarding truck activity in urban areas increase the cost of freight transportation or add to the time needed to deliver freight, the policies will affect a wide range of business decisions and will affect participants all along supply chains. For example, transport delays tie up inventory in transit, which may require shippers to hold higher inventories.99 In addition, transportation costs also can limit the geographic size of the markets in which firms operate. As the costs of transportation to a given area increase, fewer producers will ship products to that market, which will, in turn, narrow the selection of available goods and decrease competition.100 The impact of truck access and parking policies is likely to be small relative to the impacts of traffic congestion. Winston and Langer estimated that the cost of congestion (both recurring and incident related) to the highway freight sector in 1997 was about $10 billion (in 2000 dollars), with a cost to motor carri- ers of about $2.5 billion and to shippers of about $7.6 billion.101 Case Study 3: Air Cargo Screening Requirements Setting The events of 9/11 illustrated the vulnerability of the U.S. commercial passenger air transportation network to attack. Though the specific threat vector employed on 9/11 was a human one, the actions of 9/11 raised serious concerns that cargo (both passenger luggage and commercial freight) repre- sents a threat to passenger air travel as well. Less than 2 months after the 9/11 terrorist attacks, the Aviation and Transportation Security Act was passed, which created the Transportation Security Administration (TSA). The 2001 law creating TSA gave the agency duties that include the following: (1) be responsible for day-to-day Federal security screening operations for passenger air transportation and intrastate air transportation; (2) develop standards for the hiring and retention of security screening personnel; (3) train and test security screen- ing personnel; and (4) be responsible for hiring and training per- sonnel to provide security screening at all airports in the United States where screening is required. After a period dominated by politically charged debate over what should be done to better safeguard U.S. air travel, Presi- dent Bush established the National Commission on Terrorist Attacks on the United States. Formed in November 2002 and more commonly referred to as the 9/11 Commission, this 10-member bi-partisan body of former elected officials and appointees was charged with preparing a “full and complete account of the circumstances surrounding the September 11, 2001 attacks,” including preparedness for, and the immediate response to, the attacks. Between November 2002 and the date the report was published in July 2004, the commission inter- viewed more than 1,200 people in 10 countries. The report itself, which numbers more than 560 pages, contains 41 sepa- rate recommendations. Most of the recommendations are strategic in nature. Only one sentence of one recommendation specifically calls for air cargo screening: Recommendation: The TSA and the Congress must give prior- ity attention to improving the ability of screening checkpoints to detect explosives on passengers. As a start, each individual selected for special screening should be screened for explosives. Further, the TSA should conduct a human factors study, a method often used in the private sector, to understand problems in screener per- formance and set attainable objectives for individual screeners and for the checkpoints where screening takes place. Concerns also remain regarding the screening and transport of checked bags and cargo. More attention and resources should be directed to reducing or mitigating the threat posed by explosives in vessels’ cargo holds. The TSA should expedite the installation of advanced (in-line) baggage-screening equipment. Because the aviation industry will derive substantial benefits from this deployment, it should pay a fair share of the costs. The TSA should require that every passenger aircraft carrying cargo must deploy at least one hardened container to carry any suspect cargo. TSA also needs to intensify its efforts to identify, track, and appropriately screen potentially dangerous cargo in both the aviation and maritime sectors.102 (emphasis added) This recommendation directly led to the air cargo screening requirement now being implemented. Stakeholders There are, effectively, two sides to this issue. Although there is agreement among all involved that screening is necessary to ensure the safety of air travel, significant differences exist regarding how best to achieve that end. On one side there is TSA, responsible for defining acceptable measures for mitigat- ing the risk of terrorist exploitation of the transportation sys- tem as a whole, and the air transportation system specifically. On the other side is a portion of the air cargo transportation community, which consists of commercial passenger air- lines, freight forwarders, cargo handling facilities, and ship- pers. These stakeholders are represented not only by individual businesses, but also by a substantial collection of advocacy groups and associations. Although these interests are not monolithic in nature, the research team’s efforts indicate sub- stantial agreement among the various parties regarding the 99Clifford Winston and Chad Shirley, “The Impact of Congestion on Shippers’ Inventory Costs,” prepared for FHWA, February 2004, p.1. 100GAO, Freight Transportation: National Policy and Strategies Can Help Improve Freight Mobility, GAO-08-287, January 2008, p. 21. 101Winston and Shirley, pp. 7–8. 102“9/11 Commission Report: Final Report of the National Commission on Ter- rorist Attacks Upon the United States,” p. 393.

59 implementation of cargo screening requirements and their desire to mitigate its effects on the community. The level of cooperation between TSA and the air cargo com- munity has been significant, but cooperation appears to be less so between the air cargo community and the U.S. Congress. Industry testimony and public comments argue that the screen- ing rule represents an unfunded mandate that places undue burden on businesses and not enough on the government. This point is made clear in several instances cited later in this case study. Hence, although the industry generally expresses support for the policy, it is at odds with legislators regarding the fair dis- tribution of the burden of compliance and has submitted testi- mony on several occasions that argue that point. Policy Actions Little more than a year after the release of the 9/11 Commis- sion Report, Congress enacted the Implementing Recommen- dations of the 9/11 Commission Act of 2007. The bill easily passed votes in both houses of Congress and was signed into law by President Bush in August 2007. Although the 9/11 Commis- sion’s report said simply that TSA needed “to intensify its efforts to identify, track, and appropriately screen potentially danger- ous cargo,” the new law laid out specific and aggressive require- ments for TSA. The law requires TSA to implement a system to screen 50 percent of all cargo carried on passenger aircraft by February 2009 and 100 percent of such cargo by August 2010. The law specifies that TSA . . . shall require, at a minimum, that equipment, technology, procedures, personnel, or other methods approved by the Admin- istrator of the Transportation Security Administration, are used to screen cargo carried on passenger aircraft to provide a level of security commensurate with the level of security for the screening of passenger checked baggage. The law goes on to state that . . . acceptable methods of screening include x-ray systems, explosives detection systems, explosives trace detection, explosives detection canine teams certified by the TSA, or a physical search together with manifest verification.103 The law allows the TSA to . . . approve additional methods to ensure that the cargo does not pose a threat to transportation security, but specifically excludes . . . solely performing a review of information about the con- tents of cargo or verifying the identity of a shipper of the cargo that is not performed in conjunction with other security meth- ods, including whether a known shipper is registered in the known shipper database.104 Faced with this mandate, TSA officials concluded that it would be impractical to screen the approximately 12 mil- lion pounds of cargo transported daily on passenger aircraft at the time the cargo is enplaned. In fact, TSA concluded that doing so would result in airport congestion that would pose a security vulnerability and a threat target of its own. Furthermore, the current state of screening technology does not allow adequate screening of cargo that has already been built into large pallets or unit load devices (ULDs). Air freight is commonly delivered to airports in this form.105 Faced with these challenges, TSA has adopted an alternate approach of allowing air cargo carried on wide-body planes (e.g., Boeing 747, 757, and 767) to be screened earlier in the supply chain as long as a secure chain of custody is maintained until the cargo is transported. The main component of this approach is the Certified Cargo Screening Program (CCSP), a voluntary program under which TSA-approved forwarders and shippers may screen cargo at the piece level before putting it in pallets/skids or ULDs and prior to tendering it to passen- ger carriers. The airlines do not have to re-screen such cargo. Cargo carried on narrow-body planes (e.g., Boeing 737) must be screened by the airlines themselves. Narrow-body planes carry primarily small express shipments and do not carry cargo pallets/skids or ULDs. The screening requirements specified in the law were met with a significant degree of concern by members of the air freight transportation community. In testimony offered to the Transportation Security and Infrastructure Protection Sub- committee of the House Committee on Homeland Security in March of 2009,106 Air Transport Association of America President James May expressed significant concern about the ability of the community to meet mandated screening levels. Mr. May stated that The biggest challenge in meeting the August 2010 deadline is the lack of TSA-certified screening technology to inspect large air cargo pallets. Most pieces of cargo transported on wide-body air- craft are consolidated into large shipments and 75 percent of cargo is transported on wide-body aircraft.107 That fact gives you an idea of the magnitude of the challenge that we face. Mr. May went on to describe the challenge in further detail, stating Shippers and freight forwarders typically create these pallet-size shipments before they are tendered to an airline. The dilemma is 103Public Law 110-53, August 3, 2007, Sec. 1602, (a) (2). 104Ibid, Sec. 1602, (a) (5). 105John Sammon, Assistant Administrator, DHS, written testimony for the Sub- committee on Transportation Security and Infrastructure Protection, House Committee on Homeland Security, July 15, 2008. 106Available at: www.airlines.org/government/testimony/2009/ATA+Testifies+ on+Air+Cargo+Screening.htm 107TSA estimates run as high as 80 percent, though narrow-body flights account for 90 percent of all cargo-carrying flights and 85 percent of all passenger travel.

60 that screening is required at the piece level but existing technology cannot screen large consolidated shipments. The nature of our business and available screening equipment are, at least for the time being, badly mismatched. He further explained that Breaking down consolidated shipments at an airport cargo facility is not practical. Shipment size, time constraints and facil- ity limitations are the main difficulties. A pallet can have as many as 200 pieces on it. Dismantling it and screening each piece is labor intensive and time consuming. To place this in some perspective, it can take 75 minutes for two employees to break down and reassemble a pallet. In addition, airport cargo facilities were never designed to be high-volume disassembly and reassembly loca- tions. They are not big enough to perform that role, especially at peak times. Mr. May urged caution on the part of TSA to avoid impos- ing requirements that will result in airport cargo facilities becoming choke points and implored the DHS to act imme- diately in three specific areas: 1. Enlarge rapidly the number of CCSP facilities at large shippers. 2. Expand as swiftly as possible the use of TSA-certified explosive-detection canines to screen large air cargo con- solidations; and 3. Provide for additional Federal funding or incentives (e.g., tax relief for privately purchased screening equipment) for all TSA-certified indirect air carriers and other qualified CCSP participants. The TSA has acknowledged the challenges associated with meeting the wide-body screening requirements, in particular, and in June of 2009 issued supplemental guidance regarding air carrier compliance. In the document, TSA states Shipments tendered on skids and shrink-wrapped (typically transported on wide-body aircraft) must be taken apart so pieces can be screened. Most wide-body cargo flows through freight for- warders (consolidators), who typically “containerize/palletize” this cargo prior to tendering it to airlines. Airlines lack space/facilities to “de-palletize,” screen, and re-configure these shipments, so if “airlines only” must screen all such cargo, they anticipate signifi- cant delays, increased processing/cut-off times and costs. In forewarning the challenges presented to the air cargo com- munity, TSA explains that the 50 percent mandate was met without significant challenges, but that shippers, forwarders, and airlines need to be mindful of several issues that will com- plicate compliance with the 100-percent threshold. Namely • The economic downturn caused a 35-percent drop in the movement of cargo compared with 2007, which made com- pliance with the 50-percent requirement easier. Economic recovery will lead to an increase in cargo volume, making compliance with the 100-percent requirement even more difficult. • Airlines still lack space/facilities to de-palletize, screen, and re-configure large shipments. • Screening difficult, complex, skidded cargo for wide- body planes has not been addressed. Most shipments screened today are not skidded and move on narrow- body aircraft. • Some commodities were screened by an alternate means for a limited time (until August 31, 2009). Those alternatives are no longer available. • About 85 percent of current screening entities (airlines and CCSP freight forwarders) use explosives trace detection (ETD) as their primary method of screening. Resolving an ETD alarm generally requires physical inspection (opening boxes and removing content), which adds considerable delay and cost. Policy Impacts The results of the implementation of the cargo screening requirements will be difficult to quantify fully for some time, largely because the implementation deadline for screening 100 percent of cargo has not yet passed. However, a combina- tion of considered opinion offered by government and indus- try experts and anecdotal evidence sheds light on what can be expected. Current Challenges In March of 2009, GAO issued testimony to Congress on the state of the air cargo screening mandate.108 In the testimony, GAO outlined the challenges that TSA and the air cargo trans- portation community have experienced and will continue to face as the August 2010 deadline for 100-percent screening approaches. Most notably, the testimony indicates that TSA acknowledges it is unlikely that screening requirements will be met by that date. The testimony cites challenges associated with the implementation of CCSP, the technology options available for screening, the TSA staff available for overseeing certifica- tion, and the screening of shipments originating outside the United States as significant barriers to meeting the deadline. Air cargo transportation providers have not signed up for CCSP as rapidly as was expected, and even if they had, the GAO report says TSA does not currently have the staff to inspect and certify all of the various facilities that would need certification. Furthermore, if large numbers of facility operators wait until 108GAO-09-422T, “Aviation Security: Preliminary Observations on TSA’s Progress and Challenges in Meeting the Statutory Mandate for Screening Air Cargo on Passenger Aircraft,” GAO, March 18, 2009.

61 the last possible moment to enroll, the ensuing rush to gain cer- tification likely will overwhelm TSA’s capacity to process them. TSA has indicated that it is actively recruiting the necessary inspectors, but that there may not be enough to conduct com- pliance inspections of all the potential CCSP participants, which TSA estimates could be in the thousands. TSA has embarked on pilot implementations of technology and is evaluating the suitability of different technologies, but none of them have completed the qualification process. As of the delivery of the GAO testimony, TSA had not approved any technologies capable of screening consolidated pallets or containers containing multiple commodities. In addition to the fact that screening facilities that do not participate in TSA’s Air Cargo Screening Technology Pilot will not receive any public funding to implement technology, the GAO reports that, “. . . industry stakeholders expressed concerns about pur- chasing technology that is not guaranteed to be acceptable for use after August 3, 2010.” To better understand these specific challenges and their implications across the air cargo spectrum, the research team relied on a combination of documentation about, and input provided by, representatives from air transport associations, air carriers, freight forwarders, cargo handlers, and TSA. Air Carrier Compliance Costs The screening requirements specified in the law are not accompanied by funding for the implementation of the secu- rity devices or regimen by which the requirements are to be accomplished.109 Hence, commercial airlines and the entities that tender freight to them (i.e., shippers and freight for- warders) must assume the burden of any costs associated with compliance. Across the board, industry representatives argue that com- pliance will impose a significant financial burden on the air cargo community, yet little specific evidence has been made available to substantiate or refute such claims. In testimony provided to the House Committee on Homeland Security in April 2009, representatives from the Air Transport Association, IATA, the National Air Carrier Association, and several ship- per organizations suggested that, “Much has been accom- plished in the United States thus far—at great cost to the airlines.” However, the testimony offers no details regarding actual outlays. The testimony further decries the financial bur- den that the CCSP, which it cites as potentially “very practical,” is expensive for freight forwarders and shippers. Finally, the testimony mentions the challenges associated with screen- ing palletized loads and offers recommendations to enhance the program, including: increasing the number of CCSP facil- ities, providing government funding or incentives for the pur- chase of screening equipment, and swiftly expanding the use of TSA canines. For its part, TSA appears to understand and, in large part, sympathize with the air cargo transportation community. The agency recognizes that there will be costs associated with compliance and that the overwhelming majority of those costs will be borne by the private-sector entities that ship, forward, and transport goods on passenger aircraft. More specifically, TSA acknowledges that costs will be twofold: there will be costs associated with (1) equipment purchase and implementation as well as personnel and (2) shipment delays caused by bottlenecks in screening operations. TSA established the CCSP to mitigate those costs and expects that enrollment will accelerate as the August 2010 deadline approaches. Ultimately, air carriers, freight forwarders, and cargo han- dling facilities concur that they will have the bulk of the burden for security screening. What that will mean in terms of total cost of compliance appears to be very much uncertain. In Feb- ruary 2009, American Airlines announced that it had expended more than $3 million in equipment and training to meet the 50 percent screening threshold,110 but very little information about these expenditures was offered. Asa Hutchinson, chair- man of the Safe Commerce Coalition and former Homeland Security undersecretary for border and transportation security, has stated that to meet the 100 percent threshold, expenditures will likely be double those for meeting the 50 percent require- ment, and perhaps more.111 Mr. Hutchinson goes on to specu- late that the total price tag is, “impossible to calculate,” but that it will be “costly” for the air cargo industry. General estimates for equipment prices range from about $35,000 for an explo- sives trace detector (typically used for individual parcel screen- ing) to $400,000 for a large X-ray machine (to scan palletized loads).112 The research team’s extensive search to retrieve cost data for other expenses (e.g., personnel, training, and facilities) revealed no quantitative data. Public statements by air carriers seem to reveal resignation that they will be left to absorb much of the initial costs. How- ever, there also appears to be a consensus that these costs will ultimately be passed on to customers (i.e., shippers and freight forwarders) in the form of cargo screening surcharges. To date, airlines appear to be resistant to be the first to pass along these costs, particularly given the current economic conditions. In fact, industry associations report that shippers are already 109The Air Cargo Screening Technology Pilot Program provided up to $375,000 for each of 12 technology implementation evaluation projects at freight for- warder locations. 110“Airlines May Struggle with 2010 Cargo Screening Rule (Update 2),” Bloomberg .com, March 18, 2009. 111Ibid. 112“Time to Scramble: Cargo-Screening Deadline Approaches,” DC Velocity Magazine, January 2009.

62 refusing to pay any such surcharges because all-cargo airlines do not assess them. Individuals within the industry and TSA contacted for this study indicated that American Airlines has been very active in implementing screening technologies and processes and has been working actively with supply chain partners to achieve the August 2010 goal. Southwest Airlines, also referenced by sev- eral study interviewees, has only narrow-body aircraft and has apparently made the necessary investments to fully screen all of the cargo carried by its fleet. As of this writing, efforts to gain additional information from both airlines have been unsuc- cessful. Other airlines (i.e., Continental and Lufthansa) have been cited as being active in pursuing compliance with the screening rule.113 Air Cargo Market Share Should one or two large airlines impose cargo security screening fees, others will be likely to follow, and shippers and forwarders will be forced to pay these fees or move their freight to all-cargo carriers. However, according to representatives from air transport associations, this would further diminish the competitiveness of the commercial passenger carriers because their service has historically provided a cost advantage over all-cargo services. Passenger airlines will then be left to rely on quicker delivery—the result of the lack of a need for an overnight sort—as the primary differentiator. In an air cargo market that some estimate is down by 30 to 35 percent, com- petition is intense, and an overall soft economy has shippers that routinely ship by air increasingly using trucks for delivery. This combination of circumstances has airlines implementing incentive programs, such as reduced shipping rates for pre- screened cargo and more flexible cut-off times for cargo. Still, some fear that the cargo that has gone to other providers may never come back in significant numbers. From the industry perspective, any loss in revenue or profit would not be a large proportion of their income. For most passenger carriers, cargo is less than 5 percent of total revenue (see Figure 5-4). Nonetheless, when profit margins are close, small decreases at the margin can be damaging. Delays In addition to (1) loss of revenue because of competition and (2) increases in costs for screening systems, personnel training, and incentive programs, “They should also expect costly delays,” says Steve Burke, senior vice president of East Coast Airport Services, which handles cargo for several air- lines. His six-door facility adjacent to Boston’s Logan Interna- tional Airport handles about 4 million pounds of freight each month, the majority of it on skids or pallets. Once the law is in full effect, efficiency and timeliness will be a thing of the past, he predicted at a recent symposium. “Instead of unloading 10 skids off a truck, I’ll be unloading and checking in 1,000 loose pieces. Trucks will be backed up around the block wait- ing to unload.” Adding capacity is not an option for Burke’s company, which lacks both the physical space and the money for more dock doors, dock workers, and screening equipment. With many other air-cargo facilities around the country fac- ing similar constraints, he said, the effects could be “earth- shattering.”114 113“TSA Belly to Belly Takes Hold,” Air Cargo News, July 20, 2009. 114“Time to Scramble: Cargo-Screening Deadline Approaches,” DC Velocity Magazine, January 2009. Figure 5-4. Freight revenue as percent of total transportation revenue, 2008. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Alaska Airlines American Airlines Continental Airlines Delta Airlines Northwest Airlines Southwest Airlines United Airlines US Airways Source: Air Carrier Financial Statistics (Yellow Book), RITA/BTS.

63 Forwarder Compliance Costs Accurate data about the cost of compliance for forwarders is equally difficult to obtain. The Air Forwarders Association has been working with its membership to understand the require- ments imposed on the community and appear to be somewhat caught in the middle. With few exceptions (e.g., pharmaceuti- cal manufacturers and seafood suppliers), shippers are leaving compliance to forwarders and airlines. At the same time, air- lines receiving palletized loads are not eager to invest in costly x-ray equipment and are turning to forwarders and cargo han- dling facilities to screen cargo before it becomes palletized. TSA estimates that freight forwarders are screening about 30 per- cent of the current 50 percent (or a total of 15 percent of all cargo being screened), with air carriers performing the rest. That 15 percent equates to roughly 1.8 million pounds of cargo screened daily by forwarders.115 According to TSA Cargo Division General Manager Ed Kelly, independent cargo screening facilities (ICSFs) are play- ing an important role in helping small and medium-sized freight forwarders (often referred to as indirect air carriers) meet the requirements.116 According to an article in Air Cargo News, “TSA has worked with industry to establish facilities in 18 cities across the country where cargo can be screened.”117 Still, the numbers represent a very small percentage of the thousands of facilities that handle cargo. Cooperation Despite (1) ongoing concerns over how the 100 percent screening requirement will ultimately affect the air cargo industry and (2) differences of opinion regarding how best to ensure the safety of passenger aircraft, representatives from industry and the TSA continue to work together to address these issues. TSA and industry representatives interact regu- larly, sharing ideas and concerns, and seeking a workable, practical solution. The CCSP is seen as a positive development and an indicator that TSA is listening to the industry. As of Feb- ruary 2009, TSA reported that more than 700 applications had been received and more than 170 different entities had been certified.118 Still, as the GAO report indicates, TSA does not have the staff to process applicants quickly. All entities involved appear to concur that canine screening potentially offers the least intrusive and most time-efficient method for screening palletized cargo. In fact, industry rep- resentatives have called for a significant expansion in the program. However, it does not appear that TSA is willing to commit to an ongoing operational role of screening all pal- letized shipments, and only TSA-certified and handled canines are considered acceptable for use in screening. Seemingly lost in the debate is the issue of screening of inbound freight originating in foreign countries. Specifically, the current screening rule imposes requirements that, accord- ing to IATA, violate the bi-lateral air service treaties currently in place between the United States and nations that engage in air commerce with it. Rather than dictate terms that some fear could trigger trade wars, IATA contends that TSA should revisit and renegotiate exiting air service treaties to institute methods that recognize screening activities in foreign coun- tries. Had U.S. Customs and Border Protection (CBP) been involved at the onset, as IATA argues they should have, the result could have been one that uses risk assessment methods and international agreements that are currently in place for land- and sea-based cargo security programs. Case Study 4: State and Federal Climate Change Policies Setting Various policies have been introduced or adopted at the state and Federal level to reduce GHG emissions that con- tribute to global climate change. Freight transportation gen- erates more than 7 percent of all U.S. GHG emissions, and more than a quarter of GHG emissions are from the transpor- tation sector. Moreover, freight GHG emissions have been growing more than twice as fast as those from passenger trans- portation.119 Many of the climate change policies, therefore, target transportation fuels or the freight industry specifically. Some policies target other sectors but are likely to affect the freight sector. The recent introduction of new policies to reduce GHG emissions has been driven both by the recommendations of scientific panels and the recent shift in political control at the Federal level. The most authoritative information on the sci- ence of climate change comes from the Intergovernmental Panel on Climate Change (IPCC), a United Nations body. The IPCC has documented that the global climate has been warming since the industrial revolution, largely due to human activity.120 During the last 100 years, global average surface temperatures have increased in total by about 1.4°F, and aver- age temperatures in the Arctic region have increased at almost 115Based on total estimated daily air cargo on-board passenger aircraft of 12 mil- lion pounds, as cited in “Air Cargo Screening Moves Ahead,” Aviation Today, July 13, 2009. 116“TSA Belly to Belly Takes Hold,” Air Cargo News, July 20, 2009. 117Ibid. 118“Achieving 100% Cargo Screening on Passenger Aircraft,” Non-SSI Presenta- tion, TSA, February 2009. 119John Davies, Cristiano Facanha, Joseph Aamidor. “Greenhouse Gas Emissions from U.S. Freight Sources: Using Activity Data to Interpret Trends and Reduce Uncertainty.” TRB Annual Meeting 2008, Paper #08-2594. 120IPCC. 2007. “Climate Change 2007: The Physical Basis. Summary for Policy- makers.” Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Available at: http://www.ipcc. ch/SPM2feb07.pdf

64 twice the global average rate.121 Current evidence of global cli- mate change includes • Sea Level Rise and Retreating Ice. During the 20th century, global sea levels rose about 5 to 9 inches.122 Mountain glaciers have retreated in all regions of the world. • Weather Patterns and Extremes. A significant rise in pre- cipitation has been observed over eastern parts of North and South America, northern Europe, and northern and central Asia. In already dry regions, such as the Sahel, Mediter- ranean, southern Africa, and parts of southern Asia, there has been a significant decrease in precipitation. More pow- erful hurricanes and tropical cyclones have been observed in the North Atlantic over the past 35 years.123 • Evidence of Ecosystem Changes. Climate-induced changes have been observed in at least 420 physical processes and biological species or communities.124 As more current evidence of climate change is observed and as the IPCC and other experts have increased their level of cer- tainty that recent climate change is the result of human-caused GHG emissions, the debate has shifted from the causes of cli- mate change to the search for solutions. In the last few years, policymakers at the state and Federal level who are concerned about the potential effects of global warming have proposed different policies to reduce GHG emissions. Stakeholders Numerous stakeholders are involved in the policy debate over climate change. These stakeholders include • Energy companies producing coal, oil, electricity, natural gas, renewable fuels, and other energy products. • Manufacturing industries, particularly those that are energy intensive. They will likely be disproportionately affected by the regulation of GHGs. • Freight carriers in all modes (i.e., truck, rail, marine, and air) also have a major interest in the formation of climate change policies. Fuel is one of the most significant operat- ing costs for transportation carriers. Climate change regu- lation will increase the cost of transportation fuels and will likely alter the demand for freight transportation and the structure of transportation markets. • Environmental groups are also key stakeholders in the cli- mate change policy arena. To a great extent, their focus on the issue of climate change has put the issue on the public agenda. • Different regions are stakeholders as well. Different regions of the United States differ with respect to the economic sec- tors that make up their economy, the patterns of energy use, and their sensitivity to the impacts of changes in the price of energy. These regional differences have been reflected in the policies of state governments—some have been active in mandating GHG emissions reductions, while others have resisted these measures. • Business stakeholder groups, including manufacturers, transportation carriers and shippers are not monolithic. Many businesses have sought to reduce their environmen- tal footprint because they realize their customers care about environmental issues. Others have not been proactive in implementing such policies. Policy Actions Enacted or proposed climate change policies include the Federal Renewable Fuels Standard, Cap and Trade policies, carbon taxes, EPA regulation under the Clean Air Act, corpo- rate average fuel economy (CAFE) standards, low carbon fuel standards, and California’s fuel efficiency requirements. Each of these policies and their relationship to the freight sector are summarized below. Federal Renewable Fuels Standard The renewable fuels standard was enacted to reduce emis- sions of GHGs and to limit U.S. dependence on foreign oil. Enacted in 2005, the law was amended in 2007 to increase the volume of renewable fuels produced in the United States. The law requires refiners to blend specific volumes of renewable fuels into the fuel that they produce. Current ethanol produc- tion is 9 billion gallons per year, comprising approximately 6 percent of motor fuel used. The 2007 Energy Independence and Security Act (EISA) stipulates that ethanol blending must increase to 15 billion gallons by 2012 and 36 billion gallons by 2022. EISA requires major increases in biofuel production from non-conventional feedstocks, such as agricultural waste, municipal waste, switchgrass, or wood. If these mandated pro- duction targets are achieved, significant additional quantities of biomass and ethanol will need to be transported, much of it by rail. Railroad capacity may be strained by this demand, and significant new investments in rail infrastructure may be needed. Cap and Trade On June 26, 2009, the House passed the American Clean Energy and Security Act of 2009. This bill, also known as the 121Ibid. 122Ibid. 123Ibid. 124UNFCCC (United Nations Framework Convention on Climate Change), 2007. “Feeling the Heat.” Current Evidence of Climate Change Section. Available at: http://unfccc.int/essential_background/feeling_the_heat/items/2918.php

65 Waxman-Markey bill, proposes to establish a cap and trade system to reduce GHG emissions. The bill requires a 17 per- cent emissions reduction from 2005 levels by 2020 and an 80 percent reduction by 2050. In general, the bill would cap GHG emissions and gradually reduce the cap. EPA would issue or auction permits to emit GHGs, and these permits could be traded between firms. This would allow those firms with the lowest cost for emissions mitigation to make reductions first. Transportation fuels would be regulated with an upstream cap on the GHG emissions from refiners. A cap and trade system would make carbon-based forms of energy more expensive, which would increase the cost of transportation and influence the mix of commodities moved by the freight system. Critics of a cap and trade system have argued that it would likely introduce additional volatility into the price of fuel given that the price of carbon allowances would vary based on eco- nomic activity. Economic growth would tend to increase prices, while the onset of a recession could result in sharp reductions in the price of allowances. Carbon Tax A carbon tax has been proposed as an alternative to a cap and trade system. The purpose of a carbon tax is to reduce the carbon content of fuels by making carbon-intensive fuels more expensive. By raising the cost of fuel, a carbon tax would also tend to encourage fuel efficiency and reduce demand for trans- portation. Some economists and industry representatives have argued that a carbon tax would have certain advantages over a cap and trade system. A carbon tax would build on existing fuel taxes, be easy to implement, and have low government administrative costs. Some industry representatives have also argued that an important benefit of a carbon tax would be to provide industry with a level of certainty about how much fuel prices would increase because of GHG regulation. Certainty about higher future prices would provide clearer incentives to businesses to make long-term investments in fuel-efficient equipment. One drawback to a carbon tax is that it would apply equally to firms, irrespective of their compliance costs for reducing emissions. British Columbia, Canada, recently became the first jurisdiction in North America to implement a carbon tax. The tax is set to increase gradually each year through 2012, with all of the revenues returned to consumers through a package of tax cuts and credits. EPA Regulation under the Clean Air Act In April 2007, in the Massachusetts versus EPA case, the Supreme Court ruled that GHGs are air pollutants under the Clean Air Act. The court instructed EPA to decide whether GHG emissions endanger public health and welfare. In April 2009, EPA declared that GHG emissions do endanger public health, clearing the way for EPA to regulate GHG emissions under the Clean Air Act. If Congress does not act, EPA could use its current authority to regulate GHG emissions. This could involve the regulation of motor vehicles as well as GHG emissions from industrial and commercial sources. The administrative costs of regulating GHGs could be sig- nificant, depending on the form of regulation. One of the most challenging issues in administering an emission control pro- gram is determining a baseline from which reductions can be measured. Protocols for determining GHG baselines and full lifecycle emissions are still under development. Unlike the cri- teria pollutants traditionally regulated under the Clean Air Act, which focus only on emissions from the vehicle tailpipe, regulating transportation GHG emissions requires the consid- eration of the global consequences of an action, including upstream emissions (from the production and transport of fuels) and potentially downstream emissions (from the disposal of equipment). CAFE Standards for Trucks EISA requires EPA to develop fuel economy standards for medium- and heavy-duty trucks. A CAFE standard requires the vehicle fleet sold by a manufacturer to meet an average fuel economy. Based on the timeline provided by the law, new reg- ulations for trucks will likely not take effect before 2016.125 Developing and implementing fuel efficiency standards for trucks will be more complicated than developing standards for cars and light trucks. The heavy-duty vehicle fleet contains a diverse range of equipment sizes and types, with disparate operational and usage profiles. Accurately measuring the fuel efficiency of this equipment requires the use of a variety of dif- ferent test cycles. Currently little data can be used to capture the diversity of usage and activity profiles of different types of vehicles. Another factor complicating the implementation of CAFE standards for heavy-duty trucks is that the engine, chassis, and body of trucks are often produced by different manufacturers—One manufacturer may produce the chas- sis, a second builds the engines, and a third assembles the vehi- cle. Furthermore, the fuel efficiency of combination trucks is affected by the type of trailer used. Trailers are made by yet another manufacturer. Determining which entities should be responsible for the combined fuel efficiency performance of the vehicle will thus be difficult. The appropriate metric to be used to measure efficiency is also unclear in the case of heavy-duty trucks. Although miles per gallon (mpg) is often used, fuel use per ton-mile for freight 125M. J. Bradley and Associates. “Setting the Stage for Regulation of Heavy-Duty Vehicle Fuel Economy & GHG Emissions: Issues and Opportunities.”

66 trucks is also relevant. For instance, LCVs might receive a low fuel efficiency rating in miles per gallon, but be more efficient on a ton-miles per gallon basis. A heavy-duty vehicle fuel efficiency standard can be seg- mented by vehicle class, requiring a higher efficiency standard for smaller vehicle classes. This can provide perverse incentives to manufacturers if not properly implemented. For instance, many have argued that having separate passenger car and light- duty truck CAFE standards encouraged manufacturers to build and market heavier trucks and SUVs to consumers so as to avoid the more stringent fuel efficiency standards for pas- senger cars. Fuel efficiency standards that provide different standards for different truck classes could thus have similar unintended consequences and might either encourage manu- facturers to build larger and heavier vehicles to avoid more stringent standards in lighter vehicle classes or, alternatively, if fuel efficiency standards raise the cost of using large combina- tion vehicles, some carriers might be encouraged to make more frequent deliveries using smaller trucks, which could result in more VMT and GHG emissions on a ton-mile basis. California’s Low Carbon Fuel Standard California has adopted a low carbon fuel standard (LCFS) that will require a 10-percent reduction in the carbon intensity of transportation fuels sold in the state by 2020. On Decem- ber 31, 2008, representatives from 11 Northeastern and Mid- Atlantic states signed a Letter of Intent to develop a similar LCFS at a regional scale. Other states have passed biofuels man- dates to require blending of biodiesel into diesel fuel. The LCFS requires that the lifecycle emissions associated with the fuel sold by a distributor in the state meet an average CO2- equivalent content. Lifecycle emissions include the expected emissions from the combustion of fuel, as well as emissions from upstream fuel production processes (e.g., resource extrac- tion and transportation of raw materials to the refiner). Distrib- utors can comply with the California LCFS in three ways: 1. Distributors can blend low GHG biofuels into gasoline or diesel. Biofuels produced from cellulose or waste would be considered to reduce lifecycle GHG emissions. 2. Distributors can buy low GHG fuels such as natural gas, biofuels, electricity, and hydrogen. 3. Distributors can buy credits from other refiners who have made reductions in lifecycle emissions. Implementation of an LCFS at the state or regional level would likely be significantly less effective than a national LCFS because a statewide LCFS would tend to encourage distributors to shift clean fuels to states or regions with carbon standards and sell higher carbon fuels in states without the standard. Cal- ifornia has exempted marine bunker fuels from the regulation, because ships could easily avoid purchasing fuel in California. If an LCFS resulted in a significant cost difference, it is likely that there would be some shift in diesel fuel sales to other states. Interstate heavy-duty vehicles already tend to purchase a dis- proportionate amount of fuel in low-tax states. California’s Freight Vehicle Fuel Efficiency Requirements In 2006, the California legislature passed the Global Warm- ing Solutions Act (AB 32) to reduce GHG emissions in the state. The legislation requires the CARB to develop programs to reduce GHG emissions to 1990 levels by 2020. In response, CARB has proposed a list of early action measures that could be implemented by 2010. One of these proposed measures is the Heavy-Duty Vehicle GHG Emission Reduction Mea- sure. The regulation will require the use of technologies that improve the efficiency of heavy-duty tractors and trailers oper- ating in California. Specifically, the proposed rule will require the use of side fairings and low rolling resistance tires on heavy-duty combination trucks operating in the state after 2011. In addition, the rule requires model year 2011 and later tractor sleeper cabs used in California to be SmartWay certi- fied. This rule would exempt some categories of trucks, includ- ing those operated less than 50,000 miles per year. California and other states have also considered freight operating restric- tions to reduce GHG emissions, including speed limits for trucks and ships. CARB has estimated that the heavy-duty vehicle GHG mea- sure will reduce GHG emissions by approximately one million metric tons of CO2-equivalent by 2020, statewide. CARB esti- mates that between 2010 and 2020, trucking companies will save approximately $8.6 billion by reducing fuel consumption by 750 million gallons in California and 5 billion gallons across the country. There was significant concern expressed by trucking firms about the likely benefits and costs of the rule. Most of the ben- efits of aerodynamic technologies are achieved at speeds over 60 miles per hour (mph). On many roadways in California, traffic congestion and a 55 mph speed limit for trucks reduces the benefits of implementing side fairings. Trucking firms also noted that diverse operating conditions often make it difficult to generalize the costs and benefits of new technologies. For instance, fleet managers claim that trailer side fairings can be damaged by snow banks. In cold weather, trailer side fairings may also build up ice that can detach from the truck and dam- age other vehicles. Given that CARB’s regulation would apply to all vehicles operating in the state, carriers throughout the United States would be required to comply. Another challenge with implementing this policy is that motor carriers often do not own the trailers they haul. The rule could make them responsible for the equipment of other busi- nesses over which they have little control.

67 Policy Impacts The likely impacts of the climate change policies recently enacted or under consideration are not well understood. Although discussing impacts on the freight system is inher- ently speculative, it is useful to identify some of the likely effects by considering the general economic effects of price increases on supply chains and transportation markets. The observed impacts of other policies that have affected freight transportation costs can also shed light on potential climate change policy impacts. In the following sections the research team discusses • Impacts on transportation costs • Impacts on supply chains • Impacts on coal demand and the rail system • Impacts resulting from lifecycle emissions effects Impacts on Transportation Costs GHG regulations will increase the price of fuel. Analytical opinions vary regarding the magnitude of these price increases. The Energy Information Administration projects that the Waxman-Markey Cap and Trade bill will increase diesel fuel prices by $0.25 to $1.73, depending on the specific regulatory scenario.126 Although many analyses assume that fuel cost increases will be seamlessly passed on to shippers and con- sumers, there is significant industry concern that fuel cost increases will reduce transportation carrier profits. Depending on specific transportation contracts that have been negotiated, some carriers may be limited in their ability to impose fuel sur- charges for fuel price increases in the short run. If cap and trade or other GHG policies introduce additional fuel price volatil- ity into the market, transportation carriers may have difficulty hedging their fuel prices, or they may need to pay more to hedge against price spikes. Some industry experts are concerned that policymakers may not fully understand the current technological limitations for different types of fuel production. Mandates to use lower car- bon fuels that are currently in limited supply could lead to sig- nificant price spikes unless markets can adapt rapidly. The technologies to produce cellulosic ethanol or other low-carbon biofuels (e.g., algae biodiesel) at an industrial scale have yet to be developed. Regulatory analyses often assume aggressive rates of technology development and adoption. These may in fact occur, but the price of rapid innovation could be high. In some cases, regulatory barriers or public opinion may stand in the way of new sources of energy. For example, fuel- ing stations in California were recently required to halt the storage of pure biodiesel in underground storage tanks because the additives used in pure biodiesel were not fully vetted by reg- ulators. As another example, the EIA scenarios for cap and trade programs assume increases in nuclear power generation of 100 to 150 percent.127 This could require the construction of 100 new nuclear power plants. EPA lists “the degree to which new nuclear power is technically, politically, and socially fea- sible” as one of the key uncertainties in their projections.128 Given that no new nuclear power plants have been con- structed in the United States in the last 30 years, this projected rate of development for a controversial and unpopular energy technology appears optimistic. To the extent that low carbon energy sources from nuclear and renewable sources of energy are slower to come online than EIA predicts, the price of car- bon allowances and fuel prices will be higher than projected. Impacts on Supply Chains Freight transportation is the backbone of the manufacturing economy. Significant productivity improvements in manufac- turing have been based on making supply chains lean and implementing just-in-time (JIT) inventory management sys- tems. By substituting transportation for inventory, businesses have been able to reduce the cost of goods, thereby encourag- ing increased demand and driving economic growth over the last 30 years.129 Improvements in the efficiency of freight trans- port and reductions in the cost of transportation have also made the increased globalization of economic activity possible. Increases in the cost of transportation caused by GHG regulations will likely affect the structure of supply chains. Although the forecast price increases for Waxman-Markey and other climate change policies are less than recent market price spikes, the types of effects caused by GHG regulation would likely be similar to those observed recently. In response to the recent run-up in energy prices, there is considerable anecdotal evidence suggesting that businesses have sought to shorten supply chains.130 Future price hikes would likely cause businesses to reduce foreign sourcing of supplies or to use geographically closer foreign suppliers to reduce trans- portation cost. In addition, significant fuel price increases will likely have at least an incremental impact on domestic distribution net- works. As transportation costs rise, some businesses may seek to locate warehouses and facilities closer to their customers. 126Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009, EIA, August 2009. 127EPA, “Preliminary Analysis of the Waxman-Markey Discussion Draft: The American Clean Energy and Security Act of 2009 in the 111th Congress,” 4/20/09. 128See http://www.epa.gov/climatechange/economics/pdfs/WM-Analysis.pdf 129The Freight Story. FHWA. http://ops.fhwa.dot.gov/freight/publications/fhwao p03004/index.htm 130See “Shipping Costs Start to Crimp Globalization,” New York Times, August 3, 2008. Also: “Stung by Soaring Transport Costs, Factories Bring Jobs Home Again,” Wall Street Journal, June 13, 2008.

68 There may be some reversal in the recent emphasis of firms on JIT inventory management. Firms may choose to hold more inventory and use less transportation. Figure 5-5 shows a sim- ulation of how the movement of oil from $75 to $200 per bar- rel could cause a firm to move from five distribution centers to seven to reduce the cost of transportation.131 Long-term expec- tations for the cost of transportation will ultimately shape how businesses invest in logistics in the future. Rising fuel costs could also cause firms to shift freight between transportation modes. Because trucking and air are rel- atively energy-intensive modes of transport, increased fuel costs would tend to make them more expensive relative to marine and rail transport. Customer service requirements, access to competing modes of transport, or a short length of haul may limit the ability of businesses to shift freight onto other trans- portation modes. Nonetheless, cost increases in energy-inten- sive transportation modes are likely to shift some competitive hauls to other modes. U.S. climate change policy that significantly affects fuel prices could have supply chain impacts that extend globally. International supply chains are complex and sensitive to price. In many cases, shippers have a choice between a wide range of sourcing options, transportation routes, and facilities. In these cases, shippers are very price sensitive and can make changes to their supply chain to avoid regulatory costs imposed piecemeal or only at a regional level. For instance, the market for marine bunker fuels is essentially a worldwide market. Ships calling on East Coast ports can refuel in Panama or even Singapore rather than the United States, and those calling on West Coast ports can refuel in Asia. Individual regions or even nations that regulate marine bunker fuel may find that they have limited ability to impose changes in one place without losing market share. Policies that affect fuel prices could shift marine traffic to competing ports. For example, in recent years, the share of Asian trade that calls directly on East Coast ports has grown at the expense of West Coast ports (which are dominated by Los Angeles and Long Beach). This is in part because of the lower cost (but longer transit time) of an all-water route compared with a route involving rail transport across the United States. The ability to shift to an all-water route may be even greater once the capacity of the Panama Canal is increased by the addi- tion of a new set of larger locks. Some ports in Canada, partic- ularly Vancouver and (to an increasing degree) Prince Rupert, have excellent rail connections and compete with Seattle and Tacoma. To the south, ports in Mexico (including the pro- posed port at Punta Colonet) may be able to compete strongly with West Coast ports if rail connections to the Southwest can be solidified. Of course, fuel price is only one component in the selec- tion of ocean trade routes. The Southern California ports continue to be very attractive to ocean carriers because such carriers prefer to call at the largest local market first and off- load inland cargoes there. Recent research suggests that ocean carrier demand at the Ports of Los Angeles and Long Beach is relatively price inelastic if the increment is below $60 per 40- foot import container.132 Conversely, a recent study for the Port of Seattle estimated that that port could lose 30 percent of its business if its costs rose by as little as $30 per full-size container.133 The possibility of a shift to short sea shipping (SSS) result- ing from the fuel cost increases possible under cap and trade or 131“Rising Fuel Prices/The Effects of Energy Prices on Global Trade Patterns,” FHWA, Talking Freight, October 15 2008, http://www.fhwa.dot.gov/freightplan ning/08talking.htm 132Leachman & Associates, Final Report Port and Modal Elasticity Study, Prepared for Southern California Association of Governments, September 2005. 133Telephone interview, Officials at the Port of Seattle, February 2009. Figure 5-5. Hypothetical effect of change in oil prices on distribution centers. $75 Per Barrel Oil $200 Per Barrel Oil Source: D. Simchi-Levi, “Operations Rules: Delivering Customer Value through Flexible Operations.” MIT-Press, September 2010.

69 even an LCFS appears to be limited, for various reasons. The potential utility of SSS in California is limited by the state’s small number of ports. Officials at the Port Authority of New York/New Jersey estimate that even a large fuel cost increase would be likely to raise SSS’s share of traffic only from its cur- rent 1 percent to no more than about 4 percent even by 2030.134 The Jones Act, which requires U.S. flagged vessels for cargo between U.S. ports, limits the efficient use of SSS and is one reason why SSS is less popular in the United States than else- where (such as Europe). In extreme cases, SSS could become important if fuel prices increased enough to discourage truck- ing and railroads: port cities could be more closely linked to each other than to nearby cities inland. Unintended or perverse consequences of climate change policy, in the forms of leakages that reduce efficiency at the same time that they increase emissions, are more likely if poli- cies are not coordinated and carefully structured. One exam- ple of this kind of unintended consequence is the possibility of shifting waterborne freight to land transport if rules affect- ing ports are too onerous. Some SSS companies in Europe have warned that higher fuel prices (related to desulfuriza- tion of bunker fuel) will push traffic off of ships and onto more carbon-intensive modes, like trucks. The European Commu- nity Shipowners Association warned of the environmentally counterproductive consequences of raising the cost of fuel for short trips across the Baltic and North Seas, noting the poten- tial to shift from the sea to land-based transport with a larger environmental footprint.135 Impacts on Coal Demand and the Rail System Regulation of GHGs could significantly reduce the demand for western U.S. coal and the associated revenues and profits that railroads make from transporting coal. Coal transport is a large piece of railroad business, accounting for 44 percent of tonnage, 24 percent of carloads, and 21 percent of gross revenues.136 Pricing carbon would have multiple effects on the technolo- gies used to generate electricity. To reduce their carbon emis- sions, coal-fired power plants may need to employ carbon capture and storage technologies. Most existing coal-fired plants burn pulverized coal to generate power. The need to capture and store carbon would require wide-scale implemen- tation of integrated gasification combined cycle (IGCC) tech- nology, which involves gasifying coal and burning the gas. This allows carbon emissions to be more efficiently removed. IGCC capital costs vary with the type of coal used and work best with bituminous coals; performance is not as good with lower rank and higher ash coals such as western lignite and sub- bituminous coal. As a result, cap and trade legislation is expected to significantly reduce the volume of coal used from the Powder River Basin.137 According to EIA, if the Lieberman- Warner Act were passed, production of coal from this region would drop from about 400 millions tons currently to only 8 to 77 million tons in 2030.138 Estimates for the Waxman- Markey bill are similar. Analysis of the Waxman-Markey bill estimates that nationwide coal production volumes (in tons) would be 19 to 83 percent lower under the bill.139 The high end of this range (83 percent) would represent a loss of approxi- mately 18 percent of rail industry revenue from the current baseline and an even larger drop in profit. The specific geography of coal production and use would influence the policy implications for the railroads. Although approximately 64 percent of coal consumed nationwide is moved by rail, 98 percent of coal from Wyoming (where Pow- der River Basin production is predominantly located) is moved by rail.140 Figure 5-6 shows how important Powder River Basin coal is to rail traffic. Major reductions in coal production in the Powder River Basin will thus affect railroad traffic significantly. Reduced coal production both reduces coal traffic and shifts demand to regions that have other competing transportation modes (e.g., barge, truck, and slurry pipeline). These markets provide more competition and smaller margins for rail traffic. Railroads will thus suffer both lost revenue from reduced rail traffic and reduced margins from the remaining business. The railroads that currently serve this region, UP and BNSF, would experience the largest revenue loss. The geographic distribution of policy impacts would also be affected by differences in the use of coal for electricity genera- tion. For instance, coal accounts for 94 percent of electricity generation in Indiana, while California only generates 1 per- cent of its electricity from coal. Generators in the Midwest, Southeast and Southwest rely more on coal than do generators in other parts of the country. As a result, reductions in coal traffic would not be evenly distributed across the states, but will be concentrated in specific regions and corridors. Climate change policies could create new business for rail- roads as well. Ethanol mandates and subsidies have recently generated new business for railroads moving ethanol to mar- ket. The rapid increase in ethanol production driven by the 2005 Energy Policy Act initially caused shortages in available 134Telephone interview, Officials at the Port Authority of New York/New Jersey, February 2009. 135“Bunker Busting: How To Clean Up Shipping,” Wall Street Journal, Keith Johnson, April 10, 2008. 136Railroads and Coal. AAR. July 2008. 137Berlin, Ken; Sussman, Robert. Global Warming and the Future of Coal: The Path to Carbon Capture and Storage. Center for American Progress, May 2007. 138Energy Market and Economic Impacts of S.2191, the Lieberman-Warner Cli- mate Security Act of 2007. EIA. 139Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009. Energy Information Administration. August 2009. 140EIA. Coal Transportation Issues. http://www.eia.doe.gov/oiaf/aeo/otheranalysis/ cti.html

70 tank cars.141 Interviewees noted that shippers have largely paid the bill for the new equipment required, as well as investing capital in rail sidings to accommodate longer unit trains for large ethanol shipments. To date, climate change policies have not had significant freight system impacts. Transporting ethanol remains a rela- tively small share of railroad revenues—approximately 1 per- cent. Initial equipment shortages have been resolved with limited impact on the railroad industry. Although domestic demand for coal has grown slowly in recent years, foreign exports have led to continuing growth in overall coal traffic volumes, at least through 2008.142 Impacts Resulting from Lifecycle Emissions Effects GHG emissions have essentially the same climate change effects, no matter where they occur on the planet. So the regu- lation of GHGs requires consideration of emissions across the full lifecycle of activity, rather than simply considering the emissions within a given region as is done for traditional cri- teria pollutants. This can make it challenging to design poli- cies that reduce freight GHG emissions without creating unexpected freight system and environmental impacts. A good example of this issue is the ship speed rule under consideration for areas around the Ports of Los Angeles and Long Beach to reduce California’s GHG emissions. Both ports already have a Vessel Speed Reduction Program covering ships within 20 nautical miles for the purposes of reducing smog- forming NOx emissions. Slower speeds also reduce GHG emis- sions because of the relationship between speed and fuel efficiency. Fuel consumption is roughly proportional to the cube of speed, so slowing a ship from 25 knots to 12 knots leads to a nearly 90 percent drop in the rate of fuel use. But if the ship increases speed somewhere else in its journey to make up for a near-port drop in speed, the savings can be wiped out. CARB estimates that if its proposed rule causes even a 1⁄2 knot increase in other parts of the trip, it would cancel out the savings from slow speeds close to the port.143 141USDA. Ethanol Transportation Backgrounder. September 2007. 142“Weekly US Rail Shipments Sink Again Last Week,” Forbes, December 11, 2008. Source: McCollum, David. Future Impacts of Coal Distribution Constraints on Coal Cost. 2007. University of California Davis. Chicago Salt Lake Cit Newark Jacksonville Houston Los Angeles Seattle Superior Reno B Dallas E St LouisKansas City Atlanta Portland Buffalo New Orleans Norfolk 200,000 100,000 50,000 200,000 100,000 50,000 (in 000’s) RAIL REVENUE TONNAGE 2004 WAYBILL Coal Non Coal Figure 5-6. Rail revenue tonnage, 2004. 143Public Workshop: Vessel Speed Reduction for Ocean-Going Vessels, Sacra- mento, July 29, 2009. http://www.arb.ca.gov/ports/marinevess/vsr/docs/072909 speakingnotes.pdf

71 Table 5-2. Classification of climate change policies with freight system impacts. Technology Mandates Operating Practice Regulation Pricing State and Local Biofuel mandates CA LCFS CA HDV GHG Measure Ship speed rules Idling Truck speed limits Port container fees National CAFE for trucks CAA GHG Regulations Renewable Fuel Standard Truck speed limits Cap and trade Carbon taxes The practice of cold-ironing by vessels in a port offers another example of the complexity of calculating lifecycle emissions. Switching ships from using on-board diesel gen- erators to the grid clearly reduces criteria pollutant emissions within a port. The GHG emissions consequences are also very likely to be good, but the quantitative effects will depend on the source of the electricity. Even in California, a substantial amount of the electricity is generated from conventional fuels, which have a high carbon content. Of greater relevance, though, is the marginal source of electricity. Electric utilities tend to use coal for base load generation and natural gas or other cleaner sources of energy to satisfy peak loads. The source for incremental megawatt hours of electricity will change throughout a given day, because the sources for peak and base-load power are different. The emissions conse- quences of cold ironing thus depend on the time of day of use and the specific sources of power in that location. Summary Table 5-2 summarizes some of the most important climate change policies, proposed or implemented, that are likely to have freight system impacts. One can classify these policies based on their geographical scale of application (i.e., national, state, and local) and the type of policy tool used (e.g., technol- ogy mandates, operating practice regulation, and pricing). The likely impacts of these policies, and the uncertainties associated with their impacts, vary according to these key characteristics. One potential set of unintended impacts stems from trying to address a global air emissions problem with local, state, or even national regulations. Local regulatory strategies can cause global and national supply chains to adapt so as to avoid costs imposed in specific regions. Local air emissions regulations can create offsetting lifecycle emissions increases in other regions or components of the supply chain. Although the geographical scope of regulatory activity is important, the technological scope of a policy may also create unintended impacts. Regulating or mandating specific tech- nologies or operating practices can cause unanticipated adjust- ments in market behavior. For example, requiring trucking firms to invest in specific vehicle technologies reduces the resources available for other capital investments that might be more appropriate for the specific circumstances of a firm’s operations. The direct impacts of a regulation can be offset by the unseen secondary market impacts. Unexpected impacts of climate change policy are likely to be minimized if they involve pricing applied at the largest geographical scale possible. Policies such as cap and trade programs or carbon taxes impose costs based on the out- come desired, as opposed to mandating the specific means to achieve the outcome. As such, these policies tend to require less foresight of policymakers and provide the most flexibility for industry to achieve the desired outcomes. However, even national-level pricing policies are likely to cause unforeseen and unintended impacts. The secondary market impacts of price increases are often hard to predict and quantify because it is often unclear how supply chains might adjust to changes in transportation costs. The signif- icant secondary impacts of GHG mitigation policies on sup- ply chains and economic productivity have not been fully considered.

Next: Chapter 6 - Conclusion »
Impacts of Public Policy on the Freight Transportation System Get This Book
×
MyNAP members save 10% online.
Login or Register to save!
Download Free PDF

TRB’s National Cooperative Freight Research Program (NCFRP) Report 6: Impacts of Public Policy on the Freight Transportation System describes the numerous ways that government policy decisions can affect the freight system and, in turn, how understanding the differing concerns and priorities of governments is crucial to better consideration of the potential impacts of public policy.

The report identifies current and recent policy issues with potential freight system impacts, evaluates the magnitude of the impacts, and assesses the extent to which the impacts were unexpected.

Among the types of impacts identified are changes in costs and revenues to freight carriers and shippers, changes in freight volumes or shifts in mode, changes in freight service quality, and changes to freight system operations and safety.

Editor's Note: NCFRP Report 6 (Revised): Impacts of Public Policy on the Freight Transportation System replaces NCFRP Report 6 of the same title, previously distributed. Revisions have been made to two sections of the report, as follows:

• The section on “Truck Size and Weight Rules,” in Chapter 4, has been corrected and updated.

• The second paragraph of “Operations and Maintenance Policy,” in Chapter 6 under Summary Discussion, has been revised.

  1. ×

    Welcome to OpenBook!

    You're looking at OpenBook, NAP.edu's online reading room since 1999. Based on feedback from you, our users, we've made some improvements that make it easier than ever to read thousands of publications on our website.

    Do you want to take a quick tour of the OpenBook's features?

    No Thanks Take a Tour »
  2. ×

    Show this book's table of contents, where you can jump to any chapter by name.

    « Back Next »
  3. ×

    ...or use these buttons to go back to the previous chapter or skip to the next one.

    « Back Next »
  4. ×

    Jump up to the previous page or down to the next one. Also, you can type in a page number and press Enter to go directly to that page in the book.

    « Back Next »
  5. ×

    To search the entire text of this book, type in your search term here and press Enter.

    « Back Next »
  6. ×

    Share a link to this book page on your preferred social network or via email.

    « Back Next »
  7. ×

    View our suggested citation for this chapter.

    « Back Next »
  8. ×

    Ready to take your reading offline? Click here to buy this book in print or download it as a free PDF, if available.

    « Back Next »
Stay Connected!