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101 CHAPTER 6 Using the Framework This chapter describes how the Freight Evaluation Frame- modes and presenting methodologies for computing benefit work can be used in actual practice to evaluate a wide range metrics for each of the modes, the Framework provides an of freight-project investment decisions. It begins with a approach to conducting these multimodal comparisons. general discussion of the types of situations in which the As noted in previous chapters, when the investment will Framework may need to be used and identifies special con- include private funding, the framework identifies the types of siderations that are appropriate for each of these situations. metrics that typically are used by private entities (such as In so doing, it also describes the structure of modal modules ROI). The decision processes are fairly well-defined by these that have been developed with the Framework in order to organizations to account for costs and benefits that accrue to take the more general approaches described earlier and make the investing entity. Public decision criteria are more complex them more specific. This is followed by a series of step-by- and may take the following factors into account: step examples of how the Framework can be applied, draw- ing on the case studies discussed in Chapter 5, and providing Does the project deliver positive net benefits when all public information about some of the types of tools that are avail- and private benefits and costs are taken into account? able for use when implementing the Framework for specific Does the project deliver net public benefits when only pub- project applications. lic benefits and costs are taken into account? Is there a need to weight benefits and costs based on a set of explicit decision criteria? 6.1 When and How the Framework Should Be Applied Each of these decision criteria can be applied when com- Types of Applications paring the project to the alternative scenario(s). In discussions with various prospective users during the Prioritizing Investments course of the research for this project, the research team iden- tified three primary applications that were of interest. Each is Quite a few public-sector agencies consulted for this research discussed briefly in the following sections. would like to apply the Freight Evaluation Framework to the prioritization of a number of potential projects beyond a go/ no-go decision on any individual project. The Framework Making an Investment Decision on a Specific Project provides a number of advantages for this type of application, This is a decision made by a user on whether or not to invest as follows: in a particular project. In most cases, the comparison that will be evaluated with the Framework is a scenario with the pro- The Framework can be used to rank a multimodal collec- posed project and one in which nothing is done (no-build). tion of projects using a single common metric (project net In some cases, particularly where the decision is exclusively a benefits of benefit/cost ratio), focusing on cost-effectiveness public-sector decision, there may be a need to compare vari- to achieve a particular policy or performance objective, or ous alternatives that may include addressing the issue through within a portfolio approach. an investment in a modal alternative to the proposed project. The portfolio approach might seek to balance the projects By providing benefit metrics that are applicable to multiple in a portfolio by spreading investments across modes,

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102 geographies, or particular policy objectives. This is facili- in structuring funding partnerships between state and local tated by the explicit consideration of benefit categories and governments, as well as in multistate agreements in state/ the relationship between different types of benefits and the federal agreements. stakeholders to whom they accrue. Another feature of the Framework that can be used in pri- Framework Modules and Investment Types oritizing projects in a portfolio is the risk/uncertainty analysis feature. A group of projects can be analyzed with The Freight Evaluation Framework was developed in mod- the same set of risk/uncertainty scenarios and portfolios of ules that are mode-specific, recognizing that the specific bene- projects can be selected that either give priority to those fit evaluation tools are often structured this way. However, the projects that are the least sensitive to project uncertainties Framework also recognizes that many projects will have multi- or that hedge risk and uncertainty. modal impacts and, as described above, many project evalua- tions may involve multimodal tradeoff decisions. Table 6.1 displays a matrix illustrating the modules of the Framework to Allocating Cost Responsibility be used when evaluating different types of freight investments. Freight projects are increasingly the subject of complex The following sections describe the general analytical public-private funding negotiations and many prospective approach of the highway, rail, port, and cargo handling mod- users have expressed the need to have a tool that can assist ules. Later in this section, examples are provided of the types them in these negotiations. The feature of the Framework of data and tools that are available to implement the key steps that identifies stakeholders--and the benefits that are most of benefit, cost, and risk assessment. critical to each stakeholder group--was developed as a way of beginning the discussion of who should be responsible for Highway Investments paying for a project. Typically, the initial discussion would be based on allocating costs of a project in proportion to the Highway investments will impact both freight and passen- allocation of benefits, and both public and private stakehold- ger travel. Highway investments are expected to lead to travel ers could then reevaluate the investment from the perspective efficiencies, including reductions in travel time and distance of their own net benefits (based on allocated costs). (and thus vehicle operating costs), as well as potential safety In addition to the allocation of cost responsibility between and environmental enhancements. These investments also public- and private-sector participants, the Framework also have the potential to improve access to multimodal trans- allows for consideration of how costs should be allocated for portation facilities, distribution centers, and economic mar- a project that has multijurisdictional impacts. The discussion kets for freight travel as well as work and other destinations of project geographic scale earlier in this report indicates how for passenger travel. The module within the Framework to be this can be done to show when benefits accrue outside of the used when assessing highway investment impacts is presented immediate jurisdiction of the investment. This can be useful in Figure 6.1. The most direct effect of highway investments Table 6.1. Framework modules by investment type. Module in Framework Project Type Highway Rail Marine Port Airport Highway Improvements Intermodal Connector Rail Improvements Grade Crossings Highway to Rail Diversion Port Expansion Impacting Highway and Rail Barge Services Diverting from Highway and Rail Air Impacting Highway Cargo Handling Facility Primary Impact Module Potential Secondary Impact Module

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103 Highway Benefit Module Change in Change in Change in Travel Pavement Travel Time Distance Quality, Design (VHT) Standards (VMT) Change in Change in Delay, Transportation Average Speeds Costs and Reliability (Truck, Auto) (Trucks, Auto, and Rail) Change in Change in Change in Time Change in Time Change in User Crash/Incident Change in Environmental Costs of Delay/ Costs of Operating Costs Costs Loss/Damage Costs Unreliability Transportation (by Truck, Auto) (by Truck,Auto) of Cargo (by Truck, Auto) (by Truck, Auto) (by Truck, Auto) Capital Costs O&M Costs Other Costs Total Reduction in Distribution Cost Transportation Savings to Total Costs Costs Industries (Public and Private) Benefit Cost Elasticity of Industry Metrics Output with Respect to (NPV, Transportation Cost Total Reduction in BC ratio, ROI) Savings Transportation Costs by Industry Increase in Additional Output by Supply Chain Industry Benefits Total Economic Economic Impact Metrics Simulation (jobs, income, Model output, tax base) Figure 6.1. Highway investment evaluation.

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104 is captured through changes in the level of total VHT and Rail Investments VMT by trip purpose. Similar to the highway impact module, rail investments can The analytical approach to calculating highway benefits result in faster speeds, increased productivity, lower costs, and consists of several key steps, described below. Additional better access to markets and gateways. Examples of rail invest- detail on the specific tools that could be utilized is provided ment projects that give rise to these types of benefits include in Appendix A. double-tracking, clearance projects that allow for double-stack trains, sidings, signalization, and track upgrades. Rail invest- Identify origin-destination patterns for trucks and autos and ments may change time and distance (potentially increasing calculate changes in vehicle miles of travel (VMT) and vehi- for some and reducing for others) for both rail and highway cle hours of travel (VHT). This will typically involve the use traffic. Therefore, the rail module also includes the highway of travel demand models but in the case of freight analysis impact module. This is especially important if there is poten- may need to be supplemented with data on routed com- tial for truck-to-rail diversion or vice versa. The Framework modity flows on/through the facility that is the subject of the module used to assess rail investment impacts is presented in investment. To the extent that the investment also involves Figure 6.2. changes in pavement quality or roadway design standards The analytical approach to calculating rail benefits consists that could lead to reduced loss and damage of cargo trans- of several key steps, described as follows: ported over the facility, this also should be incorporated in the analysis. 1. Estimate service and market impacts of rail improve- Apply parameters reflecting operating costs per mile and ment by assessing impacts of improved speed, market value of time per hour to the VMT and VHT results in the share, and reliability. In the best case, this would be previous step, differentiated by vehicle type and trip pur- done using detailed rail simulation models. However, pose. Sources for operating costs and value of time can be there is a growing body of literature on how to estimate found in tools such as the Highway Economic Require- these benefits using simplified tools such as parametric ments System (HERS) or a variety of literature on truck capacity models. Business-related transport-cost reduc- value of time. tions (primarily freight rail) are distributed to industries Calculate total reduction in transportation costs due to based on the size of the industry and their demand for highway efficiency improvements by vehicle type and trip rail services. Data on commodity flows for specific rail purpose. These results are derived from the individual esti- lines may be able to be estimated with data sources such mates of reductions in transportation costs (in dollar val- as the Rail Waybill Sample or other routed commodity ues) from the previous step. flow databases. Estimate other cost savings, including reduced vehicle oper- 2. Estimate additional supply chain and logistics benefits that ating costs, emissions reduction, safety savings, potential also may accrue due to improved reliability or cost savings changes in pavement costs, and changes in cargo loss and related to reduced shipping costs. damage. Guidance for monetizing the nonmonetary bene- 3. Estimate highway system costs and benefits using the high- fits can be found in a variety of literature but recent guidance way module (described above). was provided in the Transportation Investment Generating 4. For the BCA, combine the direct transportation efficiency Economic Recovery (TIGER) grant programs. benefits with project costs to determine the net present Distribute business-related transport-cost reductions value of the benefits. For the EIA, these direct effects serve (truck trips, business auto) to industries based on the size as input into an economic simulation model to estimate of the industry and their demand for trucking services. increased business output, employment, income (wages), These transportation-cost savings, along with additional and tax revenues. supply chain benefits serve as the direct user benefits for BCA and as input into an economic simulation model to estimate the economic development impacts of the Port Investments investment. Investments in airports and marine ports are combined in a single evaluation module. Investments in port facilities are This process results in an estimate of total direct trans- generally aimed at expanding market share via productivity portation user benefits, as well as estimates of total employ- and efficiency enhancements. Growth in trade can be forecast ment, income, output, and tax base expansion impacts. These based on how the investments expand capacity and change benefits can be compared to total costs in order to assess the total costs, where total costs are composed of a combination of overall return on investment. travel time/delay, costs, reliability factors, vessel turnaround

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105 Rail Investment Module Change in Change in Change in Train Travel Time Travel Distance Size and Weight Change in Change in Travel Time Change in Change in Change in Asset Costs Emissions Operating Cost Capacity Utilization Change in Highway User Efficiencies Using Highway Module Capital O&M Costs Other Costs Costs Distribution Cost Total Reduction in Savings to Transportation Costs Total Costs Industries (Public and Private) Benefit Cost Total Reduction in Metrics (NPV, BC ratio, Transportation ROI) Elasticity of Industry Costs by Industry Output with Respect to Transportation Cost Savings Increase in Output Additional Supply by Industry Chain Benefits Total Economic Impact Economic Metrics (Jobs, Income, Simulation Model Output, Tax Base) Figure 6.2. Rail investment evaluation.

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106 time, and port fees and charges. Improvements at ports, (which may be more relevant for local and regional stake- including landside connections to major highway and rail holders as opposed to national stakeholders) are evaluated. routes, may lead to increased market share for the port and Second, it is recognized that port investments may lead to lead to increases in total freight volumes in the port region, increases in surface transportation traffic for a given region. including both import and export trade flows. Therefore, this To capture those impacts, the highway and/or rail investment evaluation module focuses on two distinct sets of impacts. modules may need to be included within the port module. The First, the more localized effects on the volume of cargo and Framework module used to assess port investment impacts is trade in terms of expanding trade-related economic activity presented in Figure 6.3 Marine and Airport Expansion/ Total Project Costs Improvement Change in Travel Congestion Relief Change in Volume Time to and from and Reduced of Trade Major Markets Transport Costs Reduction in Travel Costs to Elasticity of trade attraction Surface with respect to transport time Major Markets Transport to major markets Benefits from Rail and/or Highway Module Baseline Percent of Trade Diverted by Cargo Type Forecasts of Total Trade Volumes Change in Mode Split Surface Between Rail Change in Port Volumes Transportation Number of Jobs per Unit and Truck (value, tons, TEU) Impacts by Mode Change in Employment in Related Industries Total Surface Direct Transportation Transportation Calculation Impacts by Mode Efficiency Benefits of BCR Direct Economic Impacts Jobs, Income, Output, Tax Revenue Total Economic Economic Impacts Simulation Jobs, Income, Model Output, Tax Revenue Figure 6.3. Port investment evaluation.