Framework and Tools for Estimating Benefits of Specific Freight Network Investments (2011)

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59 To gauge the utility of the Freight Evaluation Framework, it was important to apply it to actual freight improvement proj- ects to evaluate the interrelationships among freight benefit types, determine whether there are significant differences in the Framework’s application across different types and scales of freight investments, and assess its overall strengths and weak- nesses. The study team tested the Freight Evaluation Frame- work in two different ways. First, the team applied the Frame- work to six case studies of actual freight improvement projects. Second, the team conducted a hands-on workshop to provide feedback on the Framework; identify how it can and should be used to support investment decisions, financing, or public- private partnership structuring; and describe how it could be useful in supporting partnerships for funding freight infra- structure investments. The following sections describe the case study testing process and results in detail, and provide a sum- mary of the workshop. 5.1 Case Study Testing Selection of Potential Case Studies Figure 5.1 shows the locations of the potential case studies originally identified through the study team’s discussions with freight investment stakeholders and the team’s review of current practices. As well as geographic diversity, several other criteria were used to ensure that the final set of case studies represented a broad array of freight project types, including the following: • Project scale, such as local-scale freight projects that may have national or regional impacts, improvements that impact multiple states, and international port or gateway projects. • Project type and mode, including highway or rail capac- ity chokepoints, at-grade crossings, intermodal connector improvements, and warehouse/distribution center facilities. • Project value and funding arrangement, with values rang- ing from $1.4 million (Port of Superior/General Mills S/X Elevator Project) to several billion dollars (New York Cross Harbor Freight Rail Tunnel) and funding sources, including strictly public (Rochelle Intermodal Center), strictly private (Gardner Intermodal Terminal), and various types of public- private partnership arrangements (Denver International Airport). • Geography, including urban (Port of Seattle SR 519 Inter- modal Access) and rural (Strauss Intermodal Yard) and projects that are local in nature versus those that impact multiple states or MPOs. • Data availability, including transportation demand, ben- efit, cost, and other appropriate information. It was criti- cal that sufficient data exist (or be obtained) so that a rig- orous, realistic test could be conducted. Following discussions with the NCFRP-05 Panel, the research team identified six case studies on which to focus. These six case studies, as follow, provided a cross section of project types, scales, locations, and modes that proved useful in evaluating the key components of the Freight Evaluation Framework. 1. Reno Transportation Rail Access Corridor, a 2.3-mile- long, below-ground Class I rail mainline through down- town Reno, Nevada; 2. Denver International Airport WorldPort, which included one-half million square feet of building and warehouse space, a new taxiway, and an aircraft ramp; 3. Tchoupitoulas Corridor Improvements, a series of high- way capacity improvements and rail rehabilitations to improve access to the Port of New Orleans, Louisiana; 4. Heartland Corridor Clearance Initiative, a multistate rail capacity improvement project to develop a direct route for double-stacked Norfolk Southern container trains mov- ing from the Port of Virginia to Columbus, Ohio; 5. Port of Huntsville (Alabama) Inland Port, which includes the Huntsville International Airport, the International Inter- modal Center, and the Jetplex Industrial Park; and 6. Bayport Container Terminal, a newly opened terminal within the Port of Houston, Texas. C H A P T E R 5 Testing the Framework

60 These six case studies allowed the research team to test different project types and geographic scales, modal com- binations, and combinations of benefit types, as shown in Table 5.1. In addition to assessing the overall performance, strengths/ weaknesses, and areas of improvement of the Freight Evalu- ation Framework, the team’s testing process focused on a number of key issues that were identified through the inter- view process described in Chapter 3, including • Identifying limitations of existing data and tools—There are a number of issues that limit the effectiveness of existing evaluation tools in assessing benefits across all freight invest- ment and stakeholder types, as described in Chapter 4. As part of the research team’s evaluation process, researchers paid particular attention to these and other weaknesses of existing tools in facilitating use of the Freight Evaluation Framework and supporting freight investment decisions. • Linking project attributes, benefits, and stakeholder types—Previous sections identified stakeholder types that are involved in the identification, planning, financing, and implementation of freight improvement projects, as well as their interest points and perspectives (i.e., what “stake” these stakeholders have in the success of a freight improve- ment project). One focus area of the team’s testing process was to ensure that the Freight Evaluation Framework ade- quately captured the impacts and benefits to different stakeholders—and how these can change depending on the type of project, its attributes, and/or role the stake- holder is playing in the project development. • Ensuring usefulness across different scales—Investment evaluations (including the data and tools used, the level of 7 16 17 21 6 4 5 9 8 3 2 1 11 12 10 13 14 18 19 20 15 24 23 22 25 26 Rail Port/Multimodal Truck/Rail Air Truck 1. Port of Superior General Mills S/X Elevator Project 2. Bayport Container Terminal 3. Reno Transportation Rail Access Corridor (ReTRAC) 4. Tehachapi Trade Corridor 5. Colton Crossing 6. IA Interstate Railroad Rehabilitation and Locomotive Purchase 7. Chicago Region Environmental and Transportation Efficiency Program (CREATE) 8. NY Cross Harbor Freight Rail Tunnel 9. Heartland Corridor Clearance Project 10. Strauss Intermodal Yard 11. Gardner Intermodal Terminal 12. Rochelle Intermodal Center/UP Global III 13. Denver International Airport Cargo Facility 14. Port of Seattle SR 519 Intermodal Access Project 15. I-55 Access to CenterPoint Intermodal Center at Deer Run 16. Tchoupitoulas Corridor Improvements 17. Cooper River Bridge Replacement 18. Wal-Mart Baytown Distribution Complex 19. Norfolk Southern Crescent Corridor 20. Trans-Texas Corridor 35 21. Illiana Expressway 22. Arizona Multimodal Logistics Complex 23. Ports of LA/LB Clean Trucks Program 24. Interstate 710 Truck Lanes 25. Kansas City SmartPort 26. Port of Huntsville Figure 5.1. Freight investments—potential case study locations.

61 Case Study Modes Included Project Type Highway Rail Port Air Air Impacting Highway Cargo Handling Highway Improvements Intermodal Connector Rail Improvements Grade Crossings Port Expansion Barge Services Reno Transportation Rail Access Corridor (Nevada) Denver International Airport WorldPort (Colorado) Tchoupitoulas Corridor Improvements (New Orleans, Louisiana) Heartland Corridor Clearance Initiative (Columbus, Ohio) Port of Huntsville (Alabama) Inland Port Bayport Container Terminal (Houston, Texas) Table 5.1. Modes, project types, scales, and benefits of case studies. Case Study Scale and Operation Project Characteristics Highway Benefits Geography Constructed Beginning Year of Operations Used Existing Data and Tools Multi- jurisdictional Multiple Beneficiaries Significant Risk Factors Broader Supply Chain Impacts Change in Delay/ Reliability Change in Loss/ Damage Supply Chain Benefits Reno Transportation Rail Access Corridor (Nevada) Regional 2006 Denver International Airport WorldPort (Colorado) Regional 2006 Tchoupitoulas Corridor Improvements (New Orleans, Louisiana) Regional 2004 Heartland Corridor Clearance Initiative (Columbus, Ohio) Multistate Underway N/A Port of Huntsville (Alabama) Inland Port Regional 1974 Bayport Container Terminal (Houston, Texas) Local 2007 (continued on next page)

detail analyzed, and the performance metrics used) that are appropriate for one scale of project (e.g., project- or site- specific) might not be adequate for larger scale (e.g., corridor or multijurisdictional) projects. A third focus area of the team’s evaluation was to assess the adequacy of the Freight Evaluation Framework to assess costs and benefits of a variety of project types across a variety of geographic scales. 5.2 Case Study Results Case Study 1—Reno Transportation Rail Access Corridor (ReTRAC) Background This project was constructed earlier and has been fully operational since 2006. Union Pacific (UP) Railroad’s Central Corridor between Oakland, California, and the Midwest runs through the downtown area of Reno, Nevada. The line is part of a shared-use corridor that serves both passenger and freight trains. The downtown area of Reno is traversed by this rail line, which divides the city. This was partially responsible for disparate economic conditions in the city. The numerous grade crossings between the UP tracks and city streets presented safety hazards, created highway congestion, and deterred pedestrians from the downtown area. In 1996, the City of Reno, Nevada, approved ReTRAC in an attempt to mitigate concerns from the 1995 merger of Union Pacific (UP) and Southern Pacific (SP) railways. The merger would increase corridor traffic from 14 to 24 daily trains, cre- ating increased safety risk at grade crossings, while contribut- ing to an escalation of road congestion. The City of Reno therefore recognized the potential for significant impacts on ground transportation and developed the ReTRAC initiative. The project consisted of the following three main com- ponents: 1. Depressing of the UP mainlines running through the down- town area of the city; 2. Converting 10 existing grade crossings to overpasses above the UP mainlines; and 3. Creating of a temporary “shoo-fly” track to limit the dis- ruption of corridor traffic during the construction phases of the project. The project area is located in the downtown district of Reno, Nevada. The project was performed on the UP Rail- road’s Central Corridor dual mainline between Oakland, California, and the Midwest. The corridor section of interest is the 2.3-mile line that follows Nevada State Route 647, between Keystone Avenue and Lake Street. The dual above- ground mainline is traversed by highway roads at 10 gated grade crossings. Each grade crossing allows for bidirectional road traffic. The ReTRAC corridor location is depicted in Figure 5.2. The ReTRAC Project consisted of two depressed main- line tracks, a temporary single line “shoo-fly” track adja- 62 Case Study Rail Benefits Port Benefits Cargo Handling Benefits Asset Utilization Capacity Enhancement Supply Chain Benefits Congestion Reduction Trade Attraction and Time to Market Change in Employment and Port Volumes Change in Cargo Volumes Change in Employment Measures of Regional Competitiveness Reno Transportation Rail Access Corridor (Nevada) Denver International Airport WorldPort (Colorado) Tchoupitoulas Corridor Improvements (New Orleans, Louisiana) Heartland Corridor Clearance Initiative (Columbus, Ohio) Port of Huntsville (Alabama) Inland Port Bayport Container Terminal (Houston, Texas) Table 5.1. (Continued).

cent to the UP tracks, and the reconstruction of 11 (10 exist- ing and 1 approved but unbuilt) street crossings built as street “bridges” across the top of the depressed trench. The entrenched dual mainline was constructed to standards permitting maximum train speeds of 60 mph. The project area and proposed freight infrastructure improvements are illustrated in Figure 5.3. The 2.3-mile mainline is part of a shared use corridor on which Amtrak runs its twice-daily service between Chicago and San Francisco. The project included the construction of a 1.75-mile-long, 54-foot-wide by 33-foot-deep trench to contain the double rail lines. During construction, rail traffic was diverted on an adjacent temporary shoo-fly track to limit service disruption. The project scope also included the conversion of 10 grade crossings into overpasses above the depressed tracks. These grade crossings are located on Keystone Avenue, Vine Street, Washington Street, Ralston Street, North Arlington Avenue, West Street, North Sierra Street, North Virginia Street, North Center Street, and Lake Street. Period of Analysis, Discount Rate, and Key Assumptions The benefit/cost analysis considers the performance of trans- portation facilities given forecast traffic. Although the design life of many facilities is 40 years or more, there are several rea- sons for selecting a shorter period of analysis (e.g., 30 years). 63 Source: Myra L. Frank & Associates, Inc., 2000. Figure 5.2. ReTRAC corridor location.

One reason is that with discounting, the relative magnitude of benefit and cost streams in excess of 20 years is generally small and has limited impact on the analysis. Second, traf- fic is typically forecast for an out-year of the analysis and as the analysis extends beyond 30 years forecasts will be more uncertain and less reliable. This benefit/cost analysis uses a 30-year period of analysis, from 2002 through 2031. In the first 4 years, the new facilities will be under construction in the alternative case. During this time, highway users will operate on a similar roadway net- work to the base case, while rail traffic will operate on a tem- porarily modified rail network. The analysis will, therefore, take into account all disruption costs associated with the proj- ect construction in the alternate case. The analysis was conducted for two different discount rates: 3% and 7%. With the lower rate, benefits occurring in out-years will have greater weight in the analysis. If the proj- ect fails the benefit/cost hurdle (NPV > 0) with the 3% rate, it is likely that the project as planned is either ill-advised or its execution is too early. Project Stakeholders The study focuses on six stakeholders: UP Railroad, Washoe County, the State of Nevada, the City of Reno, regional busi- nesses, and the project area community. For the purposes of this case study, groups identified as other stakeholders were omitted from the benefit/cost analysis since a lack of data prohibited the assessment of their involvement in the decision-making process. It is important to note that since the freight infrastructure investment is a partnership between public- and private-sector agents, stakeholders often hold dual roles. • Union Pacific owns the trackage rights and the area sur- rounding the Central Corridor. The infrastructure improve- ment takes place directly on that main line in the down- town area of Reno, Nevada. UP has a direct financial stake in the program since it provided about $58 million in cash and in-kind contributions toward the completion of the freight investment project. Following the construction phase, UP provides maintenance of way and traffic control, and carries freight in the corridor. This qualifies UP as an asset provider through its capital and financial investment, and as a service provider. • Regional governments will have a direct financial stake in the project, because they will provide a portion of the fund- ing for the construction and maintenance of the ReTRAC initiative. These governments include the State of Nevada, Washoe County, and the City of Reno. The funding will be 64 Source: Information Delivery Service, 1999; Myra L. Frank & Associates, Inc., 2000. Figure 5.3. ReTRAC project extent.

collected from various sources at a national and regional level. In addition, the public sector is responsible for the roadway work related to the project. This direct financial stake qualifies the regional governments as asset providers. The regional governments are a beneficiary of economic development benefits that flow from the project. Through increased economic activity and property tax revenue, the regional governments will have a stake in the initiative. Consequently, these local governments are classified as other stakeholders through their ancillary stake in the proj- ect. The U.S. government provides finance to the project and benefits indirectly as the benefits to the region con- tribute to the strengthening of the national economy. This qualifies the federal government as an asset provider and other stakeholder. • The Reno ReTRAC Project enhances capacity and efficiency on the corridor, thus allowing for increased throughput. The consignees of goods shipped through intermodal means are often manufacturers or distributors; for the purposes of this study they are both considered regional businesses. These local and regional businesses enjoy business bene- fits from the project (e.g., lower costs, more timely deliver- ies). Local and regional business will ship intermediate and finished products using the services of the railroad. Regional businesses are therefore classified as end user stakeholders due to their transient role and as other stake- holders due to their role as receivers of shipped goods. The principal beneficiaries from the removal of at-grade cross- ings will be roadway users. These also are end users (pas- senger and commercial travelers who do not necessarily have a freight connection). These users benefit from increased roadway safety, reduced travel time, more pre- dictable trip time, and reduced vehicle operating costs. • The community surrounding the construction area will ben- efit from an amelioration of its environmental quality. The project will mitigate noise and vehicle emissions through the removal of 10 grade crossings. By consequence, the commu- nity surrounding the project area will become a major non- financial stakeholder in the freight infrastructure investment. This qualifies the community to become an other stake- holder in the project. The region benefits from economic development that stems from the removal of a barrier to commerce and expanded opportunities for land use. The value of reclaimed land from the project and the redesigna- tion of land for higher-valued uses due to the project bene- fit the regional economy. The region is an other stakeholder of the project. Table 5.2 identifies all of the stakeholders for the Reno ReTRAC project by type. Benefits The project benefits can be grouped into three principal categories: benefits from grade crossing removal, economic benefits, and railroad benefits, as shown in Table 5.3. Benefits from Grade Crossing Removal. • Safety benefits—The Reno ReTRAC Project eliminated 10 at-grade crossings, and thus effectively brought the pre- dicted accidents at the crossings to zero. The present value (PV) of safety benefits from the project are $4,004,490 using a 3% discount rate and $2,085,172 using a 7% discount rate. 65 Stakeholder Stakeholder Type Stakeholder Interest Union Pacific Railroad Asset Provider Service Provider Direct Financial Stake Washoe County Asset Provider Other Direct Financial Stake Indirect Stake State of Nevada Asset Provider Other Direct Financial Stake Indirect Stake City of Reno Asset Provider Other Direct Financial Stake Indirect Stake Regional Businesses End User Other Direct Business Stake Indirect Stake Businesses and Residents in Immediate Vicinity of Project Other Major Nonfinancial Stake Roadway Users End User Major Nonfinancial Stake The Region Other Direct Economic Stake The Nation Other Indirect Economic Stake Table 5.2. ReTRAC project stakeholders.

• Travel-time savings—The removal of 10 grade crossings in downtown Reno alleviates congestion, promotes timely and efficient travel, and increases business productivity. The travel-time savings are a monetization of the passenger, truck, and bus time delay that is eliminated with the proj- ect. The PV travel-time savings benefits from the project is $75,520,910 using a 3% discount rate and $30,543,960 using a 7% discount rate. • Vehicle operational costs—The elimination of queuing at blocked crossings leads to a decrease in consumption of fuel and other vehicle operating costs realized in the base case. All roadway users on the affected roadways experience this benefit. The PV of vehicle operational costs benefits from the project is $8,114,428 using a 3% discount rate and $3,276,058 using a 7% discount rate. • Reduction of emissions—A reduction in idling time and speed cycling by road vehicles contributed to a decrease in emissions. The reduction of emissions is beneficiary to all stakeholders because environmental quality is an interest for all stakeholders. The PV of reduced emission benefits from the project is $331,313 using a 3% discount rate and $133,765 using a 7% discount rate. • Noise mitigation—FRA’s Rule on the Use of Locomotive Horns at Highway-Rail Grade Crossings requires trains to sound a horn when approaching a grade crossing. The removed grade crossings for the project were located in the downtown commercial district of the city. The residential west end of the city was regularly affected by the noise cre- ated by train horns approaching the 10 downtown grade crossings. There have been extensive studies on the effects of transportation noise (mostly noise from aircraft) on property values. These studies indicate that the effect of noise reduces property values by 0.05% for each decibel (dB) of noise. Assuming that the properties one-half mile on either side of the track were affected by noise in excess of 50 dB, then the affected area is 1.75 square miles in size. The study team estimates that the value of real estate in the affected area is $975 million, and concludes that the bene- fit of noise mitigation from the project is about $14,636,160 at a 3% discount rate and $5,908,618 at a 7% discount rate. 66 Benefit Affected Stakeholder Type Affected Stakeholder Benefits from Grade Crossing Removal Elimination of Accidents at Grade Crossing All Stakeholder Types All Stakeholders Travel Time Savings End User Other Businesses and Residents in Immediate Vicinity of Project and the Region Vehicle Operation Cost Savings End User Other Businesses and Residents in Immediate Vicinity of Project and the Region Emissions Savings All Stakeholder Types All Stakeholders Noise Reduction Other The Region and Businesses and Residents in Immediate Vicinity of Project Reduction in Emergency Medical Services (EMS) Response Time All Stakeholder Types Union Pacific Railroad, Washoe County, State of Nevada, City of Reno, Businesses and Residents in Immediate Vicinity of Project, and the Region Economic Benefits Reclaimed Land All Stakeholder Types Washoe County, State of Nevada, City of Reno, Businesses and Residents in Immediate Vicinity of Project, and the Region Higher Value Land Use All Stakeholder Types Washoe County, State of Nevada, City of Reno, Businesses and Residents in Immediate Vicinity of Project, and the Region Railroad Benefits Lower Shipping Cost Asset Provider Service Provider Union Pacific Railroad Reduced Liability Asset Provider Service Provider Union Pacific Railroad Table 5.3. ReTRAC project stakeholders and benefits.

• Emergency vehicle response time—The blocked grade crossings prior to the ReTRAC Project caused delays to EMS vehicles, preventing them from effectively serving the region. These benefits are difficult to quantify, but result in fewer deaths and better outcomes for those requiring emergency services. Economic Benefits • Reclaimed land—The ReTRAC Project reclaimed approxi- mately 120 acres of land used to develop numerous commer- cial and residential facilities. The reclaimed land, according to the City’s report, is valued at $11.5 million.(10) • Higher value land use—Through the residential and commercial revitalization of downtown Reno following ReTRAC, property value increased in the study area. This direct economic benefit of the project affects the local resi- dents, businesses, and governments. The case study esti- mates the value of real estate in the immediate vicinity of the project to be $975 million. Following the construction of the project, a new baseball stadium was built just adja- cent to the project, and a new entertainment district is planned. These developments would not have occurred at this location without the project. Through the development of reclaimed land, as well as increased economic activity in the downtown area, the case study analysis estimates that property values will increase by 10% in the years following the project. The increase in property value over the period of the team’s analysis amounts to $95.7 million using a 3% discount rate and $38.7 million using a 7% discount rate. Railroad Benefits • Railroad operating-cost benefit—The project scope enabled freight trains to travel at a higher average speed through the corridor with less speed cycling and more fuel efficiency. The railroad can better manage rail traffic with- out worrying about grade crossings. These effects should result in a decrease in its overall operating costs. These sav- ings are estimated at PV $5,300,000 using a 3% discount rate and $2,139,610 using a 7% discount rate. • Reduced liability—By grade separating the rail and highway modes, the project reduces the railroad’s liability of opera- tions in the corridor. These savings are estimated at PV $2,300,000 using a 3% discount rate and $928,510 using a 7% discount rate. Table 5.4 outlines the benefit and stakeholder types. Costs Capital Costs. The construction costs for the Reno ReTRAC project are included in this benefit/cost assessment. The construction tasks include the depression of a 1.75-mile- 67 Benefit Metric Infrastructure Provider Users Service Provider Public 3% DR 7% DR 3% DR 7% DR 3% DR 7% DR 3% DR 7% DR Elim ination of Accidents at Grade Crossing – – $4,005 $2,085 – – – – Travel-Time Savings – – $75,521 $30,544 – – – – Vehicle Operation Cost Savings – – $8,114 $3,276 – – – – Emissions Savings – – – – – – $331 $134 Noise Reduction – – – – – – $14,636 $5,909 Reclaimed Land – – – – – – $11,500 $11,500 Higher Value Land Use – – – – – – $95,754 $38,656 Operating Cost Savings* – – – – $5,300 $2,140 – – Reduced Liability* $2,300 $929 – – – – – – Notes: DR stands for discount rate. *UP is both the infrastructure provider and service provider of freight services on the corridor. The classification to stakeholder categories roughly corresponds to each of these roles. Table 5.4. Present value of benefits (’000 dollars).

long, 54-foot-wide by 33-foot-deep trench to contain double rail lines, the construction of an adjacent temporary shoo-fly track, and the conversion of 10 grade crossings into over- passes above the depressed tracks. These capital costs were financed through a public-private partnership between UP, the City of Reno, Washoe County, and the State of Nevada. The funding sources for the ReTRAC Project included FHWA TIFIA loans, bonds issued by the City of Reno, TEA- 21 federal grants, as well as cash and in-kind contributions by UP. These costs are expanded in Table 5.5. In the 4 years of construction, the project capital costs are $279.9 million. Operations and Maintenance Costs. The project scope did not specify the creation of a sinking fund to provide fund- ing for the operation and maintenance of the new infra- structure. The operation and maintenance costs are shared between UP and the City of Reno. The track ballast is main- tained by UP. The drainage of the trench and the mainte- nance of city roads are handled by the City of Reno. It is esti- mated that the City of Reno funds $100,000 annually for the operation and maintenance costs. In the study team’s assess- ment, this cost is used starting year 5 of the assessment since it is the first year the new infrastructure is operational. The NPV of operation and maintenance costs for the period of analysis is $731,680 using a 3% discount rate and $485,927 using a 7% discount rate. Benefit/Cost Analysis and Other Performance Metrics Table 5.6 details the results of the team’s analysis of the Reno ReTRAC Freight Infrastructure Investment using the Freight Evaluation Framework. Risk Assessment Table 5.7 provides the risk assessment results. The princi- pal risk drivers are growth rates of railroad and highway traf- fic, which were assumed to vary (80% confidence) between 6% to 12% and 2.0% to 2.8% in the near term. Case Study 2—Denver International Airport WorldPort Background With capacity nearing its limit in 2000, Denver Interna- tional Airport’s (DIA) WorldPort LLC developed 100,000 68 Funding Sources Total Funding (Millions) Notes Bond Proceeds $111.5 Revenue bonds backed by the City of Reno TIFIA Direct Loans $50.5 To be repaid from one-eighth cent sales tax and 1% hotel occupancy tax $5.0 To be repaid from lease income derived from UP properties $18.0 To be repaid from tax assessments from properties within downtown special assessment district Federal Grants $21.3 TEA-21 Railroad Contribution $17.0 Track and ballast work Other $56.6 Includes cash on-hand and interest earnings Total $279.9 Table 5.5. ReTRAC funding and financing summary. Category Discounted Sum 3% 7% Total Costs $269,476 $255,619 Total Benefits $217,462 $95,172 B/C Ratio 0.81 0.37 Net B-C ($52,014) ($160,447) Table 5.6. Benefit/cost analysis summary (thousands of dollars).

square feet of office and cargo warehousing space in order to accommodate expected growth, which was forecasted to increase significantly through years of 2000 through 2010. The intended value proposition was to provide additional air cargo service in the Denver metropolitan area to capture future cargo that would likely be diverted to other airports because of the expected capacity constraints at DIA. The original plans for development included eight buildings for a total of 495,000 square feet; however, the economic reces- sion of 2000–2001 and the effects of September 11 signifi- cantly reduced demand and the subsequent need for addi- tional capacity at DIA. After the recession, several high-tech firms that heavily relied on air shipments went out of busi- ness or were merged/consolidated with other companies outside of Colorado, which further decreased demand for air cargo. WorldPort DIA is located south of the main passenger ter- minal, which is close to the dedicated freight operations of DHL, UPS, and FedEx, as well as the passenger airline Joint Use Facility. It is accessed directly from Pena Boulevard by way of 75th Avenue, as depicted in Figure 5.4. The WorldPort air cargo facility at DIA was originally planned to be a total of eight buildings equaling 495,200 square feet near the air cargo section of the airport (Figure 5.5). DIA entered into a 30-year ground lease with WorldPort to design, construct, and operate the facilities on 51 acres of land owned by the airport. The project was organized as a PPP between the City of Denver, WorldPort at DIA Own- ers LLC, and Lehman Brothers. It was originally planned to be completed in 2002, and was intended to provide addi- tional capacity to handle air cargo volume that was antici- pated to increase significantly from 1999 through the next 10 years. Several high-tech and biotech firms within the Denver metropolitan area experienced rapid growth and increased their reliance on DIA for air shipments of their products. A surge in purchases made through electronic retailing also contributed to the rising demand for air ship- ments. It was believed, given current trends in growth and insufficient capacity, that WorldPort would provide ware- house, distribution, cross-dock, and office space to meet the rising demand. Period of Analysis, Discount Rate, and Key Assumptions The benefit/cost analysis incorporates the original forecasts of expected cargo volume that were made through 2009. However, to provide a more comprehensive view of the proj- ect, a 25-year period of analysis was used. Cargo forecasts beyond 30 years have limited impact on the analysis because of uncertainty and the relative weight of discounting future costs and benefits. Construction was originally planned to take place from 2000 to 2002. A number of assumptions regarding savings from airport diversions were made in order to facilitate the analysis. These include • Truck time savings and operating-cost savings—Using the same percentages of air cargo shipments at Hartsfield- Jackson Atlanta International Airport (H-JAIA) with 36% of cargo volume domestic and 64% international, Los Angeles International Airport (LAX) and Dallas/Fort Worth International Airport (DFW) were selected as viable alternative airports because of the breadth of their interna- tional destinations. Using a truck tractor-trailer opera- tional cost per mile of $1.18 (based on the FHWA Truck Size and Weight Study, with cost/mile ranging from $1.03 to $1.38, depending on speed), a truck crew cost of $25.02 per hour,(11) an average distance of 917 miles, and assum- ing an average of five tons per truck (12)—the average cost of transporting one ton of freight per trip equaled $292. This represents the additional cost of transporting one ton to either airport, assuming that DIA is at its maximum air cargo capacity and, therefore, unable to ship any additional air cargo freight. • Alternative airport shipping rates—Since LAX is closer to Asian markets and DFW is closer to South American and European markets, the cargo shipping rates were antici- pated to be slightly less expensive than rates from DIA. An average of $200 per ton was estimated to be the difference in international shipping rates between these airports and DIA, which lowers the overall benefit. • Belly versus dedicated cargo rates—With the decline of belly cargo space on passenger carriers, more shippers will 69 90% Probability of Exceeding 10% Probability of Exceeding Total Benefits (3%) 96,950 399,600 Total Benefits (7%) 43,457 175,944 Table 5.7. Risk analysis results of total benefits (thousands of dollars).

use dedicated air freight services. This change in carrier type has two types of impacts. The first is that dedicated air freight is likely to be less expensive either because of its effi- cient operations and volume or because of reliability. Belly cargo on passenger planes is subject to external factors, such as time delays, baggage space, and other noncargo- related influences. The tradeoff is between time/reliability and cost. Therefore, the study team included the benefit of additional cost of switching from passenger plane belly to dedicated air cargo. Using data from Hartsfield Atlanta, the following estimates were made: – Average tons per employee: 85 (dedicated freight/num- ber of employees); – Average wage for passenger airlines: $94,851; – Average wage for freight forwarders/area commercial carriers: weighted-average wage was calculated based on the wage and number of employees in each type of industry ($77,369); (13) – Average cost per air cargo-ton for passenger airlines: $1,115 per ton; – Average cost per air cargo-ton for dedicated airlines: $910 per ton; and – Savings by shipping via dedicated airlines: $205 per ton. The amount of cargo shipped in passenger carriers declined at a rate of 14.6% per year from 2000 to 2009, reaching its lowest level at 54,500 tons in 2009 at DIA. This decline was extrapolated through 2025. Since shipping by dedicated carriers has a savings rate of $205 per ton, this savings was applied to the actual and forecasted amount of belly cargo from 2003 to 2025. These assumptions were based on information from the Hartsfield-Jackson Atlanta Interna- tional Airport, and additional research efforts were made to verify cost comparisons. Frontier Airlines publishes the rate of $1,500 per ton for domestic shipments on the 2010 cargo rate sheet listed on their website.(14) For UPS, an average 2-day shipment is quoted as $3,240 per ton, a dif- ference of $1,740. However, rates could be substantially lower through company account discounts, depending on the frequency of volume. Additional carrier contacts will need to be made to verify the cost per air shipment. 70 Figure 5.4. DIA air cargo facilities.

• Freight inventory and reliability—Passenger belly cargo is thought to be less reliable than dedicated freight because of the external factors and circumstances present from prior- ity of passenger movements and baggage requirements. Although recognizing that there is a high likelihood of ben- efits by improved reliability, no current estimates for the reliability of belly cargo versus dedicated cargo have been made. However, shipping out of DIA instead of trucking cargo to alternative airports provides a freight inventory and reliability savings measured using a freight logistics factor, which represents the business opportunity cost of freight delay, including inventory cost to shippers, carriers (dock handling), and/or those caused by overall schedule disruption. (Freight logistics cost is estimated on the basis of values assigned for recurring travel-time delay, based on literature review and interviews with DIA stakeholders.) The major commodity groups that are transported through the port have varying cost sensitivities per hour of delivery delay, which include major categories such as computers ($3.93/hour) and precision instruments ($5/hour). • Safety and environmental benefits—Estimates are calcu- lated by applying travel volumes to a ratio of accidents to vehicle miles traveled (VMT) and environmental costs per VMT. With the development of WorldPort, cargo is now shipped out of DIA instead of being trucked to alternative airports, which reduces VMT and provides accident and environmental savings. Accident to VMT ratios default val- ues (accident rates per 100M VMT: property damage: 206, personal injury: 90, and fatality: 1.5) were based on informa- tion from the Bureau of Transportation Statistics and envi- ronmental values of $.057 per mile for the cost of air pollu- tion, and greenhouse gases per VMT were derived from FHWA (15) and Victoria Transport Policy Institute.(16) Project Stakeholders The study focuses on four primary stakeholders: DIA (owned by the City of Denver), WorldPort at DIA Owners LLC, cargo tenants, and regional businesses. All of these stake- holders are classified by their respective roles in Table 5.8. • WorldPort at DIA Owners is a Delaware limited liability joint-venture company that was formed in 1998 for the purpose of developing air cargo, warehousing, office, and distributional facilities at DIA. The joint venture includes subsidiaries of Aviation Development Services, Lehman Brothers Holdings, and the Neenan Company. At that time, air cargo growth in Denver was expanding and expected to continue while the current facilities were approaching maximum capacity. Although the ground lease was con- tracted with the airport, WorldPort provide the leasing and contract services for tenants and, therefore, is classified as the private-sector asset provider. • Cargo tenants include freight forwarders, cargo airlines, and government agencies; all of which were identified as potential customers to lease the developed facilities. These organizations provide goods movement service for ship- pers and, therefore, are classified as service providers. • The City and County of Denver operate DIA, which is the 12th busiest airport in the world by passenger traffic.(17) 71 Completed buildings: #11 and #12: total of 100,000 sq ft Originally planned buildings: #9, 10, 13, 14, 15, & 16 Building 13 Building 14 Figure 5.5. WorldPort at DIA, planned buildings.

Being owners of the land and enacting a ground lease with WorldPort at DIA qualifies the city and county as asset providers, even though WorldPort performed that actual development. The city and county also provided a finan- cial asset with the issuance of special facility bonds, which are intended for privately owned projects yet exempt from federal taxes. This type of bond issuance lowers the overall cost of capital and provides an incentive for development. However, no city or county taxpayer money was used or pledged in the repayment of the bonds. Additional rev- enues from property, sales, and other tax mechanisms due to increased business activity also categorize local and regional governments as other stakeholders. • WorldPort was developed with the transportation needs of regional businesses in mind. Additional capacity for air shipments benefits businesses that heavily rely on timely shipments of either input components or their final out- puts, which is why they are classified as end users. From an economic development perspective, providing operational air cargo services to handle increasing volumes can be viewed as an incentive to attract and retain business in the Denver metropolitan area that rely on time-sensitive shipments for their products. Benefits The primary benefit measures due to the construction of WorldPort are the foregone costs that would have occurred, if cargo was required to be shipped to an alternative airport or transported via passenger cargo, instead of using dedi- cated cargo. The cost of shipment using an alternative airport includes the cost of trucking the cargo to the airport minus any difference in the air cargo rate. The difference between the passenger cargo rate and the dedicated cargo rate also is considered to be a benefit due to the project at DIA. The fol- lowing sections provide a more detailed description of the benefit measurements with a summary of all categories in Table 5.9. Despite an optimistic future outlook, not long after 2000, the economy declined following the “Dot Com Era.” The events of 9/11 drastically reduced commercial flights. At the same time, passenger airlines began rightsizing their aircraft— 72 Stakeholder WorldPort at DIA Cargo Tenants City/County of Denver Regional Businesses Public Sector Service Provider Shipper/ End User Other Party Private Asset Provider Table 5.8. Stakeholder classifications. Benefit Metric (in Millions of Dollars) User (Shipper) Service Provider Infrastructure Provider (WorldPort) Infrastructure Owner (DIA) Public Truck Travel-Time Savings – $0-$39.2 – – – Truck Operating Cost Savings – $0-$39.8 – – – Alternative Airport Shipping Rates $0-$86.6 – – – – Freight Inventory/ Reliability – $0-$8.5 – – – Accident Savings – – – – $0-$3.2 Emissions Savings – – – – $0-$4.5 Rental Revenues (Transfer) – -$12.9 $12.6 $.3 – Table 5.9. Present value of benefits (millions of dollars). 25-Year Timeframe

a trend in which passenger airplanes transitioned to airplane models that have less belly space, which lowers operating costs but also reduces the space available for cargo shipments on passenger flights. These combined events decreased the vol- ume and capacity of air cargo in Denver, which eliminated any present demand for planned buildings. Only two buildings (totaling 100,000 square feet) were actually completed in 2002. One building currently has the TSA and U.S. Customs & Border Protection as tenants while the other is vacant. Since the market decline in air cargo reduced overall vol- ume below capacity levels, a logical conclusion would be that there was no benefit from the project, since only two out of eight buildings were actually developed and do not have any current private-sector tenants. However, as evidenced by past recoveries, the air cargo market will likely rebound in the future. Based on this assumption, the current WorldPort buildings will be in a position to support that growth by pro- viding needed capacity. To determine the overall benefit the project could have provided, the study team estimated the additional costs that would have been incurred if WorldPort had not been developed. For air cargo volume forecasts that are higher than current capacity, additional costs would have been incurred for truck shipments to alternative airports and to use belly cargo rates charged by passenger airlines (instead of dedicated rates). Using this rationale, and assuming WorldPort was developed, these costs would not have been incurred and, therefore, are considered benefits, understand- ing that air cargo volume estimates were based on pre-project forecasts. In 2000, air cargo volume at DIA reached its pinnacle at 519,000 tons. The total cargo/mail facility is estimated to be 381,000 square feet, which equates to 381,000 tons using the industry-accepted utilization ratio of one U.S. ton per square- foot of cargo building space.(18) Although the volume that DIA could handle was not determined through interviews and research, it is known that the 2000 volume was handled given the capacity at that time and, therefore, the study team hypothesized that this volume was the maximum amount of air cargo that DIA could ship and receive. Dividing the max- imum air cargo volume by the cargo/mail facility equals a uti- lization ratio of 1.36. Adding 100,000 additional square feet and applying the utilization ratio would increase the maxi- mum capacity to 655,000 tons of air cargo. The study team used the most conservative of the original forecasts that cargo volume would grow to 800,000 tons by 2009. The cost differ- ential of shipping out of DIA versus using another airport only applies to volume greater than the no-build capacity sce- nario (519,000 tons) and less than the build scenario (655,000 tons). This is because any volume above 655,000 tons would be beyond DIA’s capacity. However, given that this scenario is hypothetical, volume forecasts in this analysis could range from 519,000 tons or lower (no benefit), or up to 655,000 tons and higher (full benefit). Costs This project was unique because it was the first third-party cargo development to acquire financing, based on forecasts and financial projections according to the economics of the air cargo industry. The original financing structure included $46 million in equity and $54 million in special facility bonds (SFB) issued by the City of Denver and underwritten by Lehman Brothers Inc. In the terms of the deal, WorldPort at DIA would repay the bonds from tenant leases, and the bonds were guaranteed by a letter of credit issued by Morgan Guaranty Trust Company of New York. No city property or airport rev- enues were pledged as security for the repayment of the bonds. Capital costs were originally estimated to be $100 million for the 495,000 square feet of capacity. However, only $30 mil- lion was spent for the two buildings that combine for a total of 100,000 square feet ($25 million came from Lehman equity and $5 million from bonds). Operations and maintenance costs were estimated to be $0.20 per square feet, which equals $200,000 (starting in 2000) per year for both buildings. It was estimated that these costs would appreciate at 2% per year. Benefit/Cost Analysis and Other Performance Metrics The latitude of ranges described earlier provides a broad discretion on what is considered to be a rational forecast given expected market conditions. Therefore, in Table 5.10, 73 Category Discounted Sum (3%) Discounted Sum (7%) Total Benefit $0–$53 million $0–$32 million Total Cost $26 million $28 million B/C Ratio 0–2.36 0–1.14 Net B-C $0–$36 million $0–$4 million Table 5.10. Benefit/cost analysis summary.

the benefits are presented as ranges that depend on the vol- ume selected in the analysis. Other important components of the project include costs and performance measures that describe the estimates and assumptions that went into the project analysis. Summaries of these categories also are listed in Table 5.11, and they include • Jobs at port—The 2003 Economic Impact of Airports in Col- orado (19) lists the total (direct, visitor spending, and spin- off [multiplier effect]) jobs at DIA as 193,229. The updated 2008 study (20) shows an increase to 217,459 and indicates that 76,092 of those jobs are directly related to on-airport businesses and tenants (including those related to airlines, ground transportation providers, terminal concessionaires, government agencies, the military, FBOs, maintenance and repair providers, flight instructors, air charter operators, agricultural sprayers, and others). Because of a lack of spe- cific information for jobs associated with air cargo (e.g., carriers and freight forwarders), estimates were made for DIA. An industry planning axiom of 20 to 30 jobs for every 1,000 tons of air cargo was used in conjunction with the total cargo imported and exported at DIA in 1999 and 2009 to estimate a range of the number of air cargo jobs at DIA for both passenger belly and dedicated air cargo. The esti- mates were the following: – For 1999: 515,595 tons = 10,312 to 15,468 jobs; and – For 2009: 224,423 tons = 4,948 to 7,421 jobs. • Airport capacity—An industry-accepted utilization ratio of one U.S. ton per square-foot of cargo building space was used and, according to a feasibility report, the existing air cargo space at DIA is 325,000 square feet.(18) The feasibil- ity study outlines the original plans for a total of eight buildings that cover 495,200 square feet, which would have increased the total square footage to 876,444 or 1.2 million tons using a utilization factor of 1.36. Ultimately, only two buildings (Number 11—cross docking and Number 12— GSE support) were built, which added only 100,000 square feet of air cargo space. • Passenger capacity—Passenger airline carriers also pro- vide air freight services and transport cargo within the belly of the plane. A list of the total amount of belly capacity for DIA was not located. However, several trends have indi- cated that this amount of space is slowly decreasing, for several reasons, including the following: – After 9/11 the number of commercial flights dropped; – The FAA restricted the type of cargo that could be car- ried in passenger aircraft; – Passenger carriers have rightsized their aircraft, replacing wide-body aircraft with narrow bodies to lower opera- tional costs and increase load factors; and – Restrictions on personal carry-on possessions has forced additional baggage into the cargo belly. • Airport volume—When WorldPort was being considered, air cargo shipments at DIA were dramatically increasing with forecasts for continued growth. The contrast between the expected future growth and the current handling capac- ity at DIA was the catalyst for developing additional facili- ties. In the Denver metropolitan area, companies that spe- cialized in hard drives, switch gears, computer chips, and biotech heavily used air shipments to transport their prod- ucts and in the late 1990s and early 2000s these industries were experiencing phenomenal growth (according to an interview with DIA Director of Planning Rick Bush). The rise in just-in-time inventory practices and electronic com- merce (retailing) created strong demand for fast service that heavily relied on air cargo. According to the FAA, air cargo traffic nationwide increased 6.7% annually from 1988 to 1998.(18) These trends were further supported by forecasts that indicated a promising future for the cargo market. Boeing forecasted that worldwide air cargo would 74 Performance Measures Pre-Project (2000) Post-Project (2009) Jobs at Port 10,300 to 15,400 4,900 to 7,421 Airport Square Footage 381,000 square feet 481,000 square feet Airport Capacity 471,000 square feet 525,000 square feet Airport Volume — Actual 471,000 tons 224,400 tons Airport Volume — BCA Scenario 471,000 tons 595,000 tons (2025) DIA Operations Revenue $438.3 million per year $540.7 million per year (2008) DIA Incremental Air Cargo Revenue N/A $1.28 million per year DIA Operations Cost $191.4 million per year $373.8 million per year (2008) Table 5.11. Other performance metrics.

increase at a rate of 6.4% from 1998 to 2007, while Airports Council International forecasted U.S. cargo to increase at an annual rate of 5.8% from 1997 to 2010.(18) However, with the economic recession after the Dot Com bubble burst and the events of 9/11, a large portion of high-tech companies in Colorado were acquired, merged, or went out of business. With lagging sales and a decrease in cus- tomers’ willingness to pay for expedited products, other companies switched to 2-day truck service; further exacer- bating the drop in air cargo. Volume in 2009 (224,423 tons) was significantly below the capacity of 591,000 tons. How- ever, DIA is well positioned to accommodate additional air cargo when the economy begins to recover. • Operating revenues and costs—In the 2008 DIA financial report, operating costs and revenues are listed for the entire airport. Risk Assessment The element of risk is included in the analysis due to uncer- tainty in future port growth. Uncertainty can come from events such as 9/11 or Hurricane Katrina, or be classified as cyclical and random risk (e.g., business cycles, exchange rates, or industry fluctuation). Table 5.12 provides the risk assess- ment results that were based on the risk drivers of cargo growth rates. Because the project centers on providing addi- tional capacity, the downside risk of investment can be sub- stantial if the capacity is not used. The range of benefits is based on international growth rates of 3.3% to 9.6%, which are reflective of the trends during the late 1990s and early 2000s. In 2009, international shipments made up only 3% of total cargo shipments. Case Study 3—Tchoupitoulas Corridor Improvements Background After relocating the Port of New Orleans from the inner harbor out to the Mississippi River, a new port access road- way was built to remove trucks coming into the port from the local neighborhood (especially from the major thoroughfare of Tchoupitoulas Street). The new access road was named the Clarence Henry Truckway (also known as, the Tchoupitoulas Truckway); and is a two-lane, 3.5-mile heavy-duty road that provides dedicated access to the Port of New Orleans for truck-transported cargo. The Tchoupitoulas Corridor Improvements Project included widening Tchoupitoulas Street from a two- to three-lane highway with accompanying sewer, drainage, and flood wall improvements to provide security and protection for the port. New Orleans has been a center for international trade since 1718, when it was founded by the French. Today, the Port of New Orleans is at the center of a busy port complex— Louisiana’s lower Mississippi River. Its proximity to the American Midwest via a 14,500-mile inland waterway system makes New Orleans the port of choice for the movement of cargo to, and from, the region. The port is located between, and runs parallel to, Tchoupitoulas Street and the Mississippi River. Pontchartrain Express (Highway 90) provides highway access to the west (Figures 5.6 and 5.7). There is one entry/exit security gate located at the inter- section of Tchoupitoulas and Felicity Streets with a variety of warehouse and intermodal facilities located nearby (Figures 5.8 and 5.9). There are 50 ocean carriers, 16 barge lines, and 75 truck lines that serve the Port of New Orleans. Seventy-three per- cent of cargo goods are imports, and it is the top port of entry for steel, natural rubber, plywood, and coffee in the United States. The port handled 38 million tons of cargo in 2000, including 12.2 million tons of general cargo, which included more than 224,000 containers (equaling more than 346,000 20-foot equivalent units [TEU] and 26.8 million tons in bulk cargo). With the rise in truck traffic surrounding the port, issues surrounding traffic flow began to arise with the traffic con- centrated on two-lane Tchoupitoulas Street, which was in poor condition. Port traffic spread out and traveled through the local neighborhood, including areas such as the New Orleans’ historic Garden District, parks, universities, and retail establishments. Concerned citizens expressed the need to improve safety and minimize damage to historic buildings caused by the large volume of commercial traffic. In 1983, the 75 10% Lower Mean 10% Upper Total Net Benefit (3%) $26,831 $32,879 $33,987 Total Net Benefit (7%) -$16,417 -$5,767 $982 Table 5.12. Risk analysis results of total net benefits (thousands of dollars).

76 Figure 5.7. Extent of Tchoupitoulas Corridor Improvements. Figure 5.8. Port of New Orleans entry gate. Figure 5.6. Port of New Orleans.

city mandated certain restrictions, including the removal of trucks from historic neighborhoods, reconstructing the local roadway and constructing a new dedicated truckway for port traffic. Enforcing the truck restrictions was difficult, however, and funding for the project did not begin until 1989. Con- struction commenced in 1994, and the final stage was com- pleted in 2003. The purpose of the project was to provide a roadway that improved access to the port while removing heavy-vehicle traffic from the surrounding neighborhood streets. The objec- tive of the project also was to stimulate residential and com- mercial development in the surrounding area, and redevelop vacant and underutilized land and facilities at the port. Funding for the project came from the Transportation Infrastructure Model for Economic Development (TIMED) Program that was created by the Louisiana Legislature in 1989. The program was funded by a 4-cent-per-gallon tax on gaso- line and special fuels for 15 years (January 1990 to December 2004). The Tchoupitoulas corridor project is one of 16 proj- ects funded by the program. Period of Analysis, Discount Rate, and Key Assumptions Historical container volumes at the port from 1994–2008 were used in the analysis. Volume for break bulk and contain- ers was 10 million tons in 1994 and 5.9 million tons in 2008. Using a timeline of 25 years, the study team assumed that by 2019 cargo volume would return to its 1994 volume, which implies a zero growth rate from 1994, but implies a growth rate of 5.23% from 2008. Cargo forecasts beyond 30 years have limited impact on the analysis because of uncertainty and the relative weight of discounting future costs and bene- fits. Construction of the dedicated truckway started in 1994 and was completed in 2003. Project Stakeholders The study focuses on four primary stakeholders: the Port Authority of New Orleans, local/state governments, cargo carriers/freight forwarders, and regional businesses, all of which are classified by their respective roles in Table 5.13. • The Port of New Orleans is governed by a board of seven commissioners, who are nominated by local business, civic, labor, education, and maritime groups, and selected by the Governor of Louisiana. The principal funding of the port’s operating revenues primarily comes from terminal opera- tions (dockage, rentals, and harbor fees), which equaled $28.4 million in 2008. The port provides the service of loading and unloading cargo from berthed vessels; how- ever, it is through the dedicated truckway that cargo is 77 Stakeholder Port of New Orleans Local/State Governments Carrier/Freight Forwarder Regional Businesses Public- Sector Asset Provider Service Provider Shipper/ End User Other Party Private Asset Provider Table 5.13. Stakeholder classifications. Figure 5.9. Port of New Orleans entry gate (street view).

transported to and from the port, creating efficient goods movement. Since the port provides the use of this asset, it is classified as the public-sector asset provider. • State and local governments, such as the Louisiana Depart- ment of Transportation and Development (DOTD) and the New Orleans Regional Planning Commission, are benefi- ciaries of the project due to (1) additional economic activ- ity and corresponding tax revenues; and (2) reduced acci- dents and maintenance costs from removal of commercial trucks from Tchoupitoulas Street. Because of these bene- fits, state/local governments have an interest in the project, and therefore are classified as other stakeholders. • Cargo carriers/freight forwarders who use the facilities at the port are the organizations that provide the transporta- tion services for shipping customers and therefore are clas- sified as the service providers. The benefit from the time savings is provided by the dedicated truckway. • Regional businesses potentially may have additional vol- ume because the dedicated truckway provides time savings and efficient goods movement, which translates into costs savings. Businesses that rely on these transportation serv- ices at the port for their production input or output are accordingly classified as end users. Benefits The primary benefits of the dedicated truckway are the time savings for trucks that can access the port unencumbered by neighborhood traffic and intersections along Tchoupitoulas Street. This is accompanied by other directly related benefits, including reliability, reduction in accidents, and safety. The following sections provide a detailed description of the benefit measurements with a summary of all benefits in Table 5.14. Without information on the percentage of break bulk volume being transported by truck or rail, the research team assumed that 50% of break bulk cargo is transported by truck, and that all of the container cargo is transported to and from the port by truck. • Time savings—After the relocation of the Port of New Orleans to the Mississippi River, trucks were able to access the port through four truck routes using various entry points; however, this required a portion of the trip be on Tchoupitoulas Street, which is used by local neighborhood traffic. With the construction of the dedicated truckway, commercial trucks were able to bypass local traffic and the accompanying traffic lights in accessing the port. It was dif- ficult to identify drivers that had made deliveries to the port prior to the construction of the truckway, which started in 1994. Therefore, to estimate the approximate amount of savings per truck trip, the research team analyzed the speed and distance while factoring in the number of traffic inter- sections. With these assumptions, it was estimated that using the dedicated truckway would reduce a trip from 1.5 hours to 1.0 hour. Time savings translates into cost savings for carriers in categories of both crew costs and vehicle operat- ing costs. Using a truck operational cost per mile of $4.50 per hour (based on FHWA estimates), a truck crew cost of $25.02 per hour from published BLS values for truck driv- ers, (11) plus fringe benefits, and assuming an average typ- ical cargo loading of 10 tons (12) per truck yields an aver- age cost savings of $14.78 per truck or $1.48 per ton. Drivers did communicate that certain security has been imple- mented at the entry gate, which has increased the turn- around time entering and exiting the port. However, these security measures would have been implemented regardless of the creation of the truckway, and therefore were not fac- tored into the overall time estimates. • Reliability cost (buffer time)—Reliability is a measurement that takes into account congestion and variability. Conges- tion occurs when the current volume of traffic approaches the maximum capacity of the highway (measured by the metropolitan average of the fraction of VMT subject to a volume/capacity ratio greater than 0.95). The unexpected level of congestion contributes to variability. To accom- modate anticipated congestion, drivers often include additional trip time—known as buffer time or scheduled 78 Benefit Metric (in Millions of Dollars) User Service Provider Infrastructure Provider (Port of New Orleans) Public Truck Travel-Time Savings – $15.9 – – Truck Operating Cost Savings – $99.3 – – Freight Inventory/Reliability $21.0 – – – Accident Savings – – – $1.6 Emissions Savings – – – $0.6 Noise Savings – – – $6.4 Table 5.14. Present value of benefits (millions of dollars). 25-Year Timeframe

padding. Reducing the truck delivery time from 1.5 hours to 1 hour decreases the likelihood of unexpected conges- tion/delay and, consequently, the amount of buffer time. The reduction of buffer time is considered a time savings for both crew costs ($25.02 per hour) and transported freight ($2.25 per ton). • Freight inventory and reliability savings are measured using a freight logistics factor, which represents the busi- ness opportunity cost of freight delay, including inventory cost to shippers, carriers (dock handling), and/or those caused by overall schedule disruption. (Freight logistics cost is estimated on the basis of values assigned for recur- ring travel-time delay from Highway Economic Analysis Tool (HEAT) documentation, based on literature review and additional research by Cambridge Systematics and EDR Group.) The major commodity groups that are trans- ported through the Port of New Orleans have varying cost sensitivities per hour of delay; assumptions for total value of delay in this study (derived by the Transportation Economic Development Impact System [TREDIS] model) include rubber ($0.89/ton-hour), coffee ($.53/ton-hour), and ply- wood ($0.99/ton-hour). Safety and Environmental Benefits. Safety and environ- mental improvement estimates are calculated by applying travel volumes to a ratio of accidents to VMT and environ- mental costs per vehicle-hour traveled (VHT) per hour. By permitting only commercial trucks, having no stoplight intersections, and taking less time to make a delivery, driving on the dedicated truckway compared to using Tchoupitoulas Street provides both safety and environmental savings. These savings are measured by the reductions in VMT and VHT along Tchoupitoulas Street. Environmental costs were esti- mated to be $.21 per hour.(16) The following safety category ratios were reduced to reflect the removal of trucks from the highway (per 100 million VMT): • Fatalities: 0.4 to 0, • Personal injury: 12 to 4, and • Property damage: 198 to 99. Accident to VMT ratios were based on information from BTS, and environmental values per VHT were derived from FHWA and the Victoria Transport Policy Institute. Noise reduction benefits also were calculated. Research into monetary valuations of noise costs have centered on the depreciation in property values that are exposed to noise. Findings from a study by INFRAS using a Noise Deprecia- tion Index estimate that reductions in property value from truck noise amounted to $0.026 per ton-mile or $0.26 per VMT.(21) A TranSafety article (22) estimated damages for a 5-axle semitrailer operating at 65,000 lbs at $0.08 and $0.15 per VMT for urban business districts and urban fringe areas, respectively. A midpoint of $0.20 per VMT was used in the analysis. Costs The original capital costs of the project ranged from $70 million to $75 million, with 4% coming from the port and 96% coming from public sources. Actual capital costs were $60.4 million, which are listed by category and source in Table 5.15. Operations and maintenance costs of the dedicated truck- way were estimated to be approximately $400,000 per year in 1996, growing at a rate of 3% per year. Benefit/Cost Analysis and Other Performance Metrics Using a discount rate of 3% or 7% and a time horizon of 25 years, the total discounted benefits are shown in Table 5.16. Other Performance Metrics. Other important compo- nents of the project include costs and performance measures that describe the estimates and assumptions that went into the project analysis. Summaries of these categories also are listed in Table 5.17, and they include the following: • Jobs at the port—According to a 2004 economic impact report, the number of direct jobs at the port was estimated 79 Funds Category Source $20,000,000 Roadway TIMED Funds $15,000,000 Floodwall, utilities, and railroad track relocation TIMED Funds $15,424,690 Reconstruction of corridor Surface Transportation Program (STP) $10,000,000 Miscellaneous Port of New Orleans $60,424,690 Total Table 5.15. Actual capital costs by category and source.

at 12,331. Reports and estimates for previous years were not made available. • Port capacity—Port container capacity estimates were sourced from a strategic advisory report authored by Par- sons Brinckerhoff,(23) indicating that the maximum prac- tical capacity (MPC) of the port was 594,000 tons (based on the limits of the storage space). In discussions with port officials and freight forwarders, there were no indications of any constraints or bottlenecks based on current volume. • Operating revenue and costs—Operating revenues for cargo operations at the port totaled $41.2 million; and operating costs were $53.2 million in 2008. Risk Assessment The element of risk is included in the analysis due to uncer- tainty in the future port growth. Uncertainty can come from certain events such as 9/11 or Hurricane Katrina, or be classi- fied as cyclical and random risk (e.g., business cycles, exchange rates, or industry fluctuation). In 1996, after the major section of the truckway was built, cargo volume was 10 million tons. Since volume decreased down to six million in 2008 and was forecasted to rise back up to 1996 levels in 2019, a very small growth rate of estimate of 0.1% was used in the analysis. To account for fluctuations and uncertainty of cargo growth, a range of 0.1% to 3.0% was used to calculate the upper and lower bounds presented in Table 5.18. Case Study 4—Heartland Corridor Clearance Initiative Background The Heartland Corridor Clearance Initiative began in 2006, and at the time of this writing is in its final stage of con- struction. The project, scheduled to be complete in the fall of 2010, involves improvements to the rail network, as well as access to intermodal facilities and maritime ports, which have been deemed essential to accommodate the growth in rail 80 Category Total Benefit Total Cost B/C Ratio Net B-C Discounted Sum (3%) $141 million $47 million 3.02 $94 million Discounted Sum (7%) $86 million $44 million 1.96 $42 million Table 5.16. Benefit/cost analysis summary. Benefit Metric Pre-Project (1993) Post-Project (2008) Jobs at Port Not Available 12,331 (2004) Traffic ADT: Tchoupitoulas Street 12,957 (3,200 trucks) (1997) 10,367 (2009) Traffic ADT: Dedicated Truckway 0 465 (2004) Trains per Day 16 16 Port Capacity (TEUs) 250,000 per year 594,000 per year Port Volume (TEUs) 250,000 per year 300,000 per year Port Operations Revenue $38.2 million per year $41.2 million per year Port Operations Cost $22.8 million per year $53.2 million per year Table 5.17. Other performance metrics. 10% Lower Mean 10% Upper Total Net Benefit (3%) $115,260 $119,560 $122,690 Total Net Benefit (7%) $58,425 $60,102 $61,227 Table 5.18. Port of New Orleans cargo growth rate (risk analysis).

intermodal freight. Access to intermodal facilities has allowed producers to maintain smaller inventories while providing a competitively high level of service through fast and efficient delivery of manufactured goods to end users. The area formed by West Virginia’s southern and western panhandles, eastern Kentucky, and southern Ohio is not served by a local intermodal facility. Generally, containers are transported by truck to and from intermodal facilities outside of the region. These containers are then hauled on a single- stack train to their destination. Containers travel from the Norfolk Marine Terminal in Virginia toward the Chicago and Detroit freight hubs through the region. There are five main rail freight routes along which containers are transported; these routes are operated by CSX Transportation and Norfolk Southern (NS) Railroad. The Heartland Corridor Double-Stack Initiative enables hauling piggybacked containers, thus facilitating increased capacity and shortened travel times to meet demand for freight rail transport. Intermodal freight transport was a con- straint for regional economic expansion. Moreover, serious congestion on I-81 and other routes due to truck traffic growth was impeding regional travel. To increase truck-rail transfers and make freight transportation more efficient, the Heartland Corridor Double-Stack Initiative was created as a public-private partnership between local governments, the federal government, and NS Railroad. Construction for the Heartland Corridor Double-Stack Ini- tiative takes place on NS’ Norfolk and Western Route that orig- inates in Norfolk, Virginia, and Cincinnati, Ohio, to Columbus, Ohio. The rail line traverses three states—Virginia, West Vir- ginia, and Ohio (Figure 5.10). The line entrance in the east is located in Norfolk, Virginia, and continues west through Roanoke, Virginia. At Bluefield, Virginia, the line shifts direc- tion to northwest through much of West Virginia along the Kentucky state line until Columbus, Ohio. The rail tracks are part of the NS Virginia Division until Bluefield, Virginia, at which point they become part of the NS Pocahontas Division. The 667 miles of the line are predominantly double track and are entirely equipped with a block signaling system. In most areas, the system operates under centralized traffic control. The route offers favorable grades and curvature for double- stack freight transport. In the past, this line has benefited from numerous capital investments for maintenance and improvements due to the higher daily volume of trains that use this route. This line transports about 50 coal and freight trains daily. This route also represents the shortest freight rail distance between Norfolk, Virginia, and Columbus, Ohio. The Heartland Corridor Double-Stack Initiative was cre- ated to increase capacity and decrease travel time on the Nor- folk and Western 667-mile route. The initiative modifies the route to allow for double-stack container intermodal freight transport. It also shortens container transit routes between many freight terminals in the East and the Midwest. This reduction in distance allows for a reduction in the average transit time for goods transported along this route. The project scope includes the modification of 28 tunnels and the removal of 26 overhead obstructions in West Virginia, Ohio, and Kentucky to allow for double-stack freight transport. The project is anticipated to take 5 years from 2006 to 2010. 81 Figure 5.10. NS Norfolk and Western freight route.

Period of Analysis, Discount Rate, and Key Assumptions The benefit/cost analysis considers the performance of transportation facilities given forecast traffic. Although the design life of many facilities is 40 years or more, there are sev- eral reasons for selecting a shorter period of analysis (say, 30 years). One reason is that with discounting, the relative mag- nitude of benefit and cost streams in excess of 20 years are generally small and have limited impact on the analysis. Sec- ond, traffic is typically forecast for an out-year of the analysis and as the analysis extends beyond 20 years, forecasts will be more uncertain and less reliable. The benefit/cost analysis captures the benefit of the remaining useful life of the facility that extends beyond the period of analysis (called the “resid- ual value”), so that a properly constructed benefit/cost analy- sis will be fully reflective of an asset’s contribution, even if the period of analysis is less than the asset’s design life. This benefit/cost analysis uses a post-construction 30-year period of analysis, from 2011 to 2040. In the 5 years prior to our analysis, the new facilities will be under construction in the alternative case. Realized benefits will be taken into account beginning in 2011. The following two key assumptions were made to facilitate the analysis: • Traffic Growth—This case study considered three scenarios with varying rates of intermodal traffic growth for double- stack trains along the Heartland Corridor. Container traf- fic at U.S. ports has increased by 6% with an associated standard deviation of 2%. Accordingly, traffic growth along this corridor was modeled at the mean and one standard deviation above and below that value. The case study was, therefore, performed using three traffic growth scenarios— low (4%), medium (6%), and high traffic growth (8%). In all scenarios, we assumed traffic growth dropped to 1% in 2025. Single-stack traffic was allowed to grow at a maxi- mum annual rate of 3%, which is lower than double-stack traffic growth rates. Freight not accommodated by rail in the base case will, by assumption, be shipped by truck. • Discount Rate—The discount rates used in this case study were 3% and 7%. The higher discount rate implies a lower value of future benefits compared to discounted benefits using a lower discount rate. These two rates allowed for a balanced evaluation of the project and protect against overly optimistic project assessments. Project Stakeholders This study focused on six stakeholders: the federal govern- ment, the regional governments of Ohio and Virginia, NS Railroad, regional businesses, and the regional population. It is important to note that since this freight infrastructure investment is a public-private partnership, stakeholders often hold dual roles. Table 5.19 identifies all of the stakeholders for the Heartland Corridor Double-Stack Initiative by type. • Norfolk Southern is the owner of the rail line and the area surrounding the Norfolk and Western Line. The infra- structure improvement is set to take place directly on the railroad’s tracks. NS will, therefore, have a direct financial stake in the program because it plans to fund much of the construction, operation, and maintenance costs. Following construction, NS provides maintenance of way, traffic con- trol, and freight service in the corridor. This qualifies NS as an asset provider through its capital and financial invest- ment, and as a service provider. 82 Stakeholder Stakeholder Type Stakeholder Interest Norfolk Southern Asset Provider Service Provider Direct Financial Stake Indirect Stake The Nation Asset Provider Other Direct Financial Stake Indirect Economic Stake Virginia Department of Rail and Public Transportation Other Asset Provider Direct Financial Stake Ohio Rail Development Commission Other Asset Provider Direct Financial Stake Regional Businesses End Users Other Direct Business Stake Indirect Stake Direct Economic Stake The Region Other Major Nonfinancial Stake Direct Economic Stake Table 5.19. Heartland Corridor double-stack initiative stakeholders.

• The U.S. government, acting through FHWA, provides finance to the project and benefits directly from it since it contributes to strengthening the national economy. This qualifies the federal government as an asset provider and other stakeholder. • Local governments were represented in this study by two regional transportation organizations. The Virginia Department of Rail and Public Transportation (VDRPT) will be responsible for funding the majority of construc- tion in Virginia. The Ohio Rail Development Commission (ORDC) will finance all of the construction in Ohio. Both states will have a direct financial stake in the project; there- fore, they are classified as asset providers. It is expected that this project will catalyze business and manufacturing activ- ity in the area of interest; therefore, these two local govern- ments may be classified as other stakeholders. • Local and regional businesses enjoy business benefits from the project (e.g., lower costs, more timely deliveries) because the Heartland Corridor project enhances capacity and efficiency on the corridor, thus allowing for increased throughput. The consignees of goods shipped through intermodal means are often manufacturers or distributors; for the purposes of this study, the researchers considered them both as regional businesses. These businesses also experience the economic impact generated by this invest- ment and, therefore, have an economic stake in the proj- ect. Therefore, regional businesses are classified as end users and other stakeholders. • The region surrounding the project area will benefit from an amelioration of its environmental quality. The lower cost of shipment will entice a diversion of container traffic from trucks to intermodal freight rail. In doing so, emis- sions from trucks will be reduced as more end users decide to transport their goods via rail. The reduction in highway truck traffic relieves congestion on the adjacent routes of the Heartland Corridor. The diversion reduces emissions output while alleviating congestion on adjacent highway roads. This qualifies the region to become an other stake- holder in the project. Benefits The freight investment generates benefit streams to the proj- ect stakeholders. As shown in Table 5.20, the project benefits can be grouped into the following three principal categories: 1. Grade crossing elimination, 2. Economic development, and 3. Improved railroad operations. Railroad Benefits Transportation Savings. The selected route for the dou- ble-stack initiative would represent the shortest distance and travel time between Norfolk, Virginia, and Columbus, Ohio. The use of the Norfolk and Western Line to ship goods, as opposed to using adjacent routes, yields significant savings in distance traveled. This is reflected as a savings in travel time. Fig- ure 5.11 compares the Heartland Corridor route to two other competing routes from Norfolk, Virginia, to Columbus, Ohio. 83 Benefit Affected Stakeholder Type Affected Stakeholder Railroad Benefits Reduced Shipping Cost Asset Provider Service Provider Norfolk Southern Railway Reduced Inventory Carrying Cost Shippers End Users Regional Businesses and the Region Diversion Benefits Travel-Time Savings All Stakeholder Types The Nation, VDRPT, ORDC, Regional Businesses, and the Region Reduced Vehicle Operating Costs All Stakeholder Types The Nation, VDRPT, ORDC, Regional Businesses, and the Region Safety Benefits All Stakeholder Types All Stakeholders Emissions Savings All Stakeholder Types All Stakeholders Economic Impact Regional Economic Benefit All Stakeholder Types All Stakeholders Table 5.20. Heartland Corridor double-stack initiative stakeholders and benefits.

The research team used unit cost information from NS to assess transportation savings on the corridor for the period of analysis. The association of container volume to travel- ing distance to NS freight costs permitted an interpretation of transportation savings as a reduction in transportation unit costs for NS, and not annual aggregate transportation savings. To assess the transportation savings, the research team used a per ton-mile cost for single-stack shipping on the line in the base case. The per ton-mile cost to ship goods from Norfolk, Virginia, to Columbus, Ohio, on a single-stack train is $0.05. With the reduction of travel distance and the increase of capacity in the alternative case, NS would experience trans- portation savings of $0.02 per ton-mile for containers shipped on the Heartland Corridor. For all traffic growth scenarios, the per ton-mile cost to ship goods on the Heartland Corri- dor is $0.03 for double-stacked trains. Inventory Carrying Costs. The Heartland Corridor Double-Stack Initiative reduces the average travel time for goods to travel between Norfolk, Virginia, and points west. In doing so, the reduction in travel-time affects end users in their business decisions with regard to inventory. Quicker shipment of goods allows businesses to manage their inven- tory levels in an attempt to make production scheduling more efficient. Usually, a quicker turnover of goods allows these organizations to maintain a lower inventory level, thus approaching an economic order quantity. The cost savings stem from the reduction in inventory carrying costs, which represents the cost of holding inventory. This includes rent, insurance, utilities, perishability, and opportunity costs. The Heartland Corridor project will, therefore, allow business managers to more efficiently manage their inventory levels and allow these businesses to experience inventory carrying costs savings as a benefit of this initiative. Benefits from Container Traffic Diversion. The Heart- land Corridor project is expected to generate numerous ben- efits for the railroad through improvements in capacity and throughput. This, in turn, is expected to a create a number of other benefits, including the following: • Diversion benefits—Traffic diversion of containers from truck shipping to rail is expected to relieve congestion on adjacent highways because fewer trucks will be needed to transport goods from Norfolk, Virginia, to points west. The container truck diversion will, therefore, allow road- way users to experience travel-time savings on previously congested roads. • Reduced vehicle operating costs—The reduced conges- tion on highways adjacent to the Heartland Corridor leads to a decrease in consumption of fuel and other vehicle operating costs realized in the base case. All roadway users on the affected roadways experience this benefit. • Safety benefits—A decrease in volume of trucks on high- ways due to container traffic diversion to freight rail reduces roadway safety hazards. Consequently, highway vehicle acci- dents are reduced, creating a benefit shared among roadway users adjacent to the Heartland Corridor. • Emission reductions—A reduction in idling time and speed cycling by road vehicles contributes to a decrease in emissions. The reduction of emissions is beneficiary to all stakeholders because environmental quality is an interest for all stakeholders. Economic Benefits. The total present values of benefits from the Heartland Corridor Double-Stack Initiative with 4% expected traffic growth are presented in Table 5.21. Costs Capital Costs. The aggregate costs for this study take into account capital costs for the construction of the project and operations and maintenance costs. Prior to 2005, NS pre- pared preliminary cost estimates that did not consider each individual type of improvement and its location on the cor- ridor. Instead, it used a fixed unit cost for all construction work derived from another project. In this study’s costing 84 From Norfolk, via Heartland Corridor From Norfolk, Using Original Rt. 1 Distance Saved Travel Distance Reduction From Norfolk, Using Original Rt. 2 Distance Saved Travel Distance Reduction Average Travel Distance Reduction, per Route To Chicago 1,049 1,169 -120 -10% 1,251 -202 -16% -13% To Detroit 875 1,164 -289 -25% 1,078 -203 -19% -22% To Columbus 667 967 -300 -31% 1,038 -371 -36% -33% Figure 5.11. Freight rail routes from Norfolk, Virginia, to Columbus, Ohio.

method, the research team looked at every type of modifica- tion to tailor a cost estimate for improvements for each inde- pendent location using prices from contractors currently per- forming similar work. The majority of the infrastructure improvements in the project area occur on tunnels. Table 5.22 provides a break- down of costs by modification type for each tunnel. Addi- tional infrastructure costs, such as non-tunnel clearance, are applicable to the total capital costs. Total capital costs for the duration of the project are estimated at $159.94 million. Operations and Maintenance Costs. Following the com- pletion of construction, maintenance costs are to be incurred, and accounted for, in the freight investment benefit/cost analysis. These costs are incurred by NS and calculated using base case operations and maintenance costs on the 667-mile project area. The maintenance costs include the expenses to maintain way and structure. Maintenance costs will vary with traffic growth in each of the scenarios described above. Benefit/Cost Analysis and Other Performance Metrics Using the evaluation framework, the research team’s analy- sis of the Heartland Corridor Clearance Initiative generated the following results shown in Table 5.23. Risk Assessment The risk assessment results are illustrated in Table 5.24. The principal risk driver is the reduction in unit shipping cost achieved through double-stacking intermodal freight in the corridor. Case Study 5—Port of Huntsville Inland Port Background The Port of Huntsville is a multimodal inland port located at the Huntsville International Airport, nine miles south- west of Huntsville, Alabama, in Madison County. The port is situated south of 565 and west of the U.S. Army Garrison Redstone Arsenal (see Figure 5.12). The port offers rail and air cargo transportation services through connections to the NS rail line and Huntsville International Airport. It is composed of three entities: the airport (Figure 5.13), Inter- national Intermodal Center (IIC) (Figure 5.14), and Jetplex Industrial Park (Figure 5.15). The intermodal center also is a U.S. Customs port of entry that handles cargo via air, highway, and rail. From 1991 to 1999, international freight/express cargo increased by 8.8% per year. International revenue ton-mile (RTM) forecasts indicated 46% growth for international cargo by year from 1990 to 2011. From 1990 to 2000, cargo carrier activity at the Port of Huntsville increased by 116%. With a goal of serving as a regional intermodal cargo center, the Port of Huntsville identified the need to serve nonstop flights to Europe, Latin America, and other international des- tinations. Exemplifying this growth, Panalpina was contract- ing 2 weekly flights in 1995, which grew to 11 flights in 2000. Panalpina, which selected the Port of Huntsville as their North American air cargo hub, currently serves Asian and African markets by connecting through its European hub in Luxemburg, but expressed a desire to provide direct service to Asia and the Pacific Rim to keep pace with shipper’s demands and expand its marketplace. A rising trend in the air cargo industry was the use of very large aircraft (e.g., the Boe- ing 747-400) that require long runways of at least 12,600 feet, 85 Benefit Metric Infrastructure Provider User Service Provider Public 3% DR 7% DR 3% DR 7% DR 3% DR 7% DR 3% DR 7% DR Reduced Shipping Cost – – – – $738,630 $376,820 – – Reduced Inventory Carrying Cost – – $468,439 $228,852 – – – – Travel-Time Savings – – $1,191,735 $614,626 – – – – Reduced Vehicle Operating Costs $16,631 $10,985 – – – – – – Safety Benefits – – – – – – $209 $ 91 Emissions Savings – – – – – – $1,996 $1,318 Note: DR denotes the discount rate. Table 5.21. Present value of benefits assuming 4% traffic growth (thousands of dollars).

86 Tunnel Name Milepost Liner/ Removal Notching Daylighting Notes 1 Pepper N 305.4 $11,389,669 $5,441,884 N/A 2 Eggleston No. 1 N 316.2 N/A N/A N/A Realign to center 3 Eggleston No. 2 N 317.0 $2,512,371 $1,637,878 N/A 4 Pembroke N 319.8 $583,760 $288,145 $1,738,133 5 Cooper N 374.3 $3,078,317 $1,053,064 $7,788,322 6 West Vivian N 392.1 $3,075,166 $1,122,889 $5,118,276 7 Big Four No. 1 N 394.2 $2,849,517 $1,016,995 $5,686,980 8 Big Four No. 2 N 395.1 $780,143 $278,688 $631,009 9 Huger (No. 1 Main) N 395.6 $993,057 $116,454 N/A 10 Huger (No. 2 Main) N 395.6 $1,259,203 $499,347 N/A 11 Welch N 398.9 $5,788,835 $2,048,995 N/A 12 Hemphill No. 1 N 400.2 $3,871,754 $1,267,657 $5,831,760 13 Hemphill No. 2 N 400.4 $4,973,067 $1,364,149 $11,702,138 14 Antler No. 1 N 403.7 $2,671,095 $955,706 $4,181,886 15 Antler No. 2 N 405.1 $2,727,301 $953,093 $4,080,529 16 Twin Branch No. 1 N 407.7 $3,292,345 $1,092,696 $6,146,107 17 Twin Branch No. 2 N 408.1 $3,955,320 $1,400,227 $8, 897,175 18 Vaughn N 412.1 $4,945,145 $1,704,279 N/A 19 Roderfield N 413.1 $3,879,211 $1,105,460 $9,559,781 20 Laurel N 414.1 $3,463,048 $1,178,413 $4,023,981 21 Gordon N 415.1 $5,925,129 $2,112,911 N/A 22 Glen Alum N 439.5 $5,703,090 $2,052,831 N/A 23 Hatfield (No. 2 Main) N 462.1 $3,787,191 $1,656,798 N/A 24 Williamson N 471.6 $2,813,790 $1,128,773 $5,959,880 25 Big Sandy No. 1 NA 3.3 $9,305,782 $5,365,928 N/A 26 Big Sandy No. 2 NA 6.0 $1,161,241 $523,139 $1,189,727 Can bypass 27 Big Sandy No. 3 NA 6.8 $6,862,020 $3,347,961 N/A 28 Big Sandy No. 4 NA 12.7 $6,708,833 $2,545,644 N/A Table 5.22. Tunnel modification costs. Category Discounted Sum 3% 7% Total Costs $203,809 $165,812 Total Benefits $2,417,639 $1,232,691 B/C Ratio 11.9 7.4 Net B-C $2,213,830 $1,066,879 Table 5.23. Benefit/cost analysis summary.

87 10% Lower Mean 10% Upper 4% Annual Intermodal Traffic Growth Total Benefits (3% discount rate) $531,139 $1,343,082 $1,810,574 Total Benefits (7% discount rate) $263,273 $678,210 $904,766 6% Annual Intermodal Traffic Growth Total Benefits (3% discount rate) $661,931 $1,740,961 $2,310,995 Total Benefits (7% discount rate) $329,307 $857,737 $1,157,525 8% Annual Intermodal Traffic Growth Total Benefits (3% discount rate) $808,511 $2,225,677 $2,904,620 Total Benefits (7% discount rate) $415,192 $1,063,958 $1,423,059 Table 5.24. Risk analysis results of total benefits (thousands of dollars). Figure 5.12. Port of Huntsville. Figure 5.13. Huntsville International Airport and JetPlex facility. Figure 5.14. International Intermodal Center—air cargo operations.

to provide nonstop service to international destinations within a range of 7,000 nautical miles. To meet Panalpina’s request, a runway extension from 8,000 feet to 12,600 feet was pro- posed. This extension was expected to increase payload capacity, operational efficiency, and activity. Industries in the Huntsville region that rely on air shipments include chemicals, automated equipment, technology, com- puters, well drilling, aeronautics, helicopters, and automotive suppliers and manufacturers. The region has developed a strong base of auto assembly and parts facilities that include companies such as Hyundai, Mercedes-Benz, Toyota, and Volkswagen. Often, German companies such as Mercedes- Benz and Volkswagen will fly in needed parts or will send car prototypes back to Germany for inspection and testing. Period of Analysis, Discount Rate, and Key Assumptions The benefit/cost analysis incorporates FAA terminal area forecasts (TAF) for cargo volume from 2000 to 2023, which were extended to 2025 using the TAF growth rate of 4.3%. Although recent economic volatility has resulted in less cargo volume than forecasted, the research team believes that the trend will be corrected in the long run and will be in line with FAA estimates. Cargo forecasts beyond 30 years have limited impact on the analysis because of uncertainty and the relative weight of discounting future costs and ben- efits. Construction of the runway started in 2000. Because the runway was completed in May 2004, representing only 41% of the year, 2003 was used as the construction end date for the analysis. Project Stakeholders The study focused on four primary stakeholders: the Port of Huntsville, regional governments, cargo carriers/freight forwarders, and regional businesses, all of which are classified by their respective roles in Table 5.25. • The Port of Huntsville is organized as an Alabama public corporation governed by a five-member board made up of local citizens and business representatives called the Huntsville Madison County Airport Authority. The prin- cipal funding of the port’s operating revenues comes from both passenger and air cargo operations, which were $17 million and $3.5 million, respectively, in 2005. The air- port collects landing, handling, and other cargo processing fees for carriers that ship and receive product through their facilities. By building and maintaining the runway, and leasing cargo space and handling facilities, the Port of Huntsville is classified as the public-sector asset provider. • Regional governments are beneficiaries of the economic development benefits that the project provides due to increased business activity, which generates revenues from property, sales, and other tax mechanisms. Since regional governments have a beneficiary interest in these types of projects, they are classified as other stakeholders. • Cargo carriers/freight forwarders who use the facilities at the port are the organizations that provide the actual freight movement and transportation services for shipping cus- tomers and, therefore, are classified as service providers. Time savings due to the reduction in fueling stops because of the runway extension translate into cost savings. • Regional businesses that rely on air shipments for their products or for critical input components for their produc- tion cycles are classified as end users. The runway exten- sion provides access to additional international destina- tions and also increased volume capacity which benefits regional businesses. From an economic development per- spective, additional service destinations and volume can be viewed as an incentive to attract and retain business in the Huntsville metropolitan area. 88 Stakeholder Port of Huntsville Regional Governments Carrier/Freight Forwarders Regional Businesses Public Sector Asset Provider Service Provider Shipper/ End User Other Party Private Asset Provider Table 5.25. Stakeholder classifications. Figure 5.15. Jetplex Industrial Park.

Benefits The primary benefit measures due to the extension of the runway are the reduced operational costs and the increased payload capacity per plane. Based on interviews with the Port of Huntsville, elevation and temperature conditions in Huntsville during parts of the year affect the lift factor, which requires weight limits for shorter runways, necessitating addi- tional fuel stops instead of direct-destination flights. Extend- ing the runway to accommodate larger aircraft eliminates additional time needed to refuel and is considered a benefit. Increasing the cargo capacity with a larger aircraft allows additional cargo and corresponding revenue for relatively the same operating costs. This increase in overall productivity also is considered a benefit of the runway extension. The fol- lowing sections provide a detailed description of the benefit measurements and a summary of all categories in Table 5.26. Time Savings. During the summer months, the eleva- tion and average temperatures in Huntsville reduce the air lift factor, which requires limitations on fuel weight that, in turn, force aircraft to make additional fuel stops to reach their final destination. These conditions during this season are esti- mated to occur during approximately 20% of the year. Large aircraft with heavier fuel loads are able to fly directly to more distant markets, and this reduces overall cargo ton-hours. To measure the value of time savings, block hour operating costs were used, which were estimated by the FAA.(24) The Boeing 747-400 and 747-200 airplane models were selected as most representative of the types of aircraft used by Panalpina for shipping goods to Huntsville. After adjusting for inflation, the block hour operating costs for the Boeing 747-400 were $11,311 and $8,695 for the 747-200. Panalpina estimated the time interval between fueling stops lasted between 90 to 120 minutes, however a conservative esti- mate of 30 minutes was used in the analysis based on the con- servative estimate of a sensitivity study commissioned by the port. Panalpina’s forecasted operations were based on FAA TAF activity and the current cargo market in Huntsville. Panalpina’s schedule in 2000 was nine weekly international flights, which was forecasted to increase to 24 flights in 2023 (and trended out to 2025 using the annual growth rate of 4.3%). Based on inter- views with Panalpina, the newer 747-400 was estimated to han- dle 81% of future operations while the 747-200 was estimated to transport the remaining 19% of freight. Both of these air- plane models reflect the appropriate aircraft fleet mix since block hour operational costs vary by aircraft type. Freight inventory and reliability savings are measured using a freight logistics factor which represents the business opportunity cost of freight delay, including inventory cost to shippers, carriers (dock handling), and/or those caused by overall schedule disruption. (Freight logistics cost is esti- mated on the basis of values assigned for recurring travel- time delay from HEAT documentation, based on literature review and additional research by Cambridge Systematics, Inc. and EDR Group.) The major commodity groups that are transported through the Huntsville airport have varying cost sensitivities per hour of delay; assumptions for total value of delay in this study (derived by the TREDIS model) include computer equipment ($3.93/ton-hour), transportation equip- ment ($1.69/hour), and machinery ($3.93/ton-hour). Productivity. The length of the runway and the climate also place restrictions on the aircraft cargo weight, and this prevents payload maximization. According to interviews with Panalpina, when climate conditions are factored into operat- ing capacity, shipments from Huntsville average 85% of their capacity. The difference between the actual aircraft capacity and the potential capacity was used to determine how much additional cargo could be shipped out of Huntsville with an extended runway. Freight rates were estimated by compiling and applying a composite rate from markets in Houston, Memphis, and Atlanta that included handling, transfer, and fuel surcharges. The composite shipping rate was estimated to be $2.64 per kilo based on a 1,000-kilo shipment. The stan- dard aircraft payload volume for the Boeing 747-400 was esti- mated at 120 tons, or 109 metric tons, and volume for the Boeing 747-200 was estimated at 100 tons, or 91 metric tons. 89 Benefit Metric (in Millions of Dollars) User (Shipper) Service Provider Infrastructure Provider Public Air Travel-Time Savings – $19.6 – – Air Operating Cost Savings – $111.7 – – Freight Inventory/Reliability $0.70 – – – Accident Savings – – – $0.0 Emissions Savings – – – $0.0 Table 5.26. Present value of benefits (millions of dollars). 25-Year Timeframe

Costs. The capital costs to extend the runway by 4,600 feet were approximately $27 million ($33.7 million in 2008 dollars) over 3 years (from 2000 to 2003) and included a paral- lel taxiway extension of 750 feet. Operations and maintenance of the runway and taxiway were estimated to be approximately $120,000 ($150,036 in 2008 dollars) per year, growing at a rate of 3% per year. Benefit/Cost Analysis and Other Performance Measures Using a discount rate of 3% and 7%, and a time horizon of 25 years, the total discounted benefits, costs, and benefit/cost ratio are shown in Table 5.27. Other Performance Metrics Economic Impact. The Huntsville project leads to regional economic growth through two mechanisms: (1) an increase in profitability and productivity for area producers and shippers due to transport time, cost and reliability savings; and (2) an increase in local transport and freight forwarding employment due to the increase in the volume of freight flowing through Huntsville. If air cargo activity increases over the next 15 years at the forecast average growth rate of 4.3% per year, then regional economic impacts are projected to reach the fol- lowing levels in the year 2025: • Business output (sales volume): + $44.3 million/year; • Gross regional product (value added): + $17.9 million/year; • Worker wages: + $12.2 million/year; and • Long-term jobs (recurring): + 262. The present value of the long-term (25-year) time stream of wider economic impacts and costs also was calculated, using a discount rate of 3%. The results were that the present value of future gross regional product (GRP) is projected to increase by $96 million and the present value of project costs is projected to amount to $30 million, representing a GRP/cost ratio of 3.14. These impacts were calculated using the TREDIS frame- work, employing the cost response input-output (CRIO) eco- nomic impact forecasting model, together with the IMPLAN multiregional trade flow model. Other Performance Metrics. Other important compo- nents of the project include cost and performance measures that describe the estimates and assumptions that went into the project analysis. Summaries of these categories also are listed in Table 5.28. They include the following: • Jobs at the port—The 2008 economic study (25) indicated that there were 761 jobs at the airport and that these jobs were filled by employees of the airport, airlines, shippers, intermodal services, and concessions. Jobs specifically devoted to cargo were not highlighted. • Airport capacity—In May 2009, an air cargo building meas- uring 92,000 square feet was opened, and this increased the air cargo capacity of the International Intermodal Center (IIC) by 30%.(26) According to the Port of Huntsville web- site, there currently is 300,000 square feet for receiving, stor- 90 Category Discounted Sum (3%) Discounted Sum (7%) Total Benefit $132M $80M Total Cost $30M $32M B/C Ratio 4.33 2.51 Net B-C $102M $48M Table 5.27. Benefit/cost analysis summary. Performance Measures Pre-Project (1999) Post-Project (2008) Jobs at Port N/A 761 Airport Capacity (Square Feet) N/A N/A Airport Volume 48,200 tons 73,500 tons Operations Revenue N/A $22.9 million per year Operations Cost N/A $11.7 million per year Table 5.28. Other performance metrics.

ing, transferring, and distributing domestic and interna- tional air cargo.(27) In discussions with port officials and freight forwarders, there were no indications of any con- straints or bottlenecks due to lack of facility space. • Operating revenue and costs—Operating revenues for both passenger and air cargo operations at the airport totaled $22.9 million and operating costs were $11.7 mil- lion in 2008. Risk Assessment The element of risk is included in the analysis due to uncer- tainty in the future airport cargo growth. Uncertainty can come from certain events such as 9/11 or Hurricane Katrina, or be classified as cyclical and random risk (e.g., business cycles, exchange rates, or industry fluctuation). Table 5.29 provides the lower and upper bounds of the risk assessment in reference to the mean based on the cargo growth range of 2% to 7%. The TAF of 4.3% provides additional confirmation that the growth range is a reasonable guess of future growth. Case Study 6—Bayport Container Terminal Background The Port of Houston is a 25-mile-long public-private mar- itime industrial complex located along the Houston Shipping Channel, a few hours’ sailing time to the Gulf of Mexico. As of 2008, the port was first in the United States by foreign ton- nage, and seventh by containers, with approximately 1.8 mil- lion total TEUs. The Port of Houston Authority (POHA) owns the port’s container terminals, Barbours Cut Container Terminal (Barbours Cut), and, more recently, Bayport Con- tainer Terminal (Bayport). Barbours Cut (Figure 5.16) lies 3.5 hours north of the Gulf of Mexico, and offers six container ship berths (6,000 feet of quay), and is serviced by 13 container cranes. The facility also features a roll on-roll off (Ro-Ro) platform, a lighter aboard ship (LASH) dock, and a single-berth cruise termi- nal. Barbours Cut is accessible by 26 truck lanes (15 scales) leading to 4 gates as well as an intermodal railyard with 4 working and 5 storage tracks (162,000 TEU/year capacity). The marshaling area is 230 acres, and storage can accommo- date almost 25,000 grounded TEUs. Before the development of Bayport, 80% of the containers moving to and from Texas were handled at Barbours Cut, amounting to 50% of the Gulf’s total containers. By 2004, the facility was handling 1.4 million TEUs, up from 700,000 in 1995—20% more than its capacity. Often, every berth at Barbours Cut was occupied, resulting in as much as an additional day at sea for waiting vessels. For a time, the Galveston Terminal, a two-berth container terminal, was used by POHA to alleviate the strain on Bar- bours Cut. However, given that approximately 55% of con- tainers received at POHA facilities are bound for Harris County or surrounding locales, even a 45% rate reduction failed to make up for additional land transportation costs. Figure 5.17 depicts the location of the Galveston terminal rel- ative to Harris County and the City of Houston. POHA allowed the Galveston Terminal lease to expire after volumes remained low despite significant discounts. Bayport, situated less than 10 miles south of Barbours Cut, was conceived as a long-term solution to the port’s capacity shortfall (see Figures 5.17 and 5.18). Bayport was master planned for implementation between 2007 (opening of Phase 1) through 2030. Eventually, the facility is expected to attain 526 acres, offer 7 berths, and include a 123-acre intermodal facility. Phase 1 is shown in Figure 5.19 and is composed of 65 acres featuring 2 berths sharing 6 cranes. In addition to a three-berth cruise terminal (not currently operating). Bayport is able to handle significantly larger vessels than Barbours Cut: 91 10% Lower Mean 10% Upper Total Net Benefit (3%) $98,100 $102,120 $109,880 Total Net Benefit (7%) $45,053 $47,263 $51,415 Table 5.29. Risk analysis results of total net benefits (‘000 dollars). Figure 5.16. Barbours Cut container terminal.

18 wide, expandable to 22, as opposed to 13, with an air draft of 120 feet. Period of Analysis and Key Assumptions Phase 1 of the Bayport Container Terminal opened in 2007. Since the objective of the current analysis is to assess the benefits of projects that have been implemented, the study time period is 2007–2009. This allows for the testing of key assumptions and analytical tools used to conduct the pre- construction projection of benefits. In addition, results from an analysis are presented that project the benefits to 2030, based on the lessons learned in the post-construction period analysis. Cargo forecast for the long-term analysis on the build-out forecast from the POHA incorporates the most recent economic downtown and subsequent fall in cargo. The remaining assumptions are based on data derived from real- ized benefits to date. Project Stakeholders The study identified five primary stakeholders: the Port of Houston Authority, local and regional governments, car- riers and freight forwarders, and regional businesses (see Table 5.30). • The Port of Houston Authority is headed by seven com- missioners. Two each are appointed by the City of Hous- ton and the Harris County Commissioners Court. POHA’s day-to-day operations are managed by a CEO, who is appointed by these two government bodies. The Harris County Mayor and Councils Association and the City of Pasadena (Bayport’s host city) each appoint one commis- sioner. The port both leases and operates berths and equip- ment within the new Bayport terminal. • Local and regional governments control POHA through the appointment of leadership and derive tax income and jobs through the port’s activities. The primary benefit to the local and regional governments is increased port revenues and tax-base expansion through land development and business attraction based on close proximity to the port. • Carriers and freight forwarders are the direct users of the port’s cargo facilities, and benefit from the port’s ability to handle large vessels with less wait time. For trucking com- panies and freight forwarders, this translates to faster, more reliable pick-ups and drop-offs due to both reduced terminal congestion and improved roadway connections. For railroads, the additional port capacity translates to increased volumes. • Local and regional businesses benefit from reduced ship- ping costs due to greater certainty experienced by carriers and shippers. In addition, local developers benefit from increased opportunities to attract shippers, warehousing and distribution, and other industrial and commercial opportunities. Benefits The primary benefit measures attributable to the addition of the Bayport Container Terminal are (1) greater carrying capacity and more reliable unloading windows for ocean going 92 Figure 5.17. Bayport in context. Figure 5.18. Bayport—Houston Shipping Channel. Figure 5.19. Bayport Phase 1.

vessels; (2) greater gate reliability and reduced on-terminal time for truckers, both of which should result in lower costs for local and regional businesses; and (3) local land development opportunities. Other benefits include reduced maintenance costs due to the use of 30-year pavements (at a premium of 4%), increased safety from improved highway access, and reduced emissions due to the diversion of long-haul truck trips (after the intermodal facility opens at a later phase). The following sections provide a detailed description of the benefit measurements with a summary of all categories in Tables 5.31, 5.32, and 5.33. Time Savings and Reliability • Ocean-going vessels (OGV) are expected to save a full day between dwell time savings (due to advanced equipment and reduced terminal congestion) and berth congestion at 93 Stakeholder Port of Houston Authority Local and Regional Businesses Local and Regional Governments Carrier/Freight Forwarders Public Sector Asset Provider Provider Service Shipper/ End User Other Party Private Asset Provider Table 5.30. Stakeholder classifications. Project Attributes Benefit Categories Affected Party Phase 1: 2 additional berths, 4 additional cranes Container volumes, reliability, productivity, efficiency, security, jobs, tax revenues POHA, shippers, warehousing, businesses/industry, consumers, workers Roadway enhancements and rail access Travel times, reliability, vehicle maintenance costs, mode shift Trucking companies, railroads (subsequent phases), businesses, public ISO 14001, mitigation (e.g., sight and sound berms), land conservation Emissions, ecological systems, public health, worker health Adjacent residents, the public, workers Land development in areas in close proximity to the port Business attraction, construction activity, jobs, tax revenue Land developers, land owners, local and state governments, workers, businesses Table 5.31. Project attributes and benefit categories by party. Benefit Metric Millions (2009 Dollars) Travel-Time Savings $29.5 Vehicle Operating Cost Savings $26.9 Logistics Cost Savings $25.7 State of Good Repair $0.9 Emission Benefits $5.7 Safety Benefits $14.6 Indirect and Induced Benefits $68.3 Total Benefits $172.3 Table 5.32. Present value of benefits (2007–2009).

Barbours Cut. A total of 969 and 809 ships called on Bar- bours Cut in 2007 and 2008, respectively. A total of 97 and 225 ships called on Bayport during those years. That equates to 2,100 days saved for OGVs. • The pickup/drop-off times for trucks have decreased from 60 minutes or more to 30–40 minutes. Drayage operators confirmed the information provided by POHA authorities and said that average cost per drayage trip has decreased by an average of $15–$20. • Shippers and carriers were interviewed to assess the impact of reliability enhancements. Although it was recognized that travel times and turnaround times had improved, there were no measurable reliability impacts. The congestion did not lead to unreliable turnaround times, just longer ones. In terms of reliability for OGVs and port tenants, no discernable benefits could be isolated. This is primarily because at about the same time that the Bayport terminal came on-board, the Houston Port Bureau, a private port research firm, introduced a vessel tracking and monitoring system that allows port users to know exactly when a ves- sel will be docking and alerts of any delays. In terms of enhancing reliability and resulting monetary benefits, the stakeholders agree that this technology far outweighed any benefits accruing as a result of the new terminal itself. Capacity • Barbours Cut was operating at or above capacity in 2007 when Bayport opened. With the Houston region projected to grow by more than 4 million people, cargo bound for the region would have had to be diverted to gateways farther away, increasing the cost of delivered goods. In addition, significantly larger (post-Panamax) OGVs can now be unloaded at POHA facilities, enabling shippers to take advantage of lower transit costs. • There also have been increases in surface transportation capacity. Surrounding roadways, including access to the Bayport Terminal and Barbours Cut have been built and/or expanded. In addition, TxDOT has completed a flyover that provides improved connectivity for both terminals to SR 146. Also, there are plans for on-dock rail access at Bayport that will further improve transit times and turnaround. Environmental • Emissions reduction—A reduction in truck idling time on terminals and on congested roadways contributes to reduced emissions. In addition, reduced OGV dwell time and on-dock rail capabilities will reduce emissions. • Reduced fuel consumption—The reduced wait time for OGV and reduced idling for trucks also give rise to fuel sav- ings. This also provides private benefits in terms of reduced vehicle operating costs. Safety • Improved roadways—Widening from four to six lanes and reduced congestion lead to fewer accidents and safety benefits. Costs The capital costs for Phase 1 have amounted to about $400 million, and final costs at build-out are expected to be $1.2 bil- lion. Operations and maintenance costs were approximately $6.2 million for the 2007–2009 time period and are projected to be $71.3 million for the time period of 2007–2030. Benefit/Cost Analysis and Other Performance Measures Using a discount rate of 3%, the total discounted benefits and costs are estimated for both time periods. As shown in Table 5.34, the benefit/cost ratios range from 0.41 for the 2007–2009 timeframe to 2.62 for the 2007–2030 timeframe. This illustrates the importance of considering long-term ben- efits and costs in completing an assessment of freight invest- ments. It also demonstrates that initial estimates of the bene- fits may be overstated due primarily to the fall in cargo levels 94 Benefit Metric Millions (2009 Dollars) Travel-Time Savings $565.4 Vehicle Operating Cost Savings $532.3 Logistics Cost Savings $498.87 State of Good Repair $16.6 Emission Benefits $109.8 Safety Benefits $282.7 Indirect and Induced Benefits $1,320.3 Total Benefits $3,325.8 Table 5.33. Present value of benefits (2007–2030).

resulting from the current economic downturn. Therefore, incorporating risk assessment is a key element in conducting these analyses. Other Performance Measures Other important components of the project include costs and performance measures that describe the estimates and assumptions that went into the project analysis. Summaries of these categories are listed in Table 5.35, and they include the following: • Jobs at the port—The 2002 economic study (28) per- formed by Martin Associates projects an increase of 2,017 jobs at the port at the opening of Bayport Phase 1 (2007), and 29,255 at full build-out (2030). • TEU capacity—At full project build-out, Bayport is expected to add 2.3 million TEUs of capacity to the Port of Houston. • Business revenue and costs—At the opening of Phase 1, business revenue was expected to increase by $82.2 million, with an additional $1.1 billion by full build-out. • Land development—The region and especially Chambers County anticipates additional land development to occur as the region attracts warehousing and distribution opera- tions tied to the new container terminal and the opening of the Panama Canal. Wal-Mart, Home Depot, and Seapak all located within the county prior to the opening of Bayport. Since construction began on Bayport, developers have assembled nearly 20,000 acres of land for future industrial development. To complement this growth pattern, the county is restricting residential development in prime freight development areas and working with TxDOT to ensure that the newly constructed Grand Parkway remains untolled to encourage truck usage. Risk Assessment The element of risk is included in 2030 analysis due to the uncertainty of cargo volumes in the future. Uncertainty can come from several factors, including general economic cli- mate, natural disasters, community resistance, global trends, and random risks. Table 5.36 provides the upper and lower bounds of risk assessment in reference to the mean based on cargo growth ranges of 4% to 9%. The ranges of growth are based on historical growth patterns of containerized cargo and are consistent with North American trends from the 1990s to early 2000s. The ranges are also in line with recent cargo growth forecasts for North American ports. 5.3 Case Study Lessons Learned The completion of these six case studies provided a num- ber of lessons about the ability of the Freight Evaluation Framework to evaluate the interrelationships among freight benefit types, determine whether there are significant differ- ences in the Framework’s application across different types and scales of freight investments, and assess the overall strengths and weaknesses of the Framework. In general, the 95 Category 2007–2030 (Millions of Dollars) Total Benefit Total Cost B/C Ratio Net B-C 2007–2009 (Millions of Dollars) $165.8 $407.0 0.41 ($241.2) $4,710.2 $1,797.8 2.62 $2,912.4 Table 5.34. Benefit/cost analysis, 3% discount rate. Performance Measures 2007 Full Build-Out Projected Increase in Cargo Jobs at Port 2,017 29,255 Projected Increase in TEU Capacity 600,000 2,300,000 Projected Increase in Business Revenue $82.2 M $1.1 B Projected Increase in State/Local Tax (from Port Activities) $8.3 M $121.3 M Land Development 4,000 acres 20,000 acres Table 5.35. Other performance measures.

Framework appeared to perform adequately across the set of six case studies. However, there are a number lessons learned from the case study testing process, and these are summarized in the following sections. Need for Clearly Defined Project and Alternative Cases The six case studies all involve capital investment, although they vary in the following four dimensions: • Modes affected—Various combinations of truck, rail, air, and marine transport; • Types of facilities—Routes (e.g., road or rail corridors), vehicle access (e.g., docks, runways, yards, or terminals) and/or freight handling facilities (e.g., intermodal transfer or transload facilities, warehouses, etc.); • Types of improvement—To enhance the performance of a facility, expand the range of use that it can serve, and/or expand its capacity; and • Functional status—Currently facing capacity, use, or per- formance limitations, or currently functioning well, but facing the prospect of demand growth or changes leading to expected future capacity/use/performance limitations. In the cases presented here, some of the projects have been completed while others are still being implemented. Thus, some describe the project (build) and alternative (no-build) scenarios in the past tense, while others describe them in the expected future tense. In yet other cases, the projects were built but demand patterns and business conditions changed from original expectations. In those cases, the case studies describe both current short-term outcomes and projected long-term future outcomes. Regardless of the situation, these case studies demonstrate that all uses of the Freight Evaluation Framework must define both a project scenario and an alternative scenario (repre- senting what would likely occur with or without the project being implemented). All such scenarios should be sufficiently defined to address all four of the above-referenced categories (mode affected, types of facilities, types of improvement, and functional status). General Methods Work Better for High-Level Problems The six case studies used to test the Freight Evaluation Framework represented a mix of system-level solutions (e.g., Heartland Corridor) that had costs and benefits that often crossed jurisdictional boundaries and very localized projects (e.g., Tchoupitoulas Corridor Improvements) whose costs and benefits were limited. The Freight Evaluation Framework showed that broad measures and assumptions, such as vehicle- miles traveled, vehicle-hours traveled, and general emissions and safety assumptions, appear defensible for quantifying systems-level benefits. However, methods become challenging at more localized levels, where broad measures might not completely reflect the costs and benefits of site-specific projects. In some cases, problems can be isolated to very specific locations, possibly with different results than yielded by more generalized meth- ods. Examples include reducing crashes at rail-grade cross- ings, mitigating noise pollution, or eliminating localized safety hot spots. In these cases, the researchers found it absolutely critical to supplement quantifiable data and infor- mation with input and information from local experts and stakeholders, who can often add value to site-specific or neigh- borhood impacts and benefits. It Is Appropriate to Offer Slightly Different Forms of the Overall Structure for Projects of Different Scales The Freight Evaluation Framework is (and should be) flex- ible in its analysis methods in order to be useful to different types of projects as follows: • High-level/systems (i.e., Heartland Corridor Clearance Initiative)—Generalized analysis methods based on large- scale VMT, VHT, or travel-time/emissions estimates are appropriate; • Regional or market-area (i.e., Huntsville Inland Port, DIA WorldPort)—Specific drive times, competing routes, facilities, or modes become relevant and may warrant spe- cific data and analysis; and 96 10% Lower Mean 10% Upper Total Net Benefit (7%) $1,874.5 $3,325 $5,946.2 Total Net Benefit (3%) $2,248.2 $4,544.8 $6,375.0 Table 5.36. Risk analysis results for total benefits for 2007–2030 (millions of dollars).

• Subarea/community-level projects (i.e., ReTRAC, Tchoupitoulas)—A manageable set of specific bottle- necks, noise receptors, intersections, and pathways to and from locations can be mapped and analyzed. The supporting documentation for the Framework should be clear that this type of flexibility is important (and encour- aged) and, as noted earlier, users should be encouraged to con- fer with local technical and community experts when applying the Framework to subarea or community-level projects. Solutions to Existing Problems Are Easier to Measure and Assess Than “New Opportunities” The case studies showed that the Freight Evaluation Frame- work works well when there is a clearly defined problem to be solved. In these cases, there are clearly defined goals for the project, clearly defined benefits that are expected, and clearly defined success elements or performance measures. For instance, the Framework is very easy to apply to projects such as the Heartland Corridor or the Tchoupitoulas Corridor Improvements that were designed to solve a particular prob- lem or issue (limited double-stack clearance and truck access through local neighborhoods, respectively). In these cases, it is straightforward to identify the specific baseline conditions and current costs or disbenefits to be resolved. Application of the framework becomes more challenging for projects that are designed to take advantage of new opportuni- ties, e.g., the DIA WorldPort or Huntsville Inland Port proj- ects. In many cases, the primary benefit of these types of new (not expanded) capacity investments (where there are no exist- ing users) is the ability to accommodate additional traffic. Ana- lytical models used to support the original market justification for such projects often were based on unconstrained forecasts and just assumed that operating conditions would worsen without the capital investment. In the real world, that is often not a realistic assumption. For instance, as congestion rises under a no-build scenario, a variety of different outcomes may occur and hence may be represented by an alternative scenario. There could be cases where, without the new investment • Businesses will merely stay in place and endure continuing growth of congestion delays and costs; • Business activity shifts to other shipping modes, routes, or facilities that can offer a second-best solution for remain- ing in place; or • Some businesses will just move out and relocate to some other place where costs are not as high as they would incur if they stayed in place. The six case studies show that it is both necessary and pos- sible to define project scenarios and alternative scenarios to represent the expected changes in freight demand patterns and business responses to them. In addition, the risk analysis method used in these cases shows how alternative assump- tions about key factors, such as freight demand growth, can be explored and represented in a report on benefit/cost findings. The Framework Identifies Stakeholders at the Outset, but Assigning Benefits to Them Can Become Challenging As described earlier, the Freight Evaluation Framework has developed a more nuanced understanding of the types of freight stakeholders involved in freight investment decisions, as well as their concerns and interests. Understanding and evaluating the costs and benefits of, and to, these different stakeholder groups is a critical element of the Framework. However, the research team’s testing process uncovered a number of issues related to how freight stakeholders are engaged throughout the application of the Framework, including the following: • Need for a feedback loop—The Freight Evaluation Frame- work emphasizes the importance of identifying potential stakeholders early in the process, but does not include a method for reengaging the group during the evaluation process. The study team found that reaching out to stake- holders throughout the testing process added significant value to the application of the Framework, particularly for local or site-specific projects whose benefits are not always completely captured using existing data and tools. It is crit- ical to add such a feedback loop, not only to capture this kind of information, but also to ensure that there is a clear understanding of how different results might be inter- preted by different stakeholder groups. • Disaggregating benefits by stakeholder type—The Framework identifies and classifies stakeholders into dif- ferent groups (asset providers, service providers, end users, and other impacted parties) and then adds a table to assign or allocate the various elements of benefit and cost to spe- cific stakeholder groups. However, in carrying out the analysis, it can become a challenge to effectively assign var- ious classes of benefits to specific stakeholders when there are dynamic interactions among them. This is illustrated by the DIA WorldPort case, where freight transport firms were projected to gain net revenue from expanded facility capacity, but their actual gain would be reduced to the extent that they have to pay ground lease payments to the air freight facility operator, which in turn has to pay a share of its revenue to the property owner (airport authority). Tracking the string of payments can be challenging and estimating their final allocations may require the type of risk analysis that is included in the Framework. 97

• Consistency among stakeholders and benefits—Main- taining consistency with how stakeholders are identified and how they might benefit from particular projects will add value to the Freight Evaluation Framework. For instance, the results and findings from a study can look very different depending on the level of detail in which stakeholders are defined and the degree of depth to which their interactions are traced. Both detail and consistency are required to generate useful results. • Accounting for sensitivity differences—Finally, there are potentially large differences in the sensitivity to cost, ben- efits, and risk among different stakeholder types that are not all captured within the Framework. This becomes important if the framework is used to help rank projects from the perspectives of various stakeholder groups. In some cases, there may be issues of such importance to a particular stakeholder group that they outweigh any and all other possible costs and benefits to that particular agent. In such cases, group preferences may include fac- tors that are not all captured in the current Framework. It may be possible for the Framework to be expanded to account for, and incorporate, these types of preferences. Alternatively, it may be necessary to note cases where the Framework does not (or cannot) encompass other major considerations. Data and Tools Need to Be Tailored to the Economics of Freight Industry Markets and Account for Reliability and Supply Chain Benefits Industry Groups A critical element of the Freight Evaluation Framework involves assessing the potential benefits of freight invest- ments to different stakeholder groups and, in some cases, different industries. This can be a particularly difficult task since each industry has different supply chain management practices, tradeoffs, and appetites for risk and cost-sharing. Among the cases examined here, the Huntsville and Tchoupi- toulas cases illustrate how analysis can be tailored to show different transport cost, delay time, and reliability sensitivity factors for specific classes of freight. In this case, Huntsville involved Asia-bound air freight for technology equipment products, while Tchoupitoulas involved marine shipments of rubber, coffee, and wood materials. The valuation of inventory, time delay, and reliability factors used for the case studies varied by commodity and were accordingly greater for the air freight shipments. These cases illustrate the impor- tance of identifying affected freight mode and commodity classes, and then tailoring analysis (within the Framework) to those freight classes. Modal Differences Another key aspect of the Freight Evaluation Framework is the explicit recognition that many freight projects directly involve (or indirectly affect) multiple transportation modes. The tools that were used to capture these impacts within the case studies included a range of mode-specific and multimodal simulation, forecasting and benefit/cost assess- ment products. For instance, the Reno (ReTRAC) case used GRADEDEC to assess grade crossings; the Heartland Corri- dor assessed truck/rail diversion, and the Denver case assessed air/truck diversion using the multimodal TREDIS model. None of the cases examined in this study involved only high- way impacts, but in such cases it would be possible to rely on other highway-oriented tools (such as FHWA’s BCA.Net). In yet other cases, the broader range of tools may also be rel- evant for use within the Framework. Reliability and Connectivity Increasing congestion can affect not only average travel times but also the size of market delivery areas and schedule reliability for intermodal connections. Among the cases examined here, the Tchoupitoulas case illustrated the impact of reducing congestion on a port access route, while the Den- ver case illustrated the potential for improved reliability by enabling greater local air freight capacity and avoiding truck- ing to more distant airports (which bring greater variability in delivery times). Analysis for these cases made use of avail- able tools for multimodal freight impact analysis. None of the cases involved changes in market delivery areas. However, such impacts could occur in cases where access routes are improved for terminal or distribution facilities. In such cases, the Framework can make use of existing tools that relate eco- nomic development (business location/attraction) to changes in available market size. Vehicles and Trip Lengths The type of affected vehicles and trip lengths also can affect analysis findings using the Framework. For instance, error can occur if tools used to capture travel-time savings for trucks are monetized using a single value for all truck trips. After all, if the truck is long haul, earning revenue by the mile, savings in travel time may have no out-of-pocket costs or benefit. If the truck trip is a drayage trip (paid per trip), the travel-time savings only generate savings (or revenue) if enough time is saved throughout the course of a day to make an additional trip. The case studies conducted for this study distinguished the types of trips and the sizes and types of vehi- cles involved, using available tools. For instance, the Heart- land Corridor case involved shifts between single-stack con- 98

tainer on flat car (COFC), double-stack COFC and truck ship- ments for container travel. In contrast, Huntsville involved fully loaded versus less-than-fully loaded Boeing 747-400 freight aircraft. These cases illustrate the importance of imple- menting the Framework in sufficient detail to capture differ- ences in modal and trip characteristics among affected classes of vehicles and trips. Wide Economic Impacts All of the cases involved projects leading to savings in the cost of doing business (for at least some industries at some locations). These transport efficiency and business pro- ductivity enhancements typically lead to broader impacts on local economic growth. One of the cases—Huntsville— was selected to illustrate how a regional economic impact model can be applied successfully to assess the broader job and income growth impacts of a freight facility improvement project. Taken together as a group, the case studies demonstrate both the feasibility and value of relying on a uniform Frame- work for analysis of freight project benefits. Differences among the cases illustrate how a range of analysis tools can be applied within the common framework, as appropriate, given the range of different modes, project types, commodity classes, and applicable stakeholder groups. However, those differ- ences also point to both the need for, and the importance of, carefully tailoring analysis to the circumstances of different situations. 5.4 Freight Investment Workshop In addition to utilizing a case study approach to evaluate the usefulness of the Framework, the research team worked with AASHTO, TRB, and the NCFRP-05 Project Panel to conduct a hands-on workshop, Partnerships for Funding Freight Infrastructure Investments, to provide feedback on the Freight Evaluation Framework; identify how it can and should be used to support investment decisions, financing, or public- private partnership (PPP) structuring; and describe how it could be useful in supporting partnerships for funding freight infrastructure investments. Four roundtable discussions were held, as described in the following. • Roundtable 1, Case Studies of Freight Infrastructure Investments—The purpose of this roundtable was to discuss how the Freight Evaluation Framework can be applied to real-life freight investments and used to support investment decisions, financing, or PPP structuring. Panel members Glen Weisbrod (EDRG), Michael Fischer (Cambridge Systematics, Inc.), Daniel Brod (DecisionTek), and Paula Dowell (Cambridge Systematics, Inc.) described the Freight Evaluation Framework in detail, as well as how it was applied to the case studies described earlier in this chapter. • Roundtable 2, Usefulness of the Freight Evaluation Framework—The purpose of this roundtable was to dis- cuss the strengths and weaknesses of the Freight Evaluation Framework and how it might be modified. Panel members Bob Wilds (Greater Vancouver Gateway Council), Eric Madden (Pennsylvania DOT), and Darrell Wilson (Nor- folk Southern) described how the Framework could be useful (or not) within their own freight investment evalu- ation discussions. • Roundtable 3, How to Sell Freight Investments—The purpose of this roundtable was to allow stakeholders to share experiences in identifying, measuring, and high- lighting freight project benefits and selling them to the public so that there is greater understanding and support for investment in freight projects. Panel members Maura Twomey (California Transportation Commission) and Karen Schmidt (Washington State Freight Mobility Strate- gic Investment Board) described their evaluation programs and how benefits are considered within application and funding requests. • Roundtable 4, Benefit Estimation Tools and Their Lim- itations—The purpose of this roundtable was to discuss the strengths, weaknesses, and limitations of existing data and tools used to estimate the benefits of freight investments and how they might be improved. Gill Hicks (Cambridge Systematics, Inc.), Bill Burgel (HDR, Inc), Glen Weisbrod, Joe Bryan (Halcrow), and Jack Wells (U.S.DOT) described what existing tools were used within the Framework and what gaps might exist. Workshop Summary and Lessons Learned Following the roundtable discussions, Dr. Michael Meyer (Georgia Tech University) summarized the discussions in three key areas: • Affirmation of the essence of the Framework—Workshop participants affirmed the usefulness of the Framework, par- ticularly its ability to identify, account for, and categorize costs, benefits, and potential beneficiaries. Both public- and private-sector participants noted the Framework would be useful for evaluating freight investments. • Strengths—Participants identified a number of positive attributes of the Framework, as currently constructed, including the following: – The ability to identify cross-modal impacts and provide good analysis capability in a multimodal sense; – Strong stakeholder identification; 99

– Provision of a structure for models, providing feedback for benefits and costs; – Acts as an effective decision support tool, which helps inform the “smell test” by project evaluators/investors; and – Could be used to accelerate project development, if early benefits can be identified. • Concerns—Participants also identified a number of con- cerns with the Framework and how it could be applied, as follows: – The Framework is a good first approximation of bene- fits and impacts, but might struggle when identifying pass-through benefits and potential inequities among parties. – Assigning benefits when one of the potential partners is not interested in participating in the project might run the risk that the entire project fails. – The Framework focuses on congestion benefits and impacts, and may not fully address potential safety, eco- nomic development, and access benefits. – Some of the analytical tools the Framework needs for implementation are proprietary. – The Framework seems too complex for some stakehold- ers to implement. – The Framework might be missing some stakeholders, particularly those that want to maintain the status quo. – The Framework needs to include long-, medium-, and short-term investment timeframes. – Should consider how to incorporate political risk and the collaborative nature of investments within the Framework. Choice of value of time for freight movements is a critical input. 100