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1 The future rarely moves in predictable, incremental ways. Often seemingly small changes in technology, demographics, regulations, economics, or a myriad of other factors have dramatic and unintended impacts on how any organization (public or private) plans and operates. These nonlinear impacts are very difficult to predict using traditional forecasting methods and techniques since they, by definition, do not follow any historical patterns. For example, few in April 1956 would have foreseen the global trade implications (and resulting freight infrastructure requirements) of Malcolm McLeanâs small experimental move of 58 metal containers on the ship the Ideal-X from Newark to Houston. What had been intended as a way to reduce traffic congestion on the highways through short sea shipping along the East Coast ended up playing a key role in making offshoring of manufacturing in low-cost locations across the globe economically viable. Containerization is ultimately the driving force behind the tremendous infrastructure projects at and adjacent to ports on the East and West Coasts as well as the Gulf. While this impact might seem obvious in retrospect, it certainly was not at the time. Are we facing a similar situation today? In 10, 20, 30 years from now, will people look back and be amazed that we were unable to predict the full impact that some new innovation had on the economy? Probably. It is never easy at any point in time to be able to predict which, out of all of the possible future outcomes, will actually happen and should therefore be planned for. For example, consider the effect of digitization. We are all familiar with the impact that digiti- zation has had on recorded music, movies, and books. What was once a physical product that had to be sourced, manufactured, and distributed has been transformed into a purely digital form that can be reproduced and delivered almost instantaneously at close to no cost. The reduction in the number of physical retailers, increased incidence of piracy, and the collapse of much of the logistics supporting these industries have been well reported. The bankruptcy of such stal- wart companies such as Blockbuster (video rental), Kodak (photography), and Borders (book retailer) is an example of how disruptive these step changes can be to companies and industries. All information-based products seem to be headed in the same direction. However, what about physical products? Will personal microfabrication technologies, such as additive manufacturing or three-dimensional printing, become widely adopted and transform the consumer package goods industry in a similar fashion? Imagine if each small city or town had the ability to manufacture (and personalize) the majority of the products used every day within their own communityâusing only basic raw materials. How would that change the industry, the logistics providers, and the retailers? What would the supporting infrastructure need to look like? Or will it never take hold? It is not just technology. Consider the impact of changes in government regulations. Suppose that environmental regulations within the next 20 years require the tagging and tracking of S e c t i o n 1 Introduction and Background
2 Scenario Planning for Freight transportation infrastructure investment potentially hazardous or recyclable materials with the retailer being responsible for safe disposal. What new challenges and market opportunities would this create? Again, how would the underlying freight transportation infrastructure need to change? Or demographics. The percentage of people worldwide living within urban areas has increased from 30 percent in 1950 to almost 50 percent todayâwith forecasts putting this at 60 percent by 2030. The distribution of this population between top-tier and second-tier cities is less certain, however. In the United States (U.S.), for example, of the 15 fastest growing urban areas from 1990 to 2010, only one was in the top in 1990. The idea of urban logistics is no longer just a problem for New York City, Los Angeles, and Chicago. How will this increased urban concentration of residences across the United States affect the way products are manufactured and distributed? Will this mean that the local urban governments will need to take ownership of the last mile distribution? How will the underlying freight transportation infrastructure need to adapt to meet these changing requirements? There are countless other examples of potential step changes in economics, energy, regulations, technology, and other areas that can have tremendous impacts on how businesses and other organizations operate in the future. 1.1 Challenges Specific to Transportation Planning While it is a very difficult thing for a company to try to plan for these different potential outcomes, it is even more difficult for the governments to do soâespecially when it comes to infrastructure investment. Not only do public-sector investments require consensus across a wide variety of diverse and competing stakeholders, the projects also take a very long time. The planning lifecycle of public infrastructure projects needs to be measured in decades, as opposed to months or quarters as is the case for most businesses. For example, one of the most successful freight infrastructure projects is the Alameda Corridor. This 20-mile-long partially sunken intermodal corridor links the ports of Long Beach and Los Angeles to the transcontinental rail lines near Los Angeles. While initial planning began in 1981, approval did not occur until 1994, construction began in 1997, and it was finally opened for traffic in 2002. The Alameda Corridor took over 20 years from concept to first use and is considered to be a very successful project! Similarly, the Big Dig or Central Artery/Tunnel Project in Boston, Massachusetts, took slightly over 25 years from planning to first opening. This lengthy gestation time is not a reflection on the competence of the planners or officials involvedâit is the nature of building public infrastructure. Also, the design lives of these structures are very long. For example, the Alameda Corridor had a 20-plus-years design life. So, the original design in 1981 had to forecast traffic patterns and flows 30 to 40 years in the future. Thus, the time spent in planning is obviously worthwhile. In any case, it makes the governmentâs task of trying to forecast and plan in an uncertain future exceptionally difficult. A project that is entering the planning stage in 2012 will probably not be ready for use until 2020 at the earliest and most likely 2030 or later. And then it is expected to have a life of up to 50 or 75 years beyond that. So the idea of trying to develop a better planning method for uncertain events in the future fits very well to the planning horizon that the government is required to live with. Additionally, the United States freight transportation network is a highly complex system serving a diverse set of stakeholders and facing tremendous uncertainties and risk. It is also massive, consisting of almost a million miles of federal-aid highways, over a hundred thousand miles of railroad, over ten thousand miles of inland waterways, and more than a million miles
introduction and Background 3 of pipeline. The system, as a whole, moves more than 50 million tons of freight valued at over 45 billion dollars each day. The complexity arises from more than size, however. Most shipments traveling through the system usually involve two or more organizations, cross multiple borders (municipality, state, or international), and utilize a mix of both public and private infrastructure. One of the defining characteristics of freight transportation is the incredibly diverse set of stakeholders engaged in its design, planning, management, and operations. This set of stakeholders includes shippers (ranging from retailers to manufacturers to distributors and beyond), carriers (across all physical and economic modes such as full truckload, less than truckload, parcel, national rail, short-haul rail, air, barge, and pipeline), third-party firms (such as brokers, forwarders, and third-party logistics providers), and governmental agencies (at the federal, state, regional, and metropolitan planning organization (MPO) levels). It is estimated that over 117 million households, 7.6 million business establishments, and almost one hundred thousand units of government are involved in freight transportation every day (âFreight Facts and Figures 2010,â U.S. Department of Transporta- tion, Federal Highway Administration, Office of Freight Management and Operations). Unfortunately, the planning and strategic development conducted by these key stakeholders (shippers, carriers, third parties, and government agencies) is usually insular and does not involve the other stakeholders. There is tremendous âsilo-ingâ within freight transportation. Each stake- holder group tends to hold its own conferences, belong to different professional organizations, and lobby independently. This separation is even worse when considering the gap between the private and the public sectors. A 2005 survey of over 500 shippers, carriers, third-party providers, and government officials from the federal, state, and local levels found that two-thirds of shippers and more than half of the carriers had never met with any government official at any level! (Caplice, C., and E. Blanco. 2006. Freight Transportation Infrastructure Survey: Causes and Solutions to the Current Capacity Crisis, MIT Center for Transportation and Logistics (CTL) Working Paper Series, Cambridge, MA.) Adding to the vast size, inherent complexity, and diverse set of stakeholders, are the increas- ingly high levels of uncertainty that the U.S. freight transportation system must address. Much of the uncertainty comes from forces outside of the stakeholdersâ immediate control. These include the price and availability of fuel, emerging technologies, demographic trends, national and global economic conditions, international balance of trade, regulatory concerns, and many more. For all of these reasons, the ability to effectively plan for future freight infrastructure investments is becoming both more critical and more difficult for government planning agencies at all levels. 1.2 Research Project Objectives This research project has two major objectives. First, it provides decision makers (at all levels and across all stakeholders) with a critical and comprehensive analysis of the factors, trends, and uncertainties that may affect the U.S. freight transportation system over the next 30 to 50 years. Second, and most importantly, it introduces the Scenario Planning Methodology to these decision makers (primarily at the state department of transportation (DOT) level) for their use in creating a more flexible, adaptive, and responsive transportation management strategy on an ongoing basis. As a side benefit, this methodology will engender more productive interaction between the diverse stakeholders of the U.S. freight transportation system. It is important to point out that this project was not to develop the official version of the future for the U.S. freight transportation system to be used by all of the decision makers. As mentioned above, the system is too large and complex and faces too many uncertainties for this to be possible. Also, the planning and assessment of policy and management strategies should be an ongoing
4 Scenario Planning for Freight transportation infrastructure investment process involving as many stakeholders as possibleânot a one-time event. Therefore, the project will not simply provide a static list of actions that a DOT might undertake to prepare for the future. Instead, it will provide a set of customized scenario planning tools and procedures that can be adopted and immediately implemented by the various decision makers across the stakeholders. 1.3 Background on the Scenario Planning Methodology Scenario planning is a process of long-term strategic planning that involves the development and use of future scenarios of the problem or system at hand. A scenario is simply a vision of a possible future state of the world and the relevant environment. Scenarios are methodi- cally constructed stories about alternative futures in which todayâs decisions might play out. A good scenario must be plausible, internally consistent, and challenging for strategic purposes. It should make the decision makers see the future in new ways and question their unspoken assumptions. A scenario planning engagement should involve the use of multiple, mutually exclusive scenarios. In addition to gaining key insights through this process, decision makers uncover their hidden assumptions about the future and possible opportunities. A major impediment to planning successfully in the face of uncertainty is that we become tethered to established beliefs and accepted wisdomâin other words, hidden assumptions. Yet to operate effectively in this envi- ronment, we must open up our minds to multiple possibilities, rather than use mental constructs that are rooted in past experience and guided by personal beliefs and preferences. Scenario planning as a methodology grew out of military planning in World War II. It has long been the practice in the U.S. Air Force and other branches of the military to envision different potential future engagements or situations and then to develop appropriate strategies. These forms of âsandbox exercisesâ were used by the military throughout the Cold War, and beyond, to train its leaders and planners with the ability to consider multiple potential situations and to adapt accordingly. The RAND Corporation, a not-for-profit think tank founded in 1948, was one of the pioneers of scenario planning in the 1950s and the 1960s. At that point in time, however, most of these planning engagements were more along the line of scenario analysis than scenario planning. The distinction is that probabilities for each potential outcome are estimated and used during scenario analysis, while this is eschewed for scenario planning. Scenario analysis utilizes game theory to a greater extent than scenario planning, which is designed to be more of a brainstorming and thought-expanding tool. Herman Kahn, the founder of the Hudson Institute and a leading futurist, was part of the RAND team that developed scenarios centered on nuclear warfare. Kahn also became one of the first people to apply the scenario planning techniques to businesses. He, for example, developed scenarios foretelling the rise of Japan as an economic powerhouse. It was in the 1970s that scenario planning became truly established. Pierre Wack, a planner in the group planning department of Royal Dutch/Shell, was charged with looking for events that would cause changes in oil prices. Oil prices had been relatively stable since World War II and the conventional wisdom did not see any reasons why this would change. Wack and his team developed two scenarios. The first was a reflection of the conventional wisdom where oil prices moved along historical trends. The second scenario, however, made the dramatic assumption that the Organization of Petroleum Exporting Countries (OPEC) nations would not renew their oil agreements that were set to retire in 1975. Instead, they would leverage the United Statesâ growing dependence on their oil and withhold the supply, thus dramatically driving the price of oil up. Both scenarios were briefed to senior management along with price projections and other statistics, but senior management did not take any immediate actions.
introduction and Background 5 Wack made the realization that to make management truly understand and prepare for potential unforeseen effects was to get it emotionally engagedânot just by presenting financial projections. He fleshed out his scenarios, especially the second more controversial one, with detailed descriptions of the ramifications and the aftermath of what a strong OPEC would look like. This included the realization that they should be prepared to be part of a slow-growth industry. In 1973, the second scenario essentially came true following the Yom Kippur war. While the Shell management had not taken proactive steps for preparing for this outcome, they had become emotionally prepared for such an event. The energy crisis hit all oil firms hard, but throughout the 1970s Shell grew from being one of the smallest of the seven major oil firms to being, arguably, the most profitable. The upper management at Shell had been able to react quickly to the unfolding events in part due to Wackâs earlier scenario planning engagements. This marked a dramatic change in how scenario planning was viewed. Instead of being treated as a forecasting or prognostication tool, it was used as a way of changing the way decision makers think. Peter Schwartz notes that this was when it became apparent that the end result of scenario planning for any organization âis not an accurate picture of tomorrow, but better decisions about the futureâ (Schwartz, 1991). Over the past 40 years, a number of organizations and companies have used scenario planning to help them better prepare their leaders and managers to make better decisions. These have included the Australian government, AutoNation, BASF, British Airways, California Teachers Association, Cisco, Corning, Disney, General Electric, JDS Uniphase, KinderCare (a large U.S. chain of day care centers), Mercedes, UPS, the United States Environmental Protection Agency, the World Bank, and others. Several references on scenario planning and its history and use can be found in the References section of this report. 1.4 Organization of the Report The remainder of the report is organized as follows. Section Two describes the methodology used to develop the scenarios. Traditional methods are presented along with examples from different organizations. These methods are then compared and contrasted with the methodology used for the development of the Future Freight Flows (FFF) scenarios created as part of this project. Section Three provides an overview of the scenarios themselves. Each of the four scenarios is described and compared. Section Four details how these scenarios were used in the six Scenario Planning Workshops held across the United States in the fall of 2010 through the summer of 2011. Section Five summarizes the results of the workshops. Section Six provides suggestions on how the scenario planning process can be incorporated into existing freight infrastructure processes within a state department of transportation. Finally, Section Seven concludes the report and provides recommended areas for future research. There are also five appendices to the report that provide greater detail on the Future Freight Flow symposium held at MIT and the six workshops held across the United States.
