AASHTO Annual Meeting September 20, 2004

1. 2010 and BeyondA Vision of America’s Transportation Future21st Century Freight MobilityICF Consultingin association with DELCAN AASHTO Annual Meeting September 20, 2004

2. Context • Changing economic structure • Trade and globalization • From a manufacturing to a service economy • Technology • Enabled significant decreases in marginal logistics costs • Could serve as the catalyst to major changes in freight systems • Intermodal freight systems • Policy context is broadening • Networks are being reshaped

3. Freight System Performance • Growing congestion on critical highway segments • Increased transport costs due to delay • Unreliable travel times that affect logistics and level of service • High “last-mile” costs due to congestion in urban areas • Congestion at terminals and border crossings • Effects of security requirements • Inability to quickly increase system capacity • By 2020 freight volume may nearly double in some sectors (FHWA) • Potential long-run rail capacity problems • Rail infrastructure downsizing, service disturbances, and insufficient on-dock or near-dock rail capacity Concern about the future performance of the freight system

4. Freight Transport Externalities • Air quality • Diesel exhaust is a primary source of PM and air toxic contaminants, which are deemed as major health threats especially to children • Diesel exhaust is a primary source of NOx emissions, a precursor to ozone • Community livability and environmental justice • Location of many freight facilities may lead to a disproportionate impact on minority and economically disadvantaged communities • Transportation safety • In 2002, 434,000 large trucks were involved in traffic crashes in the U.S., of which 4,542 were involved in fatal crashes • Homeland security • The vulnerability of the freight system, especially given globalization, is a major cause for concern when it comes to terrorism

5. Transportation and the Economy Efficient Transportation Infrastructure Investment Increased Transportation Capacity, Efficiency, Reliability, and Level of Service Transportation Cost Savings Transit Time Savings, Reliability Improvements Business Expansion,Relocation, and Restructuring Increased Productivity Increased Competitiveness Higher Standard of Living

6. How do firms react? Improvements in Network Connectivity and Density Industry Investment in Advanced Logistics Industrial Reorganization and Enhanced Productivity • Firms reduce stocking points, increase JIT processes, and increase shipping distances • Firms react to reduced late-shipping-delays, valued highly by shippers, by investing more in logistics • Inter-industry trading patterns are affected

7. U.S. Domestic Freight Movement (2000) Source: AASHTO, Freight-Rail Bottom Line Report

8. Historic Growth Rates by Mode(Ton-Miles) Air Barge Rail Truck

9. A Plausible Annual Growth Scenario (2000 to 2020 in Ton-Miles) Air Barge Rail Truck

10. What do these forecasts mean?(Billions of Ton-Miles) 2020 64% 2000 49% More than double 15%

11. Primary Freight Demand Drivers • Growth in economic output • U.S. production of goods for domestic and international markets • Imports of goods for domestic consumption • Trade • Globalization – Pacific Rim, Europe, South America • NAFTA and FTAA (maybe) • Advanced logistics • Enabled by technology • Carrier productivity • Affected by regulation

12. Economic Output This is the number that matters most. President’s budget estimates 3.5% average annual growth in GDP from 2004 to 2009.

13. Trade – U.S. Port Container Traffic Wal-Mart estimates it spent $15 billion on Chinese-made products in 2003. Source: American Association of Port Authorities www.aapa-ports.org

14. Advanced Logistics • As the cost of transportation falls, firms substitute more transportation for other inputs • This is what economists refer to as the factor substitution effect • The producer can now generate more output at the same level of cost • This is what economists refer to as the output effect (productivity gain) • End results: • An increase in the demand for transportation from the initial drop in transport cost • A change in the long-term structure of that demand from the reorganization effect Transportation as an input to production

15. Advanced Logistics Systems… …enable the substitution of other logistics components for transportation. Source: Cass State of Logistics Report, 2002

16. Carrier Productivity • Trucking productivity has leveled off since 1995 • Steady increases in rail productivity, but not enough to make up for revenue losses due to competition

17. Freight Capacity Issues

18. Freight Capacity Issues, cont.

19. Why is capacity such an issue? • Demand across all modes is expected to increase significantly • Shippers and carriers optimize logistics and supply-chain management around transportation system performance • Congestion could force costly redesigns of logistics systems leading to decreases in productivity • The freight system is evolving to be truly multimodal • Capacity shortfalls in one mode strain performance of other modes • Shippers are mode neutral demanding efficient, reliable, and inexpensive service

20. Case in point… • If investments in our rail system are not made, the effect on our roadway system will be significant Shift Relative to Base Case Scenario, 2000-2020 Totals Source: AASHTO Freight-Rail Bottom Line Report

21. Another case in point… • West Coast docks dispute • Led to 10-day lockout and the 23-day recovery period • Prevented $6.28 billion in goods from being shipped through the ports of Long Beach and Los Angeles • Shippers were affected • Hewlett-Packard made selected use of airfreight to meet commitments to customers • Mattel worked around the problem by having its containers placed where they would be unloaded first from ships • Effects of West Coast docks dispute could have been far worse had the shutdown lasted longer

22. What does this tell us about port security? Top West Coast Ports by TEUs (000s), 2002 Source: AAPA

23. What could be on the horizon? • Widening of the Panama Canal (likely) • Effects on U.S. port dredging needs, port competitiveness • Continued explosive economic growth in China (likely) • Effects on US/Mexico trade POEs, West Coast ports • “Second wave” of the IT/internet revolution (likely) • Effects on logistics systems, freight networks • Major system disruptions (possibly) • Effects on system performance, U.S. and local economies

24. Where do we want to be 10 or 20 years from now? • An efficient, reliable, and integrated freight system, enabled by technology, that • Optimizes generalized logistics costs • Helps to maximize manufacturing productivity • Helps to minimize the prices of imports • Enhances efforts to make our homeland more secure • Enhances our ability to deal with congestion in urban areas • Is energy and environmentally efficient • Limits effects on community livability and cohesiveness • Minimizes the probability of accidents and associated fatalities and injuries

25. Policy Themes • We need a national vision for our freight system that is the basis for Federal policy • We need regional/local freight transport decisions that are consistent with national goals, objectives, and strategies • We need strong, well-coordinated leadership to forge effective policy

26. Addressing National System Bottlenecks • Develop and implement a National Strategic Freight Transportation Investment Program • Grant program, not administered by a modal agency, to select and fund freight projects of national significance • Designed to address major capacity bottlenecks and to accelerate the development of projects that enhance the performance of the nation’s freight system • Craft detailed and strict guidelines for project selection, monitoring, and evaluation, including an Annual Report to the President

27. Addressing the Need for Meaningful Freight Planning • Develop and implement an Innovations Program for State and Local Freight Transportation Decision-Making • Grant program to select and fund innovative multimodal freight planning and programming at the State and local levels • Designed to address issues related to • Collaborative institutional arrangements • Public/private partnerships • Freight-passenger interferences • Regional freight networks (e.g., freight villages, city logistics) • Land use needs • Freight analysis data and tools • Operations

28. Addressing Ports’ Needs Stemming From Changing Trade Patterns • Develop and Implement a National Harbor Improvement Program • A program to select and fund channel dredging projects and ensure rational investment decisions for ports • Designed to address current lack of national and/or regional focus for port planning, as well as needs related increasing/changing trade patterns and to post-Panamax vessels • Include an efficient user fee that adheres to trade treaties, and chose projects according to the national interest

29. Other Mode-Specific Policy Ideas • Develop a National Freight-Rail Investment Program • Develop a National Dedicated Truck-Lane Highway System • Create opportunities for efficient coastal shipping • Repeal the Jones Act • Adopt the Open Skies initiative • Change Truck Size & Weight regulations