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Freight Transportation System Performance and the Economy Identifying Economic Benefits Resulting fr

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Productivity (output per unit of input) ... Freight tends to follow the path of least resistance. 16. Applicability of Phase II Findings ... – PowerPoint PPT presentation

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Title: Freight Transportation System Performance and the Economy Identifying Economic Benefits Resulting fr


1
Freight Transportation System Performance and the
Economy Identifying Economic Benefits Resulting
from Freight Infrastructure Improvements
for
  • FHWA Talking Freight Seminar Series
  • Rob Mulholland
  • ICF International
  • December 12, 2007

2
Todays Presentation
  • Background/Introduction
  • Transportation Planning and Project Evaluation
  • Infrastructure and Economic Activity
  • Study Introduction
  • Freight BCA Project Update
  • Project Scope
  • Theoretical Framework
  • Benefits Estimation
  • Regional Planning Tool Development

Photos from FHWA website
3
Background Transportation Planning and Project
Evaluation
  • Given Transportation planners should seek to
    maximize the return on infrastructure investments
  • BCA is a critical tool in the investment decision
    process
  • BCA models currently in use are proven and
    reliable but have some limitations
  • Benefits arising from transportation
    infrastructure improvements accrue over time
  • Short-run benefits are captured using existing
    tools but long-run benefits are not

4
Background Infrastructure and Economic Activity
  • Transportation infrastructure investment
    decisions affect system performance
  • Efficiency (velocity, cost, reliability)
  • Productivity (output per unit of input)
  • When productivity improves, economic expansion is
    possible
  • Over time, businesses change their operations in
    response to changes in production costs
    (including transportation)
  • Output (volume) increases

5
Study Introduction
  • A new methodology is needed to capture these
    long-run benefits
  • Develop a BCA framework that recognizes gains
    from productivity enhancing logistics changes in
    response to transportation infrastructure
    improvements
  • Identifying tangible economic benefits associated
    with improved freight flow will facilitate the
    incorporation of freight considerations into the
    planning process

6
Freight BCA Project Scope
  • Phase I
  • Established Theory
  • Developed Conceptual Framework
  • Phase II
  • Developed National BCA Model
  • Empirical Testing and Preliminary Benefits
    Estimation
  • Phase III
  • Developed Regional BCA Model
  • Developed Planning Tool
  • Phase IV
  • Outreach and Education

7
Theoretical Framework Development
  • Transportation infrastructure improvements
    enhance freight movement and produce economic
    benefits
  • Increased velocity and reliability (reduced
    transportation costs)
  • Increased productivity (more and longer trips
    using same resources)
  • Increased supply-chain efficiency (improved
    reliability and reduced costs allow market
    expansion and change transportation and inventory
    balance -- overall production costs decrease)
  • Increased volume (reduced production costs lead
    to 1) supply chain evolution, and 2) reduced
    costs for finished products or improved products
    -- demand and output increase)

8
Theoretical Framework Development
  • Short-run
  • Shipper behavior doesnt change, but shipper
    receives benefit in the form of reduced costs
  • Medium-run
  • Shipper behavior changes, shipper buys more
    transportation but doesnt make wholesale changes
    to logistics network
  • Shipper may source materials from different
    suppliers or begin to replace inventory with
    transportation
  • Shippers are still hedging bets
  • Long-run
  • Shipper behavior changes, supply-chain is
    permanently altered
  • Inventory models, routing, facility locations
    change, new supply-chain partnerships emerge
  • Markets expand, the freight transportation demand
    curve shifts

9
Shipper Response to Transportation Cost Reductions
Transportation Cost per Unit
Benefits Categories a
Short-run benefits (cost reduction) b
Medium-run benefits (buy more transport) c
Long-run benefits (supply-chain evolution)
C0
a
b
c
C1
D1
D0
Transportation Units
Q1
Q0
Q2
10
Categories of Benefits
Not Measured
Measurable with Current Models
Short-run Transit time reductions
Operating cost reductions Reduced crashes
Reduced emissions
a
Medium-run Buy more transportation Minor
(preliminary) logistics changes
b
Long-run Supply-chain evolution
Suppliers, routes, facilities, partners New
demand curve
c
11
Phase II - Estimating Demand Elasticity
  • Demand elasticity can be measured as a function
    of transport cost and reliability, where
  • Transport cost equals the monetary costs (or
    rates) of shipping goods
  • In a free market, changes in shipper rates
    reflect changes in carrier operating costs
  • Reliability equals the level of highway
    performance for a given segment of infrastructure
  • All other things being equal, as the
    volume-to-capacity ratio (V/C) decreases,
    velocity increases and delay is reduced

12
Phase II - Preliminary Demand Elasticity Estimate
  • Regression analysis using data for 30 highway
    corridors over 8 years (1993-2000) showed the
    following correlations
  • There is a positive relationship between freight
    rates and highway performance measures
  • Increased highway congestion leads to increased
    shipping rates over a specific corridor (holding
    other variables constant)
  • There is a negative relationship between demand
    for freight transportation and freight rates
  • Increased shipping rates lead to reduced truck
    traffic over a specific corridor (holding other
    variables constant)
  • There is a negative relationship between demand
    for freight transportation and highway
    performance measures
  • Increased highway congestion leads to reduced
    truck traffic over a specific corridor (holding
    other variables constant)

13
Phase II - Preliminary Demand Elasticity Estimate
  • A quantifiable relationship between
    transportation infrastructure improvements and
    long-run shipper behavior exists
  • Based on national data, a 10 decrease in
    measured congestion (V/C ratio) along a corridor
    would increase freight demand (truck volumes) by
    up to 1
  • This is a measure of the shift in the demand
    curve
  • This led to a finding that traditional BCA models
    may underestimate long-run benefits by as much as
    15
  • This is a measure of benefit c as a percentage
    of benefits a b
  • c / ( a b )

14
Phase II - Limitations to Preliminary Demand
Elasticity Estimate
  • A tool is only as reliable as the supporting data
  • The thirty (30) corridors included in the study
    were selected because they had significant
    freight volumes during the study period
  • The corridors were located across the Nation
  • The corridors varied greatly in length (ranging
    from 105 miles for Harrisburg-Philadelphia to 734
    miles for Salt Lake City-San Francisco),
    structure, total traffic volume, and congestion
    level
  • V/C and delay data from HPMS
  • Demand (truck volume) data from HPMS and FAF

15
Phase II Other Key Findings
  • The elasticity is smaller when generalized cost
    is relatively low and higher when generalized
    cost is relatively high, implying that demand is
    more sensitive to changes in highway conditions
    when congestion is high than when congestion is
    low
  • For years, freight moved relatively efficiently
    through the modal transportation networks as
    capacity was sufficient
  • The modal networks are increasingly congested,
    and growth in intermodal freight has led to
    bottlenecks at modal interchanges
  • Freight and passenger VMT have and will continue
    to increase at a much faster rate than capacity
    expansion
  • Future transportation system improvements can
    have a significant economic impact

16
Applicability of Phase II Findings
  • Though the national model produced defensible
    results, there was a real question left to be
    answered
  • To whom do the benefits accrue?
  • Much freight moves over long distances
  • Freight is footloose (routes and volumes
    continually changing in response to market
    forces)
  • Freight tends to follow the path of least
    resistance

17
Applicability of Phase II Findings
  • Much of the freight transportation network is
    publicly owned and maintained
  • In general, road transportation infrastructure
    planning occurs at the local level
  • Historically, the primary focus has been on
    improving local passenger travel
  • Recently, transportation planners are becoming
    more interested in freight movement issues and
    are looking for ways to better incorporate
    freight considerations in the planning process
  • Transportation infrastructure funding requires a
    long-term public commitment
  • The transportation planning process is deliberate

18
Applicability of Phase II Findings
  • Philanthropy is a noble pursuit, but local
    planners rightly are concerned first with the
    well-being of their own region
  • Without a model that can measure economic
    benefits on a regional scale, the theoretical
    framework is of little practical use
  • The next problem would be to distill the key
    elements from the national model and apply them
    on the regional level

19
Phase III Regional Model
  • HDR developed a tool that estimates freight
    demand elasticity (and long-run economic benefits
    resulting from freight volume increases) with
    respect to highway performance for three regions
    (East, Central, West)
  • The tool is based on analysis of 59 corridors
    over 12 years (1992-2003)
  • The tool is distributable and user accessible
  • Microsoft Excel-based
  • 508 Compliant
  • The tool is supplemented by a complete user guide

20
Regional Model Welcome Screen
21
Regional Model Process
  • Planners provide project-specific inputs
  • Segment information
  • Value of time
  • Vehicle operating costs
  • Changes in travel time, operating costs and
    reliability
  • Default values can be used if particular inputs
    are unavailable.

22
Regional Model Input Screens
23
Regional Model Benefits Estimation
  • Outputs from an existing BCA model are used to
    determine
  • Baseline Demand and Performance
  • Expected Improvement
  • Measured Freight-specific Benefits (a) (b)
  • Regionally elasticities are used to estimate
    long-run demand shift
  • Ratio of long-run benefit (c) to cost savings
    (a) consumer surplus (b) is calculated
  • Reorganization benefit is added to traditional
    benefit

24
Regional Model Long-Run Demand Shift
25
Regional Model Additive Benefits
26
For Further Information
  • Presentation
  • Rob Mulholland
  • RMulholland_at_icfi.com
  • Regional BCA Tool
  • Ed Strocko
  • Ed.Strocko_at_dot.gov
  • http//ops.fhwa.dot.gov/freight/freight_analysis/e
    con_methods.htm
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