Transportation leadership you can trust.

presented to

Talking Freight Seminar

presented by

Michael FischerCambridge Systematics, Inc.

December 12, 2007

Economic Impacts of Large Scale Freight Investments

2

Overview

Background and Purpose

Economic Impact Analysis Framework

Case Study – Baltimore Rail Tunnel

Overview of Toolbox

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What Is Economic Impact Analysis?

Investments affect transportation system performance

Transportation system performance affects business costs, output, and profitability – economic effects

Economic effects impact general economy• Output (GDP), employment, income – macro economy

• Geography of effects

• Incidence of effects

Focus of guidebook is economic effects• National scale of benefits – large scale

• Public vs. private impacts

• Logistics and supply chain effects – second order

4

Challenges for Evaluating Large Scale Projects

Public benefit consideration

National level significance

Multiple modes of travel

Allocation of costs and benefits among wide array of stakeholders

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Cost and Impact Perspectives

Freight Carriers(impact on delivery cost, access, performance)

Freight System Users(impact on access to suppliers & customers)

Public Interest (income for workers, prices for consumers, safety, security, government)

Non-Freight Users (impact on Nonfreight Users (impact on passenger travel & nonfreight-reliant industries)

Large Scale Freight Project(impact on transport capacity and performance)

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Five-Step Framework

Step 1 – Classify the Type of Project (Transportation Impact)

Facility location – Local entry/access point, regional corridor, facility

Modes involved – Air, water, rail, truck, combinations of modes

Transport change – Capacity, access, speed/flow, and cost

Investment – Expand existing facility, build new or alternative facility

Step 2 – Define the Relevant Evaluation Issues (Economic Impact)

National and international scale freight network capacity and level-of-service needs

Economic competitiveness, growth, productivity, and trade

Benefits to specific regions, modes, or industry-specific targets

Allocation of costs and benefits among affected parties to assess equitable funding

Step 3 –Tools for Calculation of Transportation Impacts

Network analysis – Providing links, nodes, capacity, and performance – rail, highway

Facility handling analysis – Capacity/Cost for ports, terminals, bridges, tunnels

Logistics analysis – Ultimate cost implications of mode/facility choices

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Five-Step Framework (continued)

Step 4 –Tools for Calculation of Expected Economic Impacts

Form of economic impact – Cost reduction, productivity, income generation, jobs

Geography of impacted markets – Local, regional, national, international

Distribution of economic impacts – Commodity and economic sector

Models – Supply chain, regional economic growth, national productivity, int. trade

Step 5 – Decision Methods

Benefit/cost analysis

Cost-effectiveness analysis

Equity impact analysis

Multicriteria weighting analysis

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Basic Data Requirements

Transportation impact data

• Network supply conditions

• Travel demand patterns

Economic evaluation factors

• Economic performance measures

• Economic value of performance impacts

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Transport Network and Origin-DestinationFreight Flow Pattern (by Commodity, Mode)

(B) Freight Transport Performance & Access

Impact on Existing Freight Patterns:• Time, Cost, Safety• By Mode, Purpose

Impact on Modal Access to:• Rail/Hwy Intermodal• Air, Sea Terminals

(C) Economic Impact

Industry Cost Impact:• Users• Reliant Sectors

Market Access Impact:• Access to Markets• Int. Trade Ports

(C) Impact on the Economy• Interindustry Cost Flows• Domestic Price/Cost Response• Market & Int. Trade Growth Response

(D) Benefit-Cost Analysis

(D) Economic Impact

Analysis ComponentsTransport Models

• Network and terminal performance

• Logistics cost and mode share

Economic Models

• User benefits

• Market access

• Econ. simulation

Decision Support

• B/C

• Cost effectiveness

• Equity impact

• Multicriteria

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(A) Baseline Demand & Supply

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Step 1: Define Project Type

Functional Activities

• Facility Type

• Types of users and spatial scope of impact

Transportation Improvement Categories

Transportation Benefit Metrics

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Table 3.1 Examples of Projects by Category of Transportation Improvement

Improvement Category Project Action Mode

Capacity Expansion – Link Add general public lanes Highway

Add truck-only lanes Highway

Add track Rail

Upgrade track (speed or weight) Rail

Upgrade/eliminate grade crossing Rail/Highway

Upgrade locks/dams Water

Navigable waterway improvement Water

Tunnel upgrades Rail

Correct design deficiencies All

Capacity Expansion – Terminal Channel deepening – harbor Water

Air draft improvement Water

Added lift capacity Rail/Water

Added terminal storage capacity Rail/Water

Added gate capacity Rail/Water

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Table 3.1 Examples of Projects by Category of Transportation Improvement (continued)

Improvement Category Project Action Mode

Operational Improvements Roadway geometrics Highway

Track alignments Rail

Signalization improvements Highway

Electronic control Rail

Intelligent transportation systems All

Information systems – scheduling/cargo visibility

All

LCV upgrades Highway

Hours of operation All

Connectivity Intermodal connector improvements All

On-dock/near-dock rail Rail/Water

Gap closure Rail/Highway

Short haul rail Rail

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Table 3.2 Transportation Benefits and Metrics by Project Type

Project Type Mode Transportation Benefits Metrics

Add general purpose lanes

Highway Congestion – Travel time savings Travel time

Reliability – Reduced incident impact Nonrecurrent delay

Potential accident reduction Accidents

Add truck-only lanes

Highway Congestion – Travel time savings Travel time

Reliability – Reduced incident impact Nonrecurrent delay

Potential accident reduction Accidents

Add track/new link

Rail/Hwy Congestion – Time savings/car cycling Travel time, cycle time

Potential reliability – Queue impact On time performance

Diversion to rail reduces congestion Volume, travel time

Upgrade track (speed or weight)

Rail Improved travel time, railcar cycle time New weight/speed

Potential reliability On time performance

Potential safety Accidents

Upgrade/eliminate grade crossing

Rail/Hwy Potential speed/travel time savings Average speed

Accident reduction – Reliability savings

Accidents

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Step 2: Define Evaluation Issues

Identifying Issues and Audiences

National and Local Issues

Stakeholders: Incidence of Benefits and Costs

Alternative Impact Metrics

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Step 3: Transportation Impact Tools

Identification of Transportation Efficiency Benefits

Mode-Specific Performance Analysis

• Network and terminal performance

• Nontraditional metrics (e.g., reliability)

Modal Diversion Analysis

Treatment of Carrier and Shipper Costs – market relationships of costs and prices

Final Analysis and Presentation of Results

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Example Portrayal of Findings from Transportation Analysis

Truck Rail Air Sea

System Performance Impacts

Increased Vehicle Capacity (TEUs or tons per vehicle)

Increased Line or Terminal Capacity (vehicles per hour)

Increased Schedule Frequency

Reduction in Recurrent Interchange or Bottleneck Delays

Reduction in Nonrecurrent Incident Delays

Improved Safety

System Throughput Changes

Predicted Change in Throughput Volume

Shipper Impacts

Reduced Transport Costs

Reduced Logistics Costs

Improved Productivity

Improved Terminal Access

Enlarged Delivery Market Area Access

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Step 4: Select and Apply Economic Impact Tool

Screening: Overall Economic Benefit

Industry Reorganization Effects

Establishing National and Local Distinctions

Selection and Application of Economic Models

Final Analysis and Presentation of Results

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Measuring the Economic Impacts of Transportation Projects

Input Output Final Output

National Economic Impacts

Reduced Transport Costs

Reduced Logistics Costs

Business Market Expansion

Exports and Imports

Total U.S. output

GDP (Value Added)

Personal income

Local/Regional Economic Impacts

Change in local production costsa; or

Change in final demandb ; or

Change in accessibility/ quality of rail, air/sea port, highwayc

Total local outputa,b

Output from new business attractionc

Local personal incomea

Local GDP (value added)a

State and local tax revenuea

Value of externalities (discussed elsewhere)

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Measuring the Economic Impacts of Transportation Projects (continued)

Input Output Final Output

Sector-Specific Economic Impacts

Change in production costs

Employment by freight carriers (by mode)

Output by freight carriers (by mode)

Profits by freight carriers (by mode)

Employment at logistics firms

Output and Profits logistics firms

Employment in nontransportation sectorsd

Output in nontransportation sectorsd

Profits in nontransportation sectorsd

a Denotes econometric model;b Denotes multiplier analysis;c Denotes business attraction model; andd Denotes stratification by North American Industrial Classification System.

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Rough “First Cut” Estimate of the Supply Chain Benefit from a 10% Transportation Improvement

Source: Boston Logistics Group, Inc.Note: These benefits are indicative and preliminary estimates only that are based on average

companies in a broad cross-section of industries, including many that have little transportation cost and do not move physical product. More precise estimates that are targeted at specific Supply Chain Types™ should be developed using the tools referenced throughout this text.

Infrastructural Benefit

Supply Chain Impact

Supply Chain Benefit

Expressed As % of Operating Cost

Supply Chain Benefit

Expressed As % of Transport Cost

10% Transport Cost Reduction

Lower material cost by substituting farther cheaper sources

0.1% 1.5%

Consolidate plants due to extended reach 0.2% 4.1%

Switch modes and reduce shipment size, decreasing inventory

0.1% 1.2%

10% Capacity Increase

Less safety stock 0.1% 1.1%

Rationalization of fleet and warehouse assets 0.01% 0.3%

Secondary Effects

Increasing service levels Not quantified Not quantified

Converting cost savings into price reductions Not quantified Not quantified

On demand supply chains Not quantified Not quantified

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Classification of Shipper Types

Source: Boston Logistics Group, Inc.

FLOW/CONTINUOUS BATCH/CELLULAR

Make to Plan

Raw Material Source

Vessel/Railcar TL/IM Vessel/Railcar TL/IM LTL/Sm. Pkg/Air

Consumer

1. Extraction 3. Discrete Manufacturing

2. Process Manufacturing

Make to Stock 5. Distribution

Assembleto Order

Make to Order

4. Design-to-Order Manufacturing

6. Reselling

Engineer to Order

Low External Spend High External SpendCommodity ServicePrice Taker Price MakerAsset Intense Labor IntenseFew Locations Many Locations

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Step 5: Select and Apply Decision Models

Alternative Views of Benefits

Benefit-Cost Calculation and Presentation

Incidence and Equity of Benefits and Costs

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Case Study: Baltimore Rail Tunnel – Enhancing and Existing Economic Analysis

Project Type (Step 1) – Link-level tunnel and track improvements to increase capacity and reduce delay

Evaluation Issues (Step 2)• Include national and state benefits

• Include highway user benefits along with freight users

• Include second order logistics benefits

Transportation System and Economic Benefits (Steps 3/4)• Reduced freight and passenger rail delay

• Mode shift (maintain mode shares) – shipper costs

• Supply chain benefits

Full B/C Analysis (Step 5)

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Benefit/Cost Results

BenefitScenario 1.

750/500Scenario 2.

500/300% Difference

Freight Rail Operators

Shipper Costs

Highway Travelers

Amtrak Users

Supply Chain

$270,229,331

$2,694,157,018

$625,621,147

$1,422,398,587

$2,013,629,007

$270,229,331

$1,655,796,822

$625,621,147

$873,653,722

$1,303,373,082

0.00%

62.70%

0.00%

62.80%

54.50%

Total Benefits

Total Costs

$7,026,035,090

$3,046,338,138

$4,728,674,104

$3,046,338,138

48.60%

–

Benefit/Cost 2.31 1.55 48.60%

Source: Baltimore Rail Studies by PB Consult for Maryland DOT and Cambridge Systematics, Inc.

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Extending the Case Study Analysis

Analyze commodity traffic and train types in rail simulations – refined user benefits estimates

Service/cost-based modal diversion modeling

Network travel demand model for highway user benefits

• Direct travel time savings

• Reliability

• Crashes

• Emissions

Economic simulation (GRP/GSP, employment impacts)

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Toolbox

Freight Network and Terminal Performance

Modal Diversion and Logistics Cost Models

Cost and Access Benefit Calculations

Economic Simulation Models

Decision Support Tools

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For More Information

Copies of the guidebook are available at:

http://www.dot.gov/freight/guide061018/index.htm

Contact:

Michael Fischer, Cambridge Systematics, mfischer@camsys.com