This appendix presents four case studies describing economic evaluations of proposed freight investment projects. It shows how each of the evaluations included some elements conforming to the five-step analysis process presented in this guide. It concludes with an assessment of lessons learned and factors that make various studies differ in their treatment of project benefits and costs. Together, these case studies are intended to complement the in-depth example presented in Chapter 8. Of course, it is important to keep in mind that none of these studies were originally intended to meet the full guidelines in this document. However, they do show how there is a common thread of analysis steps underlying all economic impact evaluations for major freight projects.
The Inland Empire Rail Shuttle project represents a truck to rail modal diversion project intended to reduce highway congestion and associated costs. The goal of the rail shuttle is to divert some of these short haul (50 to 100 miles) truck trips off of California’s congested freeways and onto the freight rail system, making greater use of the Alameda Corridor. A number of proposals to develop such a service have been evaluated by various parties. This case study is based on analyses conducted for the Alameda Corridor Transportation Authority looking at several early concepts. The analyses were intentionally conducted at a sketch planning level.
Three operational alternatives were analyzed for the rail shuttle between the Ports of Los Angeles and Long Beach and the Inland Empire: a ‘long-haul piggy back’ that would attach container cars bound for the Inland Empire to long-haul trains scheduled to travel along the route already; a ‘dedicated shuttle service’ that would assemble three trains from the on-dock facilities; and finally the ‘commuter line service’, which would also assemble dedicated trains at the docks but instead of running along freight lines would use mostly public lines currently used primarily for commuter trains.
Public sector interest in the rail shuttle project stems from several factors. As noted in various reports, approximately 35 percent of all U.S. waterborne container cargo is handled at the Ports of Los Angeles and Long Beach. As such, these ports represent a nationally significant freight transportation asset. Ensuring efficient operation and adequate landside access to these ports would appear to be in the national interest. The potential consequences to the nation of increasing landside congestion and associated disruptions of supply chains could result in higher cost goods to consumers and businesses even if container cargo is diverted to other ports. However, the costs to the national economy of landside congestion or cargo diversion at the ports have not been clearly demonstrated. Cargo diversion could also have significant local/regional economic effects. Finally, explosive growth at the Ports of Los Angeles and Long Beach has created a number of externalities within Southern California including contributions to local congestion on roadways, increased air and noise pollution, and safety impacts of increased truck traffic on the regional roadway system. At some level, the rail shuttle project is intended to address all of these issues by diverting truck traffic to rail.
The analysis also sought to examine how the rail shuttle could contribute to revenue generation for the Alameda Corridor Transportation Authority (ACTA) needed to service debt from the development of the Corridor. The rail shuttle would represent an opportunity to re-capture some of ACTA’s revenue lost to increased trans-loading activity given the fee structure that ACTA had established.
The economic objectives of the rail shuttle proposal study on behalf of ACTA sought to:
Net local public benefits would result from the subsequent reduction in truck trips that the rail shuttle would generate (and the associated savings per mile of reduced truck trips). Fewer truck trips means congestion relief and associated travel time benefits for the remaining highways users (auto and truck).
Two independent estimates were developed to forecast the potential market for shuttle service between the ports and the new intermodal rail terminal. The first extrapolated current activity levels at BNSF’s San Bernardino intermodal yard; the second was based on the recently completed survey of distribution centers and warehouses in a four county region of Southern California. Both estimates generated similar values of between 1.2 to 1.3 million TEUs of imports traveling between the ports and the proposed intermodal yard.
The assessment of the market share that could be captured by the shuttle service was based on an analysis that used a competitive price for the service compared to the price of existing truck drayage services, and was supported through interviews with shipping companies. The report estimated that initially 20 percent of the market could be captured, with five percent growth per year up to a 40 percent cap on market share.
Based on this information, the study calculated the number of TEUs that would be captured by the shuttle service and converted that value into a corresponding number of truck trips that would be eliminated. The annual number of truck trips was multiplied by 60 miles (assumed average highway distance of the eliminated truck trips from the ports to the Inland Empire) to determine the VMT savings.
VMT savings were directly calculated in the analysis using the sketch planning method described above. The added value of reduced pavement deterioration, reduced air pollution, reduced congestion, reduced crashes, and reduced noise were also calculated as a function of the VMT savings.
The quantitative economic impact analysis was focused on direct economic benefits of the rail shuttle operation for freight movement. The reduced truck vehicle miles traveled were converted into savings (due to diversion from truck to rail) using data from the FHWA’s Highway Cost Allocation Study.30 This report calculated cent per mile rates for various factors for five vehicle classes in both urban and rural settings. An average value was derived from 60,000- and 80,000-pound, five-axle combination trucks operating on a combination of rural and urban highways. Listed benefits included a reduction in air pollution (12 percent of the total value of public benefits), pavement wear (49 percent), congestion (32 percent), accidents (3 percent), and noise reduction (5 percent). The congestion benefit measured reductions in travel time delay for the remaining highway users.
Essentially, the Highway Cost Allocation Study calculates the marginal cost of an incremental mile of travel for different vehicle classes and rural versus urban highways. The loss of income from reduced fuel tax revenue was also factored into the analysis. The total net public benefits were estimated at $177 million over the 25-year life of the project, most of which are local/regional in nature.
Several nonmonetized advantages associated with the implementation of a shuttle service were also noted, including:
A financial pro-forma was also prepared to demonstrate the feasibility of the shuttle service over a 25-year period. The pro-forma incorporated the benefits and costs detailed, and calculated that the shuttle would have a positive net present value of operating income (operating revenues minus operating costs) of approximately $36 million at a 5.5 percent discount rate over the first 25 operating years, although profitability would not be achieved for the first decade of the project’s life. The estimates of operating revenues were based on the price per container charged to users and included the ACTA use fee (for use of the Alameda Corridor). The net present value of ACTA fees collected was estimated at $184 million.
The decision method used in this analysis was a benefit/cost analysis. The value of the net public benefits (derived from reduced truck VMT) was estimated to total $177 million over the life of the project, while the operating income was estimated at $36 million, for a total benefit of $213 million. When compared to the potential total capital costs of $190 million, a positive benefit/cost ratio was supported.
The study concluded that rail shuttle service between the ports and the Inland Empire distribution and warehousing complex was both operationally feasible and economically viable. The study noted that some level of financial support would be necessary in order for the service to be able to compete with the trucking industry, but that the anticipated reduction in congestion and emissions would justify this support.
The Chicago Region Environmental and Transportation Efficiency Project (CREATE) can be classified as achieving operational improvement with respect to freight rail, and augmenting capacity with respect to passenger rail (an explicit METRA objective). These improvements would be possible by removing bottlenecks, improving the fluidity over the system (i.e., fewer delays, better speeds, added reliability) and more prompt recovery of operations after bad weather or accidents.
CREATE would not per se represent a rationalization of the existing network since there will be little change in the network (apart from the elimination of the St. Charles Airline route). Instead CREATE’s intention is focused on rail traffic along five corridors (Central, Western Avenue, East-West, Beltway, and a dedicated Passenger route). These five routes would be streamlined relative to their current operational characteristics to become “through-routes,” grade separations would be achieved at 25 major street crossings, and six flyovers would be constructed at critical rail-to-rail intersections (typically passenger versus freight rail conflicts). The effective separation of freight and passenger train movements at specific points in the network would add capacity to the Southwest and Heritage lines, allow better use of the LaSalle Street Station, and free-up capacity at the Union Station.
The public benefits analysis of the CREATE proposal attempted to evaluate three of the four issues defined in Chapter 4 – national growth/productivity implications, savings to rail operators, and the allocation of costs, benefits and the mix of beneficiaries. The latter was important since for the first time ever, six private railroad entities31 began a joint process with the city of Chicago (Mayor’s Office, CDOT, METRA, AMTRAK) and the state of Illinois (IL DOT) to devise (and eventually cost share) improvements to the current railroad system that would address both freight and passenger rail movements, reduce conflicts between rail and auto/truck movements at crossings and help mitigate Chicago’s growing surface congestion.
Operational benefits for the six railroad operators would follow from the investment to improve rail network efficiencies. The public-benefits focus was on the local rail serving market of Chicago-Kenosha-Gary CMSA and on the nation as well. These benefits, which were monetized and expressed in net present value over the period 2003 to 2042, included:
Other benefits were noted, but not measured since they were considered secondary benefits. They included the value of improved rail freight service to Chicago-area businesses, better emergency response times along 911 routes for the community, redevelopment of lakefront by eliminating the St. Charles Airline route, reducing rubber tire interchanges (drayage), and energy conservation.
The public-benefits analysis relied upon transportation modeling resources of ILDOT, the Chicago Area Transportation Study (CATS), and some additional methods. Accident reductions from improved crossings as well as less congested highways (achieved by modal shift into passenger rail) were drawn from these agency resources. For example, the safety benefits associated with the grade crossing separations were estimated based on historical accident rates at the 25 crossings, with an assumption about traffic growth at the crossings. Additional safety benefits were associated with the investment as it has the potential to spur added passenger rail traffic growth (particularly attributable to the rail flyover improvements). By estimating the highway traffic that would have been generated in lieu of added growth in commuter rail use, incremental accidents were identified.
The rail operators’ study relied on the Berkeley Simulation model to estimate rail network performance changes for both freight and passenger rail activity. This modeling revealed network performance changes under different allocations of a specific mix and volume of rail traffic over the network. Railroad operators then determined the associated scheduling, costs of operations as well as rate structures based on the simulation results.
For CREATE’s various economic impact potentials identified in Step 2 above, some formal analysis tools were applied and in some instances less formal methods were used. The direct economic value of inventory reduction savings were calculated by multiplying the time saved on freight movement by value of delay, all at the commodity-specific level. The value of delay was based on the direct cost savings that would result from not holding the shipments in inventory longer as a result of the trip being faster. The (undoubtedly more significant) benefits that would be derived from increased reliability of shipments were not possible to address. The study used the value of the lading, a cost of capital, and the time-savings, hence the resulting NPV for this impact was small. AAR believes this is a conservative estimate for the Nation.
The value of averted highway construction/repair was derived using slightly different sources of information for the local and national public-benefits analyses. The national estimate was derived from the FHWA Highway Economic Requirement System (HERS) model and from an analysis tied to AASHTO’s Freight-Rail Bottom Line Report (2003). For the local estimate of averted highway spending, METRA provided forecasts of passenger growth (inclusive of CREATE’s operational improvements) along the Southwest and Heritage lines, CATS and ILDOT the forecasts of car pooling growth and the average decline in trip length – all combined to yield a decline in vehicle-miles-traveled (VMT). The HERS model was then able to assign the investment savings to the local highway system based on reduced VMT.
The value of emission reductions are estimated using reductions in rail-fleet idling time as well as the auto/truck delay improvements at the improved (grade separated) crossings as well the 163 other crossings. The modeling results indicated that the railcar time saved and current emission standards from EPA for locomotive emissions were used with data from CATS’ recent CMAQ analysis for approved NOx projects as the basis for monetizing the pollutant tons averted). Auto/truck emission reductions were identified in part from the Berkeley Simulation model results of improved rail activity at the crossing points, and from the CATS data for existing as well as future highway traffic as it was assumed to be distributed over the road network. Dollar valuations were derived from the same source as the rail-related emission reductions. Finally, the economic impact resulting from construction of CREATE’s project components was also estimated using a regional input-output model.
The study of public-benefits began once the CREATE proposal was finalized among the rail operators based on the simulation results from their private study. Due to the confidential nature of that study, the explicit decision methods used for identifying the investment package are not known to the public. At minimum the operational improvements would be worth $0.2 billion of rail industry funding towards the overall cost of CREATE.
Public-entity funding will involve METRA, CDOT, ILDOT, and Federal funding. Organizations such as METRA that have already agreed to contribute may have done so on the basis of considerations such as the added fare revenue tied to induced growth in commuter rail ridership. That information was produced by the simulation forecasting process.
Vancouver, BC serves as one of North America’s premier sea and air gateways for Asia trade, as well as for rail and highway freight shipments across the U.S./Canada border. However, growth of these multimodal port facilities has been putting increasing pressure on the region’s ground transportation system. The growth of road and rail traffic has been particularly strong for commercial movements, which serve freight cargo moving to and from airport, marine ports, industrial parks, and international border crossing facilities. Projected road and rail demand indicate that capacity will soon be exhausted for both elements of the transportation system. In the meantime, increasing traffic congestion is affecting not only freight flows, but also residents who commute to work or travel to the central city for personal business.
The Greater Vancouver Gateway Council, a private-public partnership, defined the concept of a Major Commercial Transportation System (MCTS) as a multimodal system with new infrastructure investments to maintain functional linkages between Gateway facilities, industrial areas and the major trade routes by sea, air, road, and rail. A series of 18 major new investments, comprising major highway upgrades as well as new or improved rail links and river crossings (by both rail and road), were identified as necessary to maintain the movement of goods and to reducing increasingly high levels of traffic congestion. Improvements to an additional 34 existing roadway segments, rail facilities, and rail/road crossings were also identified. The cost of completing all of these projects is estimated at $6 billion.
The MCTS encompasses all three facility location types discussed in Chapter 3 (local entry/access point, regional corridor, terminal facility) and the project’s goal is operational improvements as well as capacity expansion.
Local issues include traffic delay for commuters and other peak period travelers. Regional issues include the ability for continued growth in the metropolitan area and its marine, rail, and trucking industries and allied industries. These issues correspond to international trade growth and local/regional income and economic development areas discussed in Chapter 4.
The analysis process brought together a team of transportation engineers and economic development consultants to apply a series of sophisticated models:
A four-province economic impact study was funded by the Canadian Federal Department of Western Economic Diversification, in cooperation with Transport Canada, because all four of Canada’s western provinces are economically dependent on international trade flowing through the Vancouver region.
The study used an early version of the economic analysis system that is now referred to as TREDIS (Transportation Economic Development Impact System) to evaluate regional economic impacts. This system consisted of a) Rail Capacity Module – calculation of economic growth loss associated with failure to increase rail system capacity to meet forecast cargo growth needs, b) Highway/Cost Response Module – calculation of business cost increase and shift of business growth away from Western Canada due to higher cost of truck and rail through congested routes to international gateways, c) Input/Output Module – a series of four provincial input/output models were used to allocate direct effects on affected business to downstream impacts on the western Canadian economy, and d) Net Benefit Module – a series of adjustment factors that allowed for business relocation and workforce adjustment to calculate net impacts on GDP, jobs and income in the region.
Performance metrics for the various components of the Vancouver Gateway’s multimodal transportation infrastructure were required in order to assess whether the proposed investment for the MCTS would address growing congestion – affecting both international trade growth and local/regionally oriented economic activity as well. The analysis provided the following quantitative results:
The study concluded that the package of highway, rail, and public transit projects had a benefit significantly greater than the cost, whether measured in terms of travel benefit, economic growth or societal benefit. Based on those findings, the project was endorsed by the Vancouver Gateway Council and discussion went forward between Federal, provincial and regional transportation departments for prioritizing and funding the listed projects. At this time, some of the recommended projects have been approved for implementation.
The Cross Harbor Goods Movement EIS for the New York City Economic Development Corporation is a project to assess the impacts of a new freight rail tunnel from New Jersey (or Staten Island) to Brooklyn, along with other rail line improvements and an intermodal rail yard in Queens. So, the mode directly affected is freight rail transportation, with completely new infrastructure (the tunnel and intermodal yard) and enhanced existing infrastructure (the current rail lines in Brooklyn and Queens).
One of the primary goals of the project is to divert freight from trucks to rail, thereby reducing the number of trucks on the metropolitan New York City highways and in particular, reducing truck traffic on the bridges.
Local impacts include enhanced freight rail service to East of the Hudson areas such as all of Long Island, and a new intermodal yard in Queens and projected increases in warehousing/distribution activity. Regional impacts are expected to include shifts in mode from truck to rail for various commodity movements to/from East of Hudson locations, reductions in highway congestion and truck traffic in greater New York and New Jersey, and reduced freight transportation costs for regional businesses and spillover economic benefits. National impacts are also expected since various long-distance goods movement trips that currently use trucks may switch to rail, thereby reducing truck volumes on national highways. In addition, freight moves that have origins and destinations outside of the metropolitan New York City area but will benefit based on the new rail tunnel are expected to experience reduced shipping costs.
Transportation models and their associated data included:
Three types of direct economic benefits based on travel efficiency were estimated:
Economic impact models included:
The economic analysis metrics used in the decision-making process included: 1) a benefit/cost analysis spreadsheet model to track benefits and costs, discount to present value, and calculate benefit/cost ratios; and 2) economic benefits in terms of gross regional product (GRP), employment, and personal income.
Common Features. Each example reflects an attempt to answer – through some type of analysis – an explicit study objective(s) pertaining to the value of a proposed investment in some component of the freight transportation system. The path each analysis evolved along is clearly a function of a) how many evaluation issues were articulated by the key stakeholder funding the study; b) the analytical resources (budget/modeling tools/skills) available to develop the analysis; c) the execution of the analysis; and d) the ultimate decision criteria used to interpret the economic impact results from these projects.
Three common findings are that:
Overall, these case studies confirm that economic impact is an important consideration when evaluating major freight transportation projects. Differences among these case studies also emphasize the value of guidelines, as presented in this document, to better standardize methods and presentation of findings for future freight economic impact studies. This latter point is particularly important for projects in which Federal funding or other forms of Federal participation are being considered.