The analysis framework is designed around three fundamental concepts:
The remainder of this chapter describes the proposed terminology, the sequence of analysis steps, and the tiered screening process. The five chapters that follow then provide details on the individual steps to be applied in carrying out the framework and its analysis process.
There can be a myriad of different parties involved in using, operating, and benefiting from freight transportation systems. The affected parties can encompass all sectors of the economy – farmers, miners, manufacturers, utilities, transportation companies, brokers, distributors, wholesalers, retailers, service providers, government, and households. It is neither possible nor useful, however, to attempt to break out and separately measure the nature of freight project impacts on each of these parties. Therefore, a simpler set of distinctions is necessary for this analysis.
At one level, it is useful to first assess projects in terms of their overall societal benefit and then compare that to their total cost without breaking out the affected parties. After all, any project that does not generate significant overall societal benefits is not likely to justify the expenditure of Federal funds (unless there are some special public policy considerations). At another level, it is useful to also distinguish public and private sector interests, and also distinguish those that are directly affected from those that are indirectly affected. These distinctions can be important for determining an appropriate balance of public and private financing responsibility for a project.
Therefore, the general framework for analysis makes a distinction between four broad categories of affected parties: 1) Freight Carriers – providers of vehicles and services directly affected by freight transportation system changes; 2) Freight Users – the shippers who generate freight demand and are most often affected by its costs; 3) Nonfreight Users – who may also benefit as a side effect of freight transportation improvements;2 and 4) Consumers and General Public – who may benefit in the form of greater income generation for workers, lower prices, and/or various environmental, energy, safety or security benefits.
The relationship between these four categories of affected parties is illustrated in Figure 2.1. It shows that improvements in freight facilities affect freight carriers, who may pass on the impacts to freight users, leading to additional secondary impacts on other parties and ultimately effects on income and productivity in the economy (as well as other possible environmental impacts). Depending on the specific freight projects being considered, some, but not necessarily all, of the elements of this sequence may occur and thus be important to evaluate. However, it is important to consider, at the outset, that any of the elements shown in Figure 2.1 could potentially be relevant for evaluating the overall economic benefits of large-scale freight projects.
Figure 2.1 Classification of Effects on Various Parties
The importance of this classification becomes apparent later in the process, when overall project benefits and costs are portrayed in terms of their direct and indirect effects on public and private sector interests.
Once the general parameters of a project have been established, the heart of the universal framework for evaluating large-scale freight projects is a Five-Step Analysis process. In its most basic form, there is no way to avoid these five steps if one is to assess the economic impacts of such projects. The steps are:
The relationship between these five steps is illustrated in Figure 2.2. It shows the sequence of how each step builds on findings from the prior step.
Figure 2.2 Five Step Analysis Process
Difference from Traditional Project Assessment. While the sequence of these five steps may appear to be quite obvious and elementary, it is actually a departure from traditional benefit/cost analysis approaches for transportation projects. In the traditional approach embodied in essentially all transportation benefit/cost analysis frameworks used for single modes in the U.S., there is no need for the first two steps that defines the project’s transportation system changes and their economic value. That is because the traditional single-mode evaluation methods typically rely on a fixed and predetermined definition of the user benefit that encompasses the value of travel time saved, vehicle operating cost saved, and accident reduction. For large-scale freight transportation projects, however, we know that major motivations are frequently related to other issues, such as trade competitiveness, national security, reliability, capacity, and balance among modes, ports, or border gateways. So the framework in this guide carefully sets up the first two steps to identify the specific nature of potential freight transportation changes and their intended economic consequences. Those factors then provide criteria to be used for selecting analysis methods and reporting findings in the subsequent three steps.
Structure of This Guide. The key elements of analysis embodied in these five steps are summarized in Figure 2.3. Details of these elements and their use are discussed in more detail within Chapters 3 through 7.
Figure 2.3 Key Analysis Elements of the Five Steps
Step 1 – Classify the Type of Project (Transportation Impact)
Step 2 – Define the Relevant Evaluation Issues (Economic Impact)
Step 3 –Tools for Calculation of Transportation Impacts
Step 4 –Tools for Calculation of Expected Economic Impacts
Step 5 – Decision Methods
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The framework is set up so that the five-step process can be conducted at two levels. First, an initial analysis can be conducted at a summary or “sketch planning” level, which can be completed with limited data and resources. Then, if the initial analysis indicates a potentially significant project benefit, a more “in-depth” level of analysis can be conducted. There are several reasons for preferring this approach:
In cases such as these, it is possible to use this guidebook as part of a two part strategy: the more sophisticated analysis (Steps 4 and 5) would be carried out only after the initial simplified screening process determines whether or not a proposed project appears to have total benefits even approaching the project cost. That can be done by initially focusing just on first-order effects determined in Steps 1, 2, and 3. The first order effects are typically travel time and cost savings for directly affected shipments and shipping patterns, and in some cases there may also be changes in volume if the project relieves a capacity constraint or bottleneck in the system. If any of the conditions described above call for a sketch planning analysis, an initial evaluation of the downstream economic implications of cost and growth changes can also be analyzed directly using spreadsheet-based methods (as discussed in Chapter 4 and illustrated by examples later in Chapter 8).
If the initial first order analysis demonstrates some potential for positive benefit/cost ratios, a more sophisticated second level of analysis may be advisable to then carry out. In this more rigorous approach, Steps 3 and 5 can be carried out with more detailed analysis methods that utilize freight network and logistics models, together with economic models, to separate the incidence of private and public sector costs and benefits. Since transportation and economic simulation models are required to complete this second level of analysis, the resources required are substantially greater. The available tools for accomplishing this are described later in Chapter 4 and Chapter 5.
There are separate data requirements needed within each step of the analysis process. These data requirements correspond closely to the individual analysis elements of the steps shown in Figure 2.3. The form of these data requirements is summarized below.
The specific transportation data that should be collected will differ depending on the nature of the project (i.e., the modes affected, the type of impact expected, and the specific transportation analysis tools that are required), the specific differences being mostly related to the form in which the data will be provided. (For example, will data be provided on annual affected VMT and percent of time congested or in total hours of delay estimated directly from a travel demand model?) An important point to note is that the transportation impact data must be collected for all affected modes of transportation, which may be both freight and passenger modes if there are cross modal effects.
There are two additional requirements for information to assess the economic impacts of multimodal freight projects. One is the need for consistent measures of direct impacts that are equivalent among all affected modes. The other is the need for information on the commodity mix of affected freight flows, since economic impacts can differ depending on the industries affected.
A data collection structure that is consistent and comprehensive is a good start, but it is intended as an inventory that will help an analyst take stock of what is available and how to select the appropriate analytical methods based on what data are available and what remains to be collected and assembled. An incomplete inventory does not preclude a robust analysis, but should provide a sober basis for stakeholder expectations. For example, the persistent lack of data about service levels and costs from private sector providers of truck, rail, air, and marine freight services has blunted the rigor of evaluating some large-scale freight projects. Nevertheless, there are ongoing attempts to overcome this data deficiency. For example, the National Retail Federation’s “Port Tracker” model accesses private sector data to show the economic implications of trade flows. The framework in this report, however, is designed to avoid requiring proprietary service and cost data from freight carriers.
Instead, the framework allows for standard averages or “rules of thumb” to be used in assessing impacts on transportation operating costs and service levels for carriers. It also allows for simplifying assumptions that carrier costs are ultimately passed on to customers (shippers), who then incur additional cost impacts associated with freight logistics, distribution, and process scheduling. Such assumptions do preclude the possibility of distinguishing impacts on carrier profitability from impacts on shipper profitability, as both are part of the private sector impact. However, they do still allow for the ability to distinguish private sector impacts from public sector impacts.
Finally, it is important to note that while analysis can be conducted without obtaining details on private carrier freight costs and service reliability measures that do not mean that such information is irrelevant. On the contrary, private freight carrier data of this type can be quite useful, particularly when highlighting problems unique to a specific corridor or bottleneck that already constrains available freight carrier services. Sometimes it is possible to obtain private information, particularly when proposals for large-scale facilities are likely to directly benefit private freight carriers and require active discussion between government agencies and private owners of rail, air, or marine facilities. There are many institutional issues involved in the process of initiating and pursuing that kind of dialogue, which are discussed in detail in separate studies of the National Cooperative Highway Research Program (see particularly: Rail Freight Solutions to Road Congestion, NCHRP, 2006).
The latter three steps of the Analysis Framework involve a series of transportation and economic analysis methods to evaluate transportation impacts, economic consequences and benefit measures. The framework is designed to be flexible so that simple spreadsheet tools can be used for a straightforward sketch planning level of analysis, or complex simulation model tools can be used for a more sophisticated and detailed level of analysis.
Figure 2.4 illustrates the key analysis issues covered by the analysis framework. This graphic provides the basis for a brief overview of the required types of tools. However, these methods are discussed further in Chapters 3 to 7, and also catalogued in Chapter 10.
Figure 2.4 Analysis Components
The first step, illustrated by the top box in Figure 2.4, is to assemble baseline (current and forecast) information about freight flow patterns and the capacity and performance that is provided by transportation network facilities. This calls for two types of analysis tools:
Given baseline demand and supply characteristics, tools are applied to assess the impact of proposed projects on freight transportation system use and performance, in terms of aggregate changes in time, cost, reliability, and safety. This is represented by the second tier of boxes in Figure 2.4, which makes a distinction between savings for projected/existing trips given existing market access patterns (the left box) and impacts associated with increased access to potential new markets and intermodal connections (the right box). It requires two types of analysis tools:
Given changes in freight transportation system use and performance, economic tools are applied to assess the economic impact of changing costs and revenues for the full-range of industry sectors within the economy. This is represented by the third tier box in Figure 2.4, which references both changes in dollar (cost and income) flows and economic growth responses. The analysis of impacts on the economy can involve up to three types of tools that can be used together:
The previously-described tools for analysis of economic impacts provide information on impacts at several different levels – in terms of: 1) cost savings for affected businesses, 2) business productivity enhancement, 3) business expansion and associated corporate income growth, and 4) personal income for workers. These concepts all represent elements of “Value Added” or “Gross Domestic Product.” So while they differ in their breadth of coverage, any of them can be used to represent economic benefits. However, these economic impact measures are highly overlapping, so only one can be used at any one time to portray economic benefits.
In addition, there can be other benefits that may not directly affect the flow of dollars in the economy, such as environmental improvement and personal time savings that can also be included in various approaches to benefit/cost accounting.3
In general, there are four primary types of tools that can be used to represent project benefits relative to costs. They represent different viewpoints or considerations in decision-making, which makes them differ in their portrayal of economic benefits and their inclusion (or exclusion) of environmental, personal and social factors.
This guide is intended to lay out a consistent process that can be used for evaluating the economic benefits and costs of large-scale capital projects that are focused on freight movement. However, benefit measures and decision support tools need to be selected and applied in a way that covers the underlying motivations for any specific project. The motivations may include:
The relevant benefit measures may then include:
Missing from this list are the likely social and environmental benefits. These may be large and critical elements of the ultimate project evaluation. Given the current state-of-the-practice methods, however, social benefits are often difficult to quantify and analytical models already exist for evaluating environmental benefits, so these metrics are not included in this framework. However, even within this framework, there are various ways to incorporate and present the above (bulleted) benefit measures in economic terms. They are shown and discussed later, in Chapter 7.