Operator:
At this time all participants are in a listen-only mode. Well be conducting an audio question-and-answer session at the end of the presentation. You may submit questions at any time by using the chat feature located on the lower right-hand corner of your screen. If at any time during the call you require audio assistance please press star followed by zero, and a coordinator will be happy to assist you. If you experience any difficulties, please contact WebEx support. I would now like to turn the presentation over to Ms. Jennifer Seplow:
Jennifer Seplow:
Good afternoon or good morning to those of you to the West. Welcome to the Talking Freight Seminar Series. My name is Jennifer Seplow and I will moderate today's seminar. Today's topic is Freight Capacity Challenges. Please be advised that today's seminar is being recorded.
Today we'll have three speakers - Robin Lanier of the Waterfront Coalition, Rich Margiotta of Cambridge Systematics, and Bob Leilich, a Railroad Operations Consultant.
Robin W. Lanier serves as Executive Director for the Waterfront Coalition, a group of concerned business interests representing shippers, transportation providers, and others in the transportation supply chain committed to educate policy makers and the public about the economic importance of U.S. ports and foreign trade, and to promote the most efficient and technologically advanced ports for the twenty-first century.
Ms. Lanier helped to form the coalition in 2000, and serves as its principal staffer through a contractual relationship between the Board of Directors and her management company, Alliance Management Group. Alliance Management provides trade association management services for several non-profit associations and citizens groups in the international trade and transportation areas.
Prior to forming Alliance Management Group Ms. Lanier represented the interests of importers on diverse international trade and transportation issues. From 1990 to 2000, Ms. Lanier served as Senior Vice President, Industry Affairs and Trade Development for the International Mass Retail Association, where she managed the association's internal and external communications functions, and served as the mass retail industry's principal lobbyist on trade and consumer product issues.
From 1979 to 1990, Ms. Lanier was a Vice President and lobbyist for the National Retail Merchants Association (now the National Retail Federation). She also served as Legislative Assistant to Congressman Thomas J. Downey (D-NY) from 1975 to 1979.
She has appeared on many radio and television broadcasts representing the views of importers and exporters and has regularly testified on issues before the federal government and Congress. In 2001, she was named to World Trade Magazine's list of "Most Influential People in World Trade", principally for the work she has done in her capacity as executive director for the Waterfront Coalition.
A native of New York, Ms. Lanier attended the University of Michigan and holds a Bachelor of Arts Degree (Summa Cum Laude) in Political Science from the State University of New York - Buffalo. She is a member of Phi Beta Kappa. She is married and has two children.
Dr. Richard Margiotta, is a Principal with Cambridge Systematics. He has 23 years of experience in the transportation field, including research, planning, and policy analysis. He has held positions at Science Applications International Corporation, the Transportation Research Board, and the Knoxville (TN) Metropolitan Planning Organization. He received Ph.D. and M.S. degrees in Civil Engineering from the University of Tennessee and a Bachelors degree in biology from the State University of New York at Albany. His recent work has concentrated on performance measures for congestion and operations.
Robert H. Leilich, was the founder and President of TrainMaster, Inc., which specialized in developing locomotive and train simulation software. The company was sold in 2004. Prior to this, he was founder and president of Corporate Strategies, Inc. (CSI), sold in 1999.
Mr. Leilich has 42 years of professional experience in rail transportation strategic planning and economics. He is also a recognized leader in railroad operations modeling and simulation, and was responsible for the initial development of the world's most widely used heavy rail operations simulation model, the Railway Analysis and Interactive Line Simulator (RAILSTM).
Prior to forming CSI in late 1979, Mr. Leilich was a senior manager with two major consulting firms. He has six years operating and mechanical department experience with the former Santa Fe Railroad and Southern Railway.
Mr. Leilich is a graduate of Purdue and Yale universities, with an undergraduate degree in Mechanical Engineering and graduate degrees in Industrial Management and Transportation Economics. He is a registered Surface Transportation Board practitioner, and a frequent expert witness on rail operations and economics. He has also spoken on and written many national and international articles on these subjects. He recently co-authored the book "Off the Beaten Track" - a book about the life of former Railway Age publisher, Bob Lewis, as shown through his camera lens.
Mr. Leilich and his wife reside in Springfield, Virginia. He has two grown children and three grandchildren.
I'd like to go over a few logistical details prior to starting the seminar. Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience Question and Answer. The Operator will give you instructions on how to ask a question over the phone during the Q&A period. However, if during the presentations you think of a question, you can type it into the smaller text box underneath the chat area on the lower right side of your screen. Please make sure you are typing in the thin text box and not the large white area. Presenters will be unable to answer your questions during their presentations, but I will use some of the questions typed into the chat box to start off the question and answer session in the last half hour of the seminar. Those questions that are not answered will be posted to the Freight Planning LISTSERV. The LISTSERV is an email list and is a great forum for the distribution of information and a place where you can post questions to find out what other subscribers have learned in the area of Freight Planning. If you have not already joined the LISTSERV, the web address at which you can register is provided on the slide on your screen.
Finally, I would like to remind you that this session is being recorded. A file containing the audio and the visual portion of this seminar will be posted to the Talking Freight Web site within the next week. To access the recorded seminar, please visit Talkingfreight.webex.com and click on the "recorded events" link on the left side of the page and then choose the session you'd like to view. Due to the size of the file, recorded files are available for viewing/listening purposes only and cannot be saved to your own computer. We encourage you to direct others in your office that may have not been able to attend this seminar to access the recorded seminar.
The PowerPoint presentations used during the seminar will also be available within the next week. I will notify all attendees of the availability of the PowerPoints, the recording, and a transcript of this seminar.
We are now going to wait a few minutes until 1:00 to give others a chance to join us. At 1:00 we'll start with the first presentation of the seminar. So, Operator, please put everyone back into hold at this time.
It's now about 1:00 and I see that many others have joined in so let's begin. Today's topic, for those of you who just joined us, is Freight Capacity Challenges. Our first presentation of the day will be that of Robin Lanier of the Waterfront Coalition.
If you think of questions during this presentation or during any of the other presentations, please type them into the chat area on the screen. Questions will be answered in the last 30 minutes of the seminar.
Robin Lanier:
Thank you, Jennifer. I know Jennifer introduced me, but let me begin my session by introducing the waterfront coalition to those of you who may not be familiar with if, we are a nonprofit association composed of mostly cargo owners, beneficial cargo owners and shippers whose interest in freight transportation is, I think, a subset of all of the issues involving freight. Basically, our membership is mostly concerned about international cargo and in particular, cargo that is traveling to the United States by way of the marine transportation system. So our interest in freight is really in the system that moves mostly marine containers. Now, this is not to say that the members of my organization, which include some very well known companies aren't also concerned about domestic transportation. That is transportation that might begin and end within the United States. It's just that the coalition itself is really an intermodal group and we are most interested in the marine transportation system that moves containers through this, from overseas to our member companies, stores and warehouses and factories.
And with that introduction, let me start off, we have the perspective of the folks who own the cargo and maybe I should also say by way of preface that by and large, cargo owners until quite recently have paid very little attention to the transportation system. They've paid a lot of attention to trade policy and they've paid a lot of attention to supply chain engineering but they haven't really paid attention to the kind of down and dirty issues that we're talking about where the rubber meets the road and how many highways do we have and what projects matter and that sort of thing over the last 4 or 5 years, that's changed because of the scope of the issue and international that I have a few facts here that help to frame the issue for you from the perspective of somebody who owns cargo that's traveling over the highways and rails and through the nations ports.
In 2005, 25 million TEU, that's a 20 foot equivalent about half of air container, since moved containers are about 40 feet -- this is the metric that we use to measure the amount of containers traveling through the system. 25.2 million TEU travel through the ports. We're not looking at containers that traveled inland waterways, we're talking about those that arrived on our borders. 50% of these containers were handled by the west coast. But I think the really interesting statistic is that 70% of the U.S. imports come from Asia, and the vast majority of those are actually coming through a single port, the port of Los Angeles and Long Beach. Which means to a large extent we have put a lot of our eggs in one basket in Southern California.
The forecast calls for a doubling of trade in the next 10 years, when you talk to the people who manage the ports, I'm not talking about port authorities, I'm talking about the terminal operators who provide the service of unloading the ships, many of them are deeply concerned about these forecasts, because there's deep concern that there's not enough land area, the store containers, there's not enough labor to move containers. We are facing a real cramp in space at the borders and in particular blue water ports, we're looking at a doubling of this trade, a lot of it from Asia, a lot of it as a result of our trade policy to open up trade, a trade policy that I might very rarely takes into account that fact. Los Angeles is perhaps the largest -- is, in fact, the largest gateway, probably the most congested gateway. But others that are very large are New York, anyone who has traveled on I-95, I-81 knows how congested that area of the country is. So we have a significant problem in that our ports are located in very congested areas, and obviously, this is the DUH factor, the growth in trade is affecting highways and railroads, and in particular in railroads for example in 2004, because of rail congestion, we were seeing 2 to 3 days of additional transit time because of rail congestion and as a result of the growth of intermodal, international trade.
Why do we care as a group of businesses? The most important reason is, delays in moving a container result in higher inventory carrying costs for businesses, and just in time is, in some cases moving to just in case, which means you're having to stockpile things in warehouses that you wouldn't normally want to do. To give you an idea, I mean, I had a conversation just recently with a manufacturer of computer equipment who made the statement that they had eliminated all of their warehouses. And that, in fact, they have no warehouses, the goods that they need are just in the supply chain and a constant flow. They don't want to put them in the warehouse because there's a delay in the system to do that. They stockpile parts or merchandise that may go to a store, that's enormously expensive. What does that mean? Higher prices for consumers, loss markets for exporters, which is something people tend to overlook. We have probably more importers than we do exporters in our organization, but clearly speed to market is very important to exporters, very important to agricultural exporters, particularly those with perishable products. And more highway congestion for communities around ports results in environmental concerns on the part of those communities and community push back, and these have become major problems in terms of building port infrastructure, expanding the connecters that connect the port to rail heads that might be in a region or to the regular highway system. And it's getting more and more difficult to build this infrastructure.
As a result of all that, the waterfront coalition about a year ago realized that we have a major problem, our members were sort of looking at one another and looking at congestion that exploded on them, and realized that there may not be enough capacity, there may not be enough infrastructure to really address their business needs in the coming decades. And the coalition drafted a white paper which is available on our web page, of which the URL's down here in the corner, www.portmod.org, and the white paper is called the National Marine Container Transportation System, a Call To Action. In that paper, it's about 45 pages long, I'm going to give you a summary of some of the findings in that paper very briefly obviously in the next 10 minutes, but if you want to read the entire thing, can you go to our web page and download it.
We came up with six major conclusions after taking a look at what we needed as businesses and where we thought the system was. And let me point out that from our perspective, the system -- I mean, it is a fact that the system is both privately developed and publicly developed. In fact, major portions of the marine transportation system are actually privately held and privately developed. Terminal facilities, a lot of rail freight is private. So this is not, when we come up with these findings, we're not talking about the sort -- exclusively things that government needs to do. We were looking at this from a holistic point of view, just looking at the system and things that could impact that system. And so we came up with 6 findings that are listed here, improved productivity, developed alternate western gateways, the idea here is that we put all of our eggs in the Los Angeles basket. We need to spread the wealth a little bit. We also need to promote all water routes to the east coast from Asia. We need to increase private investment in intermodal rail. We need to develop forecasting and metrics, I'll be very interested to hear what the other speakers today have to say about some of those things, and then we have to develop some highway priorities, and really when you look at this, probably the only thing that is a government function is down at number 6. Let me talk a little bit, very briefly about some of -- each one of these in depth and I'm going to go very quickly, because we only have 10 minutes, if you have questions, I'm happy to answer them.
You know what, we talk about transportation, there is this tendency to talk just about the railroads and the roads, but from our perspective, because we care about intermodal. We really do care a lot about what goes on at terminal operations at ports. And since these are largely privately held pieces of property and infrastructure, most of what we have to say about this really is aimed at the business community itself. The folks who run marine terminals. We have a number of items here, some of these are really geeky, so if folks have questions, that's great, I'll answer them, but I'm going to go through them very quickly. The first is to make harbor trucking a profitable business. This is an important issue for us, because we are losing truck drivers at an alarming rate. The ones that are having the hardest time making a buck any more are the ones that are doing the short haul transporting from the port to the international warehouses that are located near a port. These guys are working by the trip, they are largely owner operators and not making a living wage, mostly because of congestion. Congestion within the port itself, having to wait long periods of time to get a container to move and congestion on the roads is interfering with a number of turns that they can make in a given day. Quite honestly, some of these independent businessmen can make more money at McDonald's than they can driving a truck any more. We have a serious labor problem there. Ports are by and large marine terminals, are by and large operated only during 9 to 5 operating hours, there's a new effort in Los Angeles to open up coordinated extended gate so is that truck drivers can move freight at night, we have some push back from communities there, but it's pretty clear that given the fact that we don't have a whole lot of land to build new ports and new terminal facilities, that we need to operate the terminal facilities that we have more hours, and so we're asking the industry, and this is not just a terminal operator, but all the folks who run warehouses, all of the folks that we represent, the shippers and cargo owners are all going to have to think about operating 24-7. Something they've never done before. I don't want to get too deeply into the issue of free time and chasses, this has to do with how we manage intermodal equipment. There are terrible shortages in the equipment, and the management of the equipment is chewing up valuable land resources that could be used for much more productive things. Spreading out vessel sailings and arrivals this has to do with the fact that most of the vessel sailings out of Asia leave on the same day and consequently they arrive on the west coast of the United States on the same day, thereby causing congestion on the roads around the ports, so it's kind of a domino effect. Those are just a few things, there are many more in our paper, those are the highlights of some private sector things that can be done to make ports much more efficient and handle a lot more trade.
Second thing, develop alternate western gateways, and we have a couple of items here, provide more sailings to alternate Western ports, as it turns out, the ocean carriers prefer to have their first call be Los Angeles and Long Beach, that's one of the reasons why Los Angeles and Long Beach is the largest import port in the United States. If the carriers were to offer more first call services into Oakland, for example. Oakland would grow and we'd be able to balance some of the trade on the west coast. And balance some of the congestion there. However, if you're going to do that, if you're going to increase them, the first call services into these other ports, you have to deal with some of the rail issues, particularly in the ports of Oakland, Portland, Seattle and Tacoma. There are serious rail infrastructure issues that have to do with the sharing of equipment between the two western railroads, have to do with how those rail services are configured and we need some railroad crossings and corridors, and then we need to address issues in Oakland that really are highway issues. Oakland could be a much bigger port and could handle a lot more trade. But because of the road situation in Oakland people don't want to open international warehouses there like they do in Los Angeles. So you have some issues, systemic issues that preclude Oakland from growing.
Third item is develop alternate eastern gateways and here, I ought to tell you one of the issues we're dealing with right now is the explosive growth of China. The growth of India is right behind. India is going to become a huge supplier of goods to the United States very soon. And the smartest way to get those things from there to here is actually through the Suez Canal, there needs to be some development and services that go through the Suez Canal. Those large ships going through the Suez Canal are likely to make calls at places like Norfolk, Virginia, a place that you probably don't think about too much in terms of international trade, that raises a number of issues, particularly in the Mid-Atlantic states and particularly in Virginia, with respect to rail corridors to support that. And then obviously we have an issue with the Panama Canal. I don't want to spend a lot of time on that.
Now we get to some things that I think probably you all are probably a little more interested in and that is intermodal rail investment. One of the things we hear from the railroads, who make enormous investments -- their return on investments are actually lower than rail investments for other kinds of commodities, bulk or grain or coal and other kinds of things, the amount of money that railroads are putting in intermodal rail investment, may not be sufficient to meet the needs of the U.S. economy. That's why our organization is calling for tax incentives for railroads to make intermodal rail investments. We also need to focus attention internationally on key east/west -- during Katrina, the New Orleans interchange was severely impacted, a lot of trains were delayed and were moved north to St. Louis. The net effect on transit times were only about 2 or 3 days, it wouldn't that bad, but we need to focus more attention on where the east and western railroads meet in the middle. A lot of our members are complaining that rail performance has been declining steadily in the last four-years in terms of transit days. There are a number of key projects that are needed to support freight corridors, we've listed these in our report, and if people have questions, I can talk about them. And there's been a lot of interest on short hall trains, shuttle train projects to the port to inland freight villages is the term that people are using, these are not demonstrated, have not been demonstrated as economically viable, the concept here would be to have trains competing with trucks. There are some wonderful reasons for doing this from a congestion and pollution point of view, but this may be very expensive and a lot of interest in this, but we have really suggested that governments move very cautiously until you get the economics of those kinds of solutions right.
On forecasting and metrics, in 2004, business was severely impacted by labor shortages on the west coast, both rail and terminals, the reason was simply because terminal operators and one of the western railroads missed their trade forecasting. They ignored the fact that China was a growing source of supply. And this caused enormous delays up to a week in some cases for the delivery of containers, which is very expensive for businesses. So we've identified a number of things that we think need to happen here, both from a private sector point of view and the government sector point of view, we need to develop best practices for measuring port terminal capacity and productivity, and the reason does not have to do with measuring productivity. That's a big problem, we don't even know how much terminal capacity we have in the United States. And then we also need to develop the forecasting models for importers and exporters, and I have to say that the national retail federation working with global insight has been doing interesting things here in getting information for forecasting into the hands of shippers.
And then finally, we get to the highway issue, and, you know, this is where everybody wants to start, you'll notice I put it at the end. It's not that we don't think highways are important, we think they're very important. I think what happens is often with highways is that we all recognize we have a serious funding issue, we also recognize we have serious issues in the way Congress and the Federal Government handle funding. And so there's a natural inclination on the part of local governments and state governments to say, let's go find the money first and we'll go figure out what the projects are, and we just think that's not the right way to do it, we think that first of all, we do need to put pressure on the Federal Government to develop a national freight policy within the Department of Transportation and that really Congress understands the importance of a national freight policy which they don't at this point. That's going to require some political will. I can tell that you my organization is trying to figure out how to get the business community really energized to begin to take this issue to their legislators and point out that investment needs to be made in freight. Otherwise commerce is going to come to a grinding halt.
And the second, of course, is that we think that from the freight perspective anyway, we need to identify on the priorities first and then figure out how we're going to pay for it. There may be a lot of different ways to pay for some of these things, in our report that you can download at our website. We've identified a number of port connecter projects. These are the last miles between the highways and ports, and we've identified a number of freight corridor projects which are a combination of rail and road projects. And we believe these are extremely important to be financed and these might even be identified as programs or projects of national significance under the new requirements that were put in the highway bill. And as I said, key port connecter projects need to be00 dressed. We were very disappointed in the highway bill that the port connecter projects were dropped. It is an indication that Congress does not really understand how critical these connecters are, these are the roads that connect the port with a rail head and the port with the warehouse communities.
And then we have a couple other little things that are really aimed at short haul issues near ports, one is assistance for short haul truckers whose equipment tends to be older and it pollutes a lot and uses a lot of gas, we do need some public assists answer in the form of tax credits or grants or something like that to help some of these independent businesses get into better trucks. And then we need to look at things like truck only lanes near ports in these congested areas, because the mix of cars and trucks is a real difficult thing, I know they're looking at some of that in California. As I said, in our paper we've identified 4, 5, or 6 pages worth of key port connecter projects that we think need to be funds and we've taken this from the standpoint of the projects first, and then we need to figure out how much they cost, and then we can work on how we're going to finance them.
In conclusion, from our perspective, maintaining the health of the containerized freight system is essential to our business interest but also to the U.S. economy as a whole. We believe the public sector has a role in setting policy, and in highlighting the fact that freight is really important. It's as important as mass transit. And in helping to identify financing, public financing that might be available. And that the private sector must change business practices over the short term because some of those short term business practice changes can be a stopgap as we grow and provide capacity over the short term. And with that, I will turn it over to the next speaker.
J. Seplow:
Thank you, Robin. We've got one question up there. If you can think of questions, please type them into the chat screen and we'll address them at the end of the seminar. Let's now move on to Rich Margiotta of Cambridge Systematics.
Rich Margiotta:
Thanks, Jennifer. Cambridge Systematics is a consulting firm, we do primarily planning and research for highway and transit agencies, federal, state and local. We've done a little bit of rail planning in the past, but our primary business area is in highways and transit. I'd like to talk about some of the bottleneck studies we've done, in particular, how bottlenecks affect freight traffic or truck traffic on our highways.
A brief overview of what we'll talk about today, what's a traffic bottleneck in terms of the highway system? Where are the major bottlenecks located and I'll have brief information on that. What are the effects that bottlenecks have and an overview on what can be done to fix bottlenecks with some reference materials if you are interested.
First the background on the highway congestion problem, this comes from Texas A&M's annual congestion report that they produce for the state Departments of Transportation. It shows the travel time index, which is simply the ratio of the actual travel time to an ideal travel time, an index of 1.2 means that your trip takes 20% longer than it would 23 there was no congestion. This shows in urban areas of all sizes, congestion has continued to grow substantially over the last 20 years. Along with the total growth and just the sheer amount of congestion, Texas A&M makes an estimate as to what the costs of congestion are based on the average -- the total amount -- the way it occurs on urban highways throughout the years. They consider the travel time costs and fuel costs of congestion, they don't look at lost productivity and things of that nature, you can see it's no surprise that the total cost of congestion to American consumers and businesses continues to increase with increasing congestion.
Why is this? Well, just a quick overview, we can see that the vehicle miles traveling on the highway system has steadily increased in the past 20 years, but the amount of lanes have remained relatively constant over the last 20 years, it's really no surprise that congestion has continued to increase over the past couple of decades. But today I'd like to talk about more specifics about bottlenecks. The reason why we're trying to focus on bottlenecks and why Federal Highway has an interest in this particular area, is that there are specific points on the highway system that are badly broken. That is, if we can concentrate our resources and our intention on a few specific locations of the highway system, we can have a very large impact on congestion instead of trying to adopt area wide policies or regional initiatives which are important, but in terms of looking at major congestion and major urban areas, bottlenecks seem to be a logical place or strategic place to focus our attention. There are huge delays and other associated impacts associated with these specific locations. They're widely known by both professionals and travelers alike, and we even see some that have local nicknames, I listed a few of the more colorful.
So what is a bottleneck? And in terms of doing our research, we have identified basically 4 types of bottlenecks, I'll go through these very briefly, because I want to focus on the last one. Type one is where visual effects on drivers cause vehicles to bunch together and their speeds typically are reduced. This can be due to roadside distractions, rubber necking where people gawk at accidents even in the opposite direction. Just natural places where vehicles -- where driver behavior controls traffic flow. Type two are related not to drivers primarily, but to the roadway environment itself. And changes in the physical alignment of the highways, sharp curves and upgrades are two examples of that. Type three, are what I call bottlenecks on purpose, these are things we do to control traffic flow such adding tollbooths or traffic signals. Really from a congestion and delay standpoint, type 4 is where all the action is, this is where vehicles are forced to merge from their intended lanes to other lanes and there are several examples given here, onramps, freeways, where traffic from surface streets need to merge on to the freeway system, and freeway to freeway ramps where interchanges and major freeways intersect. Lane drops, such as bridge crossings, in-lane incidents which cause vehicles to move from one lane to another and reduce the amount of highway space and finally weaving sections where we have vehicles that try to merge from the right side and have to get over to the left side for an exit maneuver and vice versa.
So what we've found in doing our studies for both Federal Highway and the American Highway Alliance, is that the major bottlenecks tend to be freeway to freeway interchanges and it seems to make sense because that's where the highest volumes are, also where the greatest restrictions are, so those combinations cause the highest amount of delay if you're interested in using that as a metric for congestion. The bottlenecks we discovered in the study in 1999 and 2004, sometimes a result of antiquated highway designs, often because original alignment decisions were made as shortcuts. In many other areas, we find that the alignment decisions were properly made initially, the highways are made -- designed to a very high standard, but the amount of traffic that's shown up at these locations is simply overwhelmed the physical capacity of the interchanges to handle the traffic.
For just talking about the Highway Users Alliance study, here's how we conducted both of those studies. We asked the state Department of Transportations to update their bottlenecks. Then we went to a study similar to what Texas A&M uses and we came up with a ranking of bottlenecks. It gave us an idea of where your major bottlenecks are and we applied the methodology and came up with rankings. This resulted in a list of bottlenecks in 1999 and 2004. And we find that some bottlenecks moved off of the list of improvements that were being made. I'll just list the top 12 bottlenecks from the recent study, and you can see these are all major interchanges, some with local nicknames. Los Angeles tends to dominate as you might expect if you looked at Texas A&M's annual report, you'll see that in terms of congestion, Los Angeles is really in a class all by itself. But there are other major metropolitan areas where congestion does occur as well, these are ranked here along with those in L.A. Keep in mind these are in terms of total congestion, this is a weekday phenomenon where vehicles are traveling to and from the home to the workplace. That's really only part of the congestion story in terms of bottlenecks, the physical ability of highways to handle traffic. In addition to bottlenecks, there are many other sources of congestion that cause delay on the highway system. This is our most recent estimate of what the sources of congestions contribute to total amount of delay on the highway system. You can see the bottlenecks on a national basis really only contribute a little less than half of the total delay associated with highway travel, things such as bad weather, work zones and primarily traffic incidents that also cause delay.
Why are these things important? It has to do with this concept of travel time reliability. The other sources of delay do not happen every day in the same way, they happen kind of randomly or periodically, the net result is that travel time in congested corridors tends to vary quite a built over the course of time. And what I've shown in this particular slide is just one corridor in Seattle, it's a relatively heavily traveled corridor. This is the afternoon peek period and I've shown the distribution of travel times over a four-month period in 2003. Can you see that this is a -- by the way, this corridor is 11 1/2 miles long, so the ideal travel time is 11 1/2 minutes. The average is about 16 minutes, but you can see that there are a lot of days when travel times exceeded the average by quite a bit. I plotted the 95th percentile of the distribution year up to 23 minutes. Why is this so important to the travelers? If you're a trucker or a business and your warehousing is imbedded in the supply chain and you need to be on time you need to plan for these unusual events that might cause your travel time to be up in the order of twice what the expected travel time would be under free flow conditions. 22 minutes versus 11 minutes. What Federal Highway is trying to do is look at the total congestion package and the total amount of variability associated with congestion, because these have major impacts not just on truckers, but on commuters as well.
Let's move away from specific bottlenecks and talk about the nation as a whole. We've embarked on a process for removing freight flows on the highway system. What I want you to see on the maps is the change in congested highways that are indicated here between 1998 and forecasted in 2020. What we can see from this slide is that metropolitan congestion clearly grows between 1998 and 2020. Can you also see there's a large amount of inner city corridors that are anticipated to be congested, primarily due to increased truck traffic. So you can see that congestion is not going to be confined to urban areas in the future, it's going to be an inner city problem as well. This does not bode well for the trucking industry. In addition to looking at the bottlenecks, the Federal Highway wanted us to look at the bottlenecks from a freight standpoint as well. We started with a study we had done for highway users, and what we discovered is that for the most part, the urban commuter bottlenecks are also the major bottlenecks for truckers as well. Can you see the plot here shows basically urbanized areas where we have a large amount of daily congestion occurring at these locations, trucks move through these interchanges as well. And they're impacted by the delay there as well. What we found is in terms of total delay, the urban commuter problem and the intercity freight truck problem, were currently one in the same. The major delay is occurring at the same areas.
In addition to interchanges, we also looked at other types of bottlenecks, here's one, arterials which are off of the freeway system. Just as a point of reference, the scale is less than what we looked at in the previous slide. There's a lot more locations indicated here, but many orders of magnitude lower than the other bottlenecks, likewise, single interceptions, steep grades on freeways, again, the orders of magnitude here are quite a bit lower than the overall delay experience that the urban interchanges. Why is this important to the trucking industry? Just some basic information on the value of 10 miles for 2002. Trucking is a major contributor to total amount of these metrics for the nation.
What can be done to fix bottlenecks? I'll just briefly mention some of the strategies that we uncovered when we did our studies. In major metropolitan areas, these are very onerous locations, there are several in the D.C. area that are of interest, the Springfield interchange is one of the interchanges that made our list in the first study. And in addition to doing major redesign of the interchanges themselves, state DOTs also embark on other strategies to reduce congestion at these locations. In addition to just simply redesigning the interchanges, we see things such as managed lanes, truck only lanes, the inclusion of toll lanes. Transit in some cases is used as an additional or supplement to the geometric changes that are being made at these locations. So what this leads us to is that there's no single strategy that can get us out of the congestion problem. What's really required is a mix of strategies all applied simultaneously, and all tailored to specific conditions at specific locations. There's really no single answer from a fixed standpoint that can be applied. It's just not that simple and the single strategy is not going to have that full effect. Rather a combination of strategies that will have the greatest impact on congestion. I don't have a slide here that indicates the reference materials for the studies, but if you want -- are interested in the highway users, go to their website at www.highways.org. For Federal Highways, there's a major report on their initial web page - www.fhwa.dot.gov - The Traffic Congestion Reliability Report - which you can link to directly off of the home page. It'll give you more background of the nature of traffic congestion reliability and the things we're doing to fix bottlenecks. Thanks very much.
J. Seplow:
Thank you Rich. In just a moment I'm going to turn the presentation over to Bob Leilich who will give our final presentation of the day. Again, I wanted to remind you, if you do think of questions during the final presentation, or if you think of questions for any of the past presentations, please feel free to type them into the chat area. And at the end well open up the phone lines for questions as well. With that, I'm going to turn it over to Bob Leilich, a Railroad Operations Consultant.
Bob Leilich:
Thanks, Jennifer. Continuing the theme of pessimism which is what we seem to have here related to transportation issues, I will continue. This chart is similar to what Rich showed, but I'm not going to dwell on it showing the importance of rail, water in the trucking industry.
This slide shows the importance of service as reflected in the growth of each of the modes shown here. The truck is predicted to grow the fastest because of the importance of service, and I think that was highlighted in the previous discussions.
This slide is very familiar, it's the same one Rich showed about the importance to switch back and forth and to see how this is growing so significantly. Particularly in the east and the different areas of the country. Major airports are at capacity with little or no room to grow.
Now turning to railroads, they have the same problems, and are even turning away business. Coincidently, their capacity problems are in the same corridors than highways are experiencing. This pessimistic note is that our nation's transportation capacity is at or nearing a crisis. As Rich pointed out, commuters are spending more time than ever stuck in traffic, and it's only getting worse. Even highways between major cities are getting heavily congested as the truckers on I-81 well know. How much can our transportation system handle? On railroads, as traffic increases, similar to highways, you get increases in train delays, average speed declines, connections are missed. It takes longer to recover from delays. Productivity suffers, and there's little room to run new schedules or extra services. The ability to maintain tracks it gets smaller and more costly.
How bad are the railroad problems? I think this slide illustrates it. What I want to point out here in this slide is the rapid growth and revenue per miles of railroad, and similar to that, the freight train miles per mile of road. This is a combination of both traffic increase, and as you see on the lower line down here, the decrease in the miles of railroad. Part of that's attributable to both abandonment and the selling of light density lines for private operators. And that's one reason that seems to increase the trends, the growth rate of revenue miles per mile of road and the freight train mile. What's really significant is this average velocity, miles per hour, there's a steady decline. If you look at an index in 1982 of 100, that's dropped down to approximately 70, 75% of the year 2002. Railroads are beginning to approach the limits of practical capacity.
What are the choices? Well, obviously building more track. Maybe we can make some changes to our operating practices and schedules. And as I pointed out earlier, get rid of the least profitable traffic and let somebody else worry about it. Part of the railroads problems are the funds shortfall they're experiencing. Putting more cash into the railroad than they can generate either from profits or from cash flow from operations. So obviously the balance is the in depth finance. Profits alone don't cut it, because the railroads' return on investment is lower than their cost of capital. Let's do some simple math. Throwing up some statistics here, I'm not going to take the time to read them, they are available in the presentation if you wish to download it, and I also have a spreadsheet which shows not only the data, but the formulas as well. Taking that data, you can derive the extra train hours if we're comparing 1990, 1993 time frame to the year 2003, the extra train hours due to loss of velocity average speed, amounts to over 4 million extra train hours. If you look at the production, the average unit miles, locomotive unit miles per train mile was 2.62 in 2003 and the average car mile was 68.9. The statistics that we use, again, if we toss in some additional assumptions, I couldn't find facts, but these are pretty reasonable figures. All the extra train hours are related to capacity delays. The average locomotive value is roughly around $1 million. And with those assumptions, you can derive some of the statistics which are shown here. Which finally we derive some more unit costs. Take your time and dwell on these a little later. The bottom line is what we really want to develop here is the total cost of loss of velocity, average speed in 2003 is roughly 574 million dollars, that's with fuel prices that existed in 2003. What can we relate that to? Well, it's equal to about 11% of the net railway operating income in 2003. The equivalent loss of about 1800 locomotives, 64,000 freight cars, more significantly, 1.6 billion dollars in revenue. Loss of 5400 operating employees, that is the equivalent of 5400 employees. Equal to the cost of adding 203 miles of new main line track. That's money down the drain.
Now, as we talked earlier, freight trains are expected to double by the year 2020, that means four times from 2003 levels even counting productivity improvements. Further, this analysis does not count growth in passenger or commuter traffic. And also, as I mentioned earlier, the greatest demand for capacity rail service is in and around major metropolitan areas. With little additional room on the highways, or in the air, who's going to handle the traffic? This summarizes the real dilemma. That if the existing infrastructure can't earn the current cost of capital, even likely that much higher costs of new infrastructure over its investment. Revenue inadequacy is really clear when the need to invest exists. Now, let's play with more numbers here. Take the cost to build an additional signal main line track. And you have a 40% equity investment. 60% debt financing. A formula that will generate the cost of about 466,000 dollars per mile of road for the annuity capital. What does it take to recover that cost? Again, some more numbers, I'm not going to read in detail, but you can look at them at your leisure. The bottom line, it's going to take 26,000 plus trains a year over that mile of track to recover the investment of that mile of track. Or 73 trains per day. And this won't fly, because that is greater than the capacity of track.
The logical question is, if railroads are the low cost servicer, why does it take so much to lay the track. Economics are there. Well, the answer that I conclude, given the noncompetitive playing field, the market is not willing to pay. So the role of solving our transportation capacity problem as the other speakers indicated spot the government and not the private users, but governments at all level and private users are needed to keep the stools standing. I think that private/public partnerships are a solution. Both the public benefits and private benefits in the numerator and divide them by the investment of public investment and private -- in the denominator, you get a win-win situation. Private capital can't afford to subsidize the public investments. It takes the two together to win.
There are, however, often misunderstandings, the railroads do not offer convincing evidence of the public adding capacity. The public do not understand what those benefits are. Sharing capital costs are very difficult to establish, for neither side trusts the other. Indirect benefits are difficult to quantify. With traffic corridors near capacity limits, the value of infrastructure increases, making more difficult to justify the investment services may require additions -- not necessarily just when the limits of capacity are reached. People may say, the railroads are unused 8 or 10 hours a day. And it's true, similar to highways, the capacity is needed when traffic demands it and some of that simply cannot be shifted.
Finally railroads want to reserve whatever excess capacity they now have for their own future use. In summary, public/private rail partnerships, require spanning of public benefits, a clearer understanding of the private benefits, the preservations of private rights, a private sector commitment that requires a political constituency of public investment and support. Two good examples of public/private partnerships are commuter rail services throughout the United States and out on the west coast which will certainly make -- as Robin well knows, the Alameda Corridor, these are examples of partnerships that appear to work. I'll turn it back over to Jennifer.
J. Seplow:
Thank you, Bob. I hope everybody found all of these presentations interesting. We do have some questions posted online, so I'm going to start off the Q & A session with those questions. If you think of more questions, continue to post them, I'm going to start off with questions for Bob, since he just gave his presentation and it's fresh in everybody's minds. So I guess I'll -- this is more or less a response to your question, but I'll let you respond to it. The question was asked, who is going to handle the traffic? One answer, over time, to part of the solution is the maritime sector. If service is developed that would be attractive to trucking as a ferry alternatives for long and medium haul trips then new system capacity can be added at a modest investment in infrastructure.
B. Leilich:
I think that's an interesting comment. I don't know what the potential is. The marine mode is a lot slower than highway or rail, simply a question of cost tradeoff. Investment in inventory to cover the longer costs of inventory and transit. Perhaps we won't have any alternatives but to look at some of these, and I think it's a good idea.
J. Seplow:
Robin and Rich, did you want to respond to that at all?
R. Lanier:
This is Robin. I know that from the perspective of cargo owners, the barge alternative is often viewed with a great deal of skepticism. It's not to say it wouldn't work, it's just viewed with skepticism because as has been pointed out, it is slower, and also requires some additional handling of the container. And it doesn't necessarily eliminate the need for a truck. This is something that I think folks sometimes forget. That the last little bit of transportation for that marine container will require a truck. I mean, there are very few businesses out there that have rail sightings any movement even if you've taken that truck off the I-95 corridor, for example, which I think maybe some barge alternatives might make some sense because of the heavy congestion there, once it gets to Connecticut or Albany or some other place, you're still going to have to move that container on to a truck, you're going to have an extra set of handling. Most people feel that's a lot slower and likely to be more expensive. Every time you touch a container, it's going to add costs to it. So I don't know that we think it's a bad idea, I think we're just skeptical about it.
J. Seplow:
The next question, I'll combine it into one two-part question. How would very high fuel prices affect rail versus highway choices, and the second question is, how high do fuel prices have to go to make rail competitive with trucks.
B. Leilich:
I think that's a good question. Higher fuel prices actually work to the railroad's advantage, because they use fuel most efficiently. And the marine mode, perhaps is even more efficient than rail. So their costs are not going to increase quite at the same rate because labor and other costs are more significant and in the rail mode in particular, the fixed capital investment fund is probably the largest single cost factor. So economically, it will help the railroads, but again, service is extremely important to shippers, and some of them may not be willing to ship by rail regardless of the cost, simply because they cannot achieve the service requirement. And I think Robin touched a bit on that, that so many companies, they don't even have warehouses, it doesn't make a difference. You have to ship it fast.
R. Lanier:
The other comment if I may, is that at least in the international arena, which I've been talking about, remember that when you're looking at containers coming in through a port, about half of them in a port like Los Angeles and Long Beach, about half of them are moving intermodally all over the country. Where they'll be picked up by a truck and taken to a warehouse. The other half is being short hall trucked to international deconsolidation warehouses that are located near the port. To the extent that you're in the -- you have configured your business to deconsolidate international containers this is a 40-foot container into a 53-foot truck at the port, you've invested in the international warehouse at the port, I don't know that fuel prices are going to change that mode quickly, because you've made an enormous investment already in the wear housing.
J. Seplow:
Bob, another question for you, in early August, CSX announced $1.35 billion annual capital investments for the next two years. Knowing this, as well as likely permanent increased fuel costs, does this change the paradigms presented of increasing truck freight traffic vs. limited rail handling?
B. Leilich:
I'm not quite sure what the meaning of truck freight traffic versus limited rail handling means. That announcement that CSX made in August was before Katrina. And I think that investment will now be diverted to putting that railroad back in shape. They lost a 6-mile bridge across St. Louis, a total of about 67 miles of railroad. It's going to take them 20, 30 to 60 days to put that line back in service. All railroads are increasing their capital investments. The Burlington Northern Santa Fe has got a program to double track the entire main line all the way from Chicago to Los Angeles. I'm not sure when this will be achieved. But it's a long-term plan. The Union Pacific has added triple track main line for some of their tough positions. And these are all micro efforts at increasing capacity on the railroad. But if you increase line capacity, you also have to increase capacity of the terminals. So the physical space to add line capacity and congestion corridors in the northeast and increasing terminals, you're faced with the same problem, adding extra lanes on highways in and around cities. I think railroads are going to find better ways to make use of their assets. So these productivity increases I think will help. The future for the railroad industry in handling future traffic is very, very bright. And even if the percentage of growth is higher than trucks, the tonnage handled by their trucks is so much greater that you're not going to see any significant decline in increased truck traffic on the highway, even if you could push a lot of it to rail. There's too much truck traffic, you can only push so much off the rail.
J. Seplow:
We're now going to move on to some questions for Rich. And again, if a question comes up that any of the other presenters have a comment on please feel free to jump in.
Rich, the question for you is, I can understand physical bottlenecks being an impediment to the delivery of freight. But the New York Metropolitan area experiences bottlenecks due to simple oversupply of demand such as on the cross Bronx Expressway. What novel means are there to address this?
R. Margiotta:
The latest craze for managing demand on highways is to do variable price tolling or tolling by time of day so you have higher tolls for the hours where there's higher demand with the notion that you would, therefore, cause others or people to shift their time of travel or their mode or route of travel. In terms of demand management, that's the latest kid on the block in terms of our strategies to deal with it, there are some traditional ones that are out there more regional in nature, such as car pooling, adding HOV lanes, other initiatives to reduce the amount of commuters that have to use facilities. I know the cross Bronx includes the GW bridge. I'm not sure if that's part of the problem, I suspect that it's probably not as the area east of there, and there are a lot of other interstates that are merging a very tight area there, so there may actually be some opportunities for some spot improvements to some of those merging areas, it would be very -- knowing that area, it would be very expensive to do so, because you're so constricted by the costs of land there, and across upper Manhattan. It would be very expensive to try to implement something like that. Variably priced tolling seems to be the wave of the future, what practical effect it will have on congestion, it's pretty much anybody's guess, there are some demonstration station projects around the country to look at. But I would offer that as a possible suggestion for controlling if demand is your problem, that would be a logical place to look.
R. Lanier:
One example of that that was not put in place by government is a program called the Pier Pass program that just went into place in the ports of Los Angeles and Long Beach in July of this year. It is a privately assessed fee for the movement of a marine container during daylight hours. And the proceeds of this fee, the fee is collected privately, by the way, and the proceeds are used to keep night gates open at the ports portwide, all the terminals in both ports, both the Ports of Long Beach and Los Angeles. The result of this is that about 35% of short haul truck traffic that used to travel on the highways, the 710 in particular, during daylight hours have now been shifted to nighttime hours when the 710 is not nearly as congested. That's a privately imposed solution to that problem.
J. Seplow:
Thank you both. Rich, the next question is, are there any MPO's that you know of that have applied successful strategies to address bottlenecks?
R. Margiotta:
The one MPO that I'm aware of that is done an examination of the existing bottlenecks is the Phoenix MPO, two or three years ago they did a study of bottlenecks in the Phoenix area. I actually have not seen a copy of that report, so I don't know what they've recommended, but clearly any bottleneck improvement process that involves regional initiatives such as employer commuting options, implementation of alternate work hours. The other MPO -- it's called an aspirations plan, which is basically their long range transportation plan unconstrained by expected funding issues, there they looked at some intriguing alternatives to -- or alternative projects that would deal with bottlenecks. So those are the two that come to mind immediately is MAGG and ARC in Atlanta. Bear in mind that these bottlenecks, they're freeways which are under the purview of state DOTs, they would be the actual implementing agencies for most of the geometric related improvements, but anything that has to do with regional initiatives, MPO's have to be involved.
J. Seplow:
Okay. We now have some questions for Robin. As they are truck related, Rich, feel free to jump in. The truck only lanes going to the port of New Orleans seem to have been a success. Have we capitalized on this example to support more truck only lanes?
R. Lanier:
I don't know the answer to that question. Our organization has not necessarily capitalized on the New Orleans experience. We have identified truck only lanes as an important thing that should be looked at particularly where your truck traffic is going to be much higher than you would normally see on a regular highway. There's a different kind of trucks too, these are trucks carrying 20 or 40-foot ocean containers as opposed to the 53 foot over the road container. And we feel that getting cars and trucks separated particularly in some of these port connecter areas make a lot of sense. There is in California some debate about doing this as part of the 710 improvements, but they're having so much trouble in getting the communities to even consider any kind of expansion of the 710 near Los Angeles, that I don't know of any real discussion of truck lanes has been undertaken in that context. I know that the California council of government, the local Scagg there is pushing truck lanes pretty subjectly, and we think it's a pretty good idea. The question being, can we get expansion of the 710 even moved forward an inch?
B. Leilich:
I think the Alameda corridor serving the ports of Los Angeles and Long Beach is a clear success of truck only lanes.
R. Lanier:
No. There's no truck on the Alameda corridor.
B. Leilich:
There is a dedicated parallel truck lane.
R. Lanier:
I believe the dedicated truck lanes on the Alameda corridor were dropped in lieu of rail only.
B. Leilich:
I'm not aware of that.
J. Seplow:
We should look further into that. Robin, the next question is, regarding truck only lanes, where are there elevated lanes and where do the trucks get placed? Above or below or both?
R. Lanier:
Again, I'm not sure that I'm qualified to answer that question. I'm not an engineer, I represent shippers who have suggested that this is something that they're very interested in, but the truck only lanes are something that they're very interested in, and want to work with local governments in trying to figure out ways in and around ports in particular, ways to separate trucks from cars.
J. Seplow:
Okay. Let me see this. There's one more question here, I think I'm going to pose to all three presenters. This is going back to the increase in fuel costs. Will the likely increase in fuel costs lead to significant shifts in non-truck modes? And what can local or state governments do to facilitate this shift? Robin, we'll start with you?
R. Lanier:
I think I mentioned before that if you are a retailer, let's talk about the retail industry just to start off with, and you have stores located everywhere, that don't have railroad sightings next to them. The bottom line is that there isn't really much can you do with your supply chain to shift to rail. You might shift to rail to move your imports intermodally to some central warehouse, but from that central warehouse where you do your deconsolidation, you are still dependent on trucks to get that merchandise to stores. I don't know that any kind of shift to rail is even possible because of the kind of business that you might be in. This may be different for a business that's a manufacturer, where they might have a rail sighting option and they don't have obviously stores located in every Metropolitan area in the country. So I think there's a limit, when you look at some businesses, as to just whether rail is going to get you where you need to go. I think I mentioned earlier also, that with respect to international trade, there are some retailers. Some importers, the very largest importers, by and large have built their supply chains in such a way that they've put their international warehouses near the ports and put them in the middle of the country. They've put them near the ports. They're not using rail to get to the international warehouse where they do their deconsolidation, they use a truck to get there. And they may be deconsolidating things and moving them on trade. By and large, they're moving things by 53 foot truck. If you're looking at some of the largest importers out there, and again, most of them happen to be in the retail industry, you know, I don't see where fuel charges are really going to cause a lot of them to abandon what they call their transit centers, they've already made a huge investment in engineering and supply chains in that way.
B. Leilich:
I would agree with Robin on that, I don't think fuel costs alone are going to make a major change in modal use. Fuel costs in the railroad industry have traditionally been around 6% of total costs so if there's fuel costs that have doubled, that's going to obviously increase that percentage. But if your fuel is a smaller percentage of your total costs it won't be a significant as in trucking where fuel is a much higher percentage of cost.
R. Margiotta:
I would have to concur. I mean, any ship is going to have to be, would be commodity dependent, and a commodity that's not really high value or where time is of the essence because trucks are clearly the more speedy alternatives to rail or water in terms of that -- those -- in terms of getting product to market quicker. In terms of what state and local governments can do, I guess if you have rail shipments moving -- the idea might be to try to promote rail shipments longer. Once it's on rail, try to keep it on rail as long as possible. I'm not sure how exactly might play out. The other is to improve the efficiency and speed of intermodal transfer facilities so we can get it on to rail quicker, I think I'd have to concur with the other two presenters, it's going to be highly insensitive, shifts to -- or away from trucks is going to be highly insensitive to fuel costs.
J. Seplow:
Thank you. That's all the questions we have typed in, but I think we have time to open the phone lines for some questions, Ann Marie, if you could give instructions to ask questions over the phone, we'll see if anybody has questions.
Operator:
Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touch-tone phone, your question has been answered please press star followed by 2 if you would like to withdraw your question. We'll pause for a moment as questions cue up. There are currently no audio questions at this time.
J. Seplow:
Thank you. Well, we have no further questions at this point, I think we'll go ahead and just close out today's seminar. I want to thank all three presenters for great presentations, and also thank everybody for attending. The PowerPoint presentations used and the recording of this seminar will be available within the next week, and I will send out an e-mail to everybody in attendance when they become available and let you know the web site address. The next seminar will be held on October 19, and is titled "Freight Security: Effects to Industry" If you haven't done so already, I encourage you to visit the Talking Freight Web Site and sign up for this seminar as well as seminars through December 2005. We are currently planning for the 2006 seminars, so be on the lookout for those posted soon. I also encourage you to join the freight planning LISTSERV if you have not already done so. With that, I would like to thank everybody and enjoy the rest of your day.
