Fourth Forum on Intermodal Freight Transport Between Europe and the
United States

Executive Summary

Efficient transport is indispensable for economic growth and prosperity,
particularly as national and regional economies become globally
interconnected. Intermodal transport is a necessary component of an
efficient transport network at both national and international levels.
Throughout the developed world, bottlenecks in the transport system are
becoming worse, and environmental concerns are mounting, making it
imperative to address the transport system in an holistic, multimodal
manner. In this regard, an efficient intermodal network can be
particularly appealing given that intermodal transport is very
environmentally-beneficent. From April 4 to April 6, 2001, more than 50
top leaders in transport from Europe and the United States met in Genoa,
Italy, to discuss steps to improve intermodal freight transport. This
meeting continued a dialogue between officials of the European
Commission, the U.S. Department of Transportation and leaders in
transport industries that began in October 1997. Their goals are to
improve intermodal transport by building better understanding of the
complex set of issues that affect it, and to help independent
organizations, both public and private, coordinate their activities into
an integrated whole.

Electronic commerce will profoundly change how intermodal transport is
provided and how it is used, but not without further trial and error.
The potential is large: rapid growth in business-to-business e-commerce
will create new demand for intermodal transport services. Advances in
e-commerce will make transport faster as well as lower its
administrative costs. Nevertheless, many recent attempts to market
transport-related innovations have suffered the same fate as e-commerce
applications in other sectors, and have not been financial successes.
But it would be shortsighted to conclude that e-commerce has been
oversold. Rather, its impact on transport, which has the potential to be
profound, is only dimly starting to emerge. More shake-out is expected.
Perhaps few if any of the today's products and developers of new
applications will be recognizable five years from now, but transport
system operations then will certainly be markedly different due to
shifts stemming from them.

Alleviation of system bottlenecks is essential. This requires resolving
complex issues and doing careful planning. For example, Chicago is a key
interface point between 12 individual railroads, but transfer of freight
from one carrier to another often requires truck haulage to move it
across the Chicago region. This is costly and it adds to local highway
congestion and environmental problems. To improve this situation, a
consortium of railroads called the Chicago Gateway Project is
considering ways to connect the numerous rail hubs scattered across the
region. They have made a number of operational improvements and are
developing proposals to avoid inefficient rail line crossings and urban
truck connections.

Freight movements on European highways are becoming increasingly
burdensome due to their congestion and environmental effects. Greater
use of non-highway modes can help ease these stresses. An innovative
Genoa-Barcelona short-sea-shipping operation illustrates the potential
to use inexpensive, environmentally advantageous water transport as an
alternative to rail, although this has yet to be a business success.
Major port investments to develop a hub-and-spoke ocean shipping system
based around the Gioia Tauro port show that the dramatic potential of
short sea shipping can be quickly realized. In the United States,
operational improvements in the San Pedro terminal increased its
efficiency considerably, and further gains could be made if activity
could be spread more evenly on a seven days a week, 24 hour a day basis.

Similar challenges are faced in integrating transport services on both
sides of the Atlantic. Solutions involve actions of three types:

-   Strategic development of plans to alleviate specific bottlenecks,
    including consideration of operational improvements;

-   Increased public/private cooperation to help all parties work in
    areas of mutual interest; and

-   Creation of competitive structures that more fully reflect social
    concerns and that encourage greater coordination of processes and
    procedures.

Two large public/private partnerships now in different stages of
development -- the Alameda Corridor in the United States and the Betuwe
Line Project between the Netherlands and Germany -- show that good
planning and extensive cooperation can promote network improvements.
They also illustrate the political and financial complexities that must
be overcome to realize this potential. It takes decades to build the
cooperation and to assemble the resources needed for success. Each
situation is unique and requires a carefully tailored solution.
Governments need a flexible array of models for forming partnerships
with all interested parties.

Both European and U.S. participants believe that it would be valuable to
participate in cooperative projects in which they work together to
improve intermodal transport. In this regard, they asked their
respective governments to appoint a working group to review all
opportunities for joint cooperation and to advance those that appear
most promising. This cooperation will help to improve operations and
increase the economic and environmental benefits that come from an
effective intermodal network.

The advantages of intermodal transport make this a priority for further
EU-US cooperation. Economic growth, demographics, and e-commerce are
increasing freight traffic on a network in which many parts have already
reached capacity. New solutions are essential. The benefits of
deregulation have mostly been realized, and future gains in productivity
will rely on further improvements to facilities and operations. Further,
all modes face looming capacity constraints and insufficient resources
to alleviate them. Financing intermodal operational and infrastructure
improvement will be difficult in an era of increasing demand and limited
resources. Industry and government are struggling to identify ways to
meet significant future demand. More public/private partnerships are
needed, building upon approaches that have proven to be successful in
the past. The European Community and the United States can each make
more progress by comparing experiences, best practices, and
opportunities for improvement.

# Background and Purpose

Traffic on congested European highways, particularly truck traffic, is
becoming an ever-larger problem. European GDP is forecast to grow by
three percent per year for the next decade, reported Kerstin Sterner,
and continuation of current freight trends appears unsustainable. The
status quo will not meet the needs of industry nor provide the quality
of life expected by citizens. It is vital that effective solutions be
found, because inadequate transport threatens to impair international
trade and hurt economic growth. Intermodal transport has the potential
to accommodate economic growth without increasing the volume of road
traffic. European policy seeks to seize these advantages, and encourages
intermodal transport through a variety of policies, including reform of
infrastructure charges to reflect the full cost of services, including
environmental costs. Further, the pending inclusion of ports within the
Trans European Network will bring new financial assistance to port
development. The future of the ports and the success of intermodalism
are inextricably linked.

The United States faces severe congestion at a number of ports, rail
lines, highway corridors, and interchange points. Intermodal services
are competitive in many markets. The range of competitiveness of such
services is a market equilibrium. It is influenced by corporate
investment, technological improvements, and infrastructure performance.
Public policy also influences this equilibrium. In the United States,
recent legislative provisions on financial support for highways have
made it possible to use federal funds for "intermodal connectors" that
link highways to other modes. This makes it possible for the multimodal
network to function more like an integrated system.

Market and technological changes are redefining how transport fits
within the economy. The new economy reshapes the flows of product, the
positioning of inventory, and the return of finished goods. It opens the
doors to new participants: even small companies can now enter
international trade. The era when transport companies use technology is
being replaced by one in which technology companies use transport.

This forum, like others before it, aims to increase understanding and
cooperation. The issues are complex, and will take years to resolve.
There are no quick fixes and little likelihood of success for actions
taken in isolation. Rather, improvements in intermodal transport are the
result of many separate actions -- actions by governments, by industry,
and by combinations of these. The business decisions of each participant
in this forum influences the effectiveness of the intermodal network.
The aim of this forum is to create a fuller system-wide understanding so
that individual steps will collectively result in a more efficient, more
continuous, more effective intermodal network.

Such mutual understanding has an important payoff, but even more is
possible and desirable. In particular, joint projects that increase
operational coordination between European and U.S. organizations can
speed the development of better systems. Another aim of this forum is to
identify and begin active projects in which European and U.S. interests
cooperate in putting good ideas into practice.

# E-Commerce and Intermodal Transport

The emergence of e-commerce is one of the key changes affecting the
prospects of intermodal transport. E-commerce widens the range of
competition and the resultant freight flows. It allows transport and
logistics firms to achieve new heights of operational efficiency. It
eliminates the need for physical transfer of documentation related to
transport. This potential, and the changes actually being experienced,
were addressed by Carmine G. Biancardi. In his view, efficiency and
competitiveness depend upon network organization, specifically
maintaining an open and sustainable transport market, and on making
efficient use of the existing infrastructure. This requires an
intermodal approach to transport, in order to achieve a modal shift away
from highways, to integrate short-sea shipping into the logistics chain,
and to improve the safety and efficiency of intermodal transport.

Intermodal transport enjoys new opportunities with the emergence of
e-business, which encourages carriers to integrate services based on a
larger electronic network. As part of their own business processes,
carriers are establishing new electronic interfaces with their partners.
All parties engaged in intermodal transport are modernizing their
interoperability and interconnectivity, and improving the flow of
information between systems. They are making increased use of
computerized re-routing and scheduling, and standardized tracking and
tracing.

Business-to-business e-commerce is growing rapidly and this will
continue. In the nine months between October 1999 and June 2000, the
number of business-to-business e-commerce marketplaces worldwide has
more than doubled. The largest increases have been in the building
industry; agriculture, fish, and flowers; health; finance and insurance;
and logistics. In North America the number of markets nearly tripled:
from 248 to 726, while in Europe it increased fourfold, from 56 to 224.
As this growth continues, it will either require retailers increasingly
to act as distribution agents or producers to consolidate the orders of
individual customers.

Such market changes pose new transport challenges by increasing the
number of consignments and imposing larger transport distances. They
require that the quality and efficiency of logistics services be
increased so that shipments are punctual, safe, and traceable. Global
networking is essential to do this. It poses new opportunities for
logistics firms. They may be able to outsource their logistics
capabilities to their customers; they may be able to integrate the
systems vertically and offer e-supply-chain management; they may be able
to provide additional assembly or financial services; and they may be
able to capture more of the reverse-logistics market.

The development of the internet has forced companies to extend their
business models to embrace the entire supply chain, observed David
Simchi-Levi. There has been a rapid and costly learning curve here. When
the capabilities of the Internet first appeared, many expected that
supply chain problems would be finally resolved. E-business strategies
were supposed to reduce costs, improve service, allow more flexibility,
and boost profits. Realizing these benefits has been a difficult
struggle, and some firms have met their downfall trying to grasp them.
Many early investors in e-commerce -- like those who invested in
Living.com, Furniture.com, or Peapod -- have experienced disappointing
to disastrous results.

The initial forays into supply-chain management applied a "push"
perspective, in which production and distribution decisions were based
on long-term forecasts. Forecasts of retail sales would drive retailer
orders up, would get wholesalers and distributors to plan high inventory
to be able to meet orders, and would encourage factory managers to seek
the economies of large production runs. The effect of the "push" model
is that each link in the supply chain would experience increases in
variability directly related to its lead time. The short ups and downs
experienced by retailers would get progressively magnified into larger
cycles by wholesalers and distributors, and would be magnified further
into huge, long-term cycles by producers. This "bullwhip effect" is
characteristic of "push" supply chains, and firms that have used them
have experienced excessive inventory, large and variable production
batches, unacceptable service levels, and ineffective resource
management.

In concept, a purely demand-driven "pull" supply-chain management
strategy could avoid all these problems. It would respond to real
customer demand, not forecasts. Firms would hold no inventory, and
produce all goods to order. Unfortunately, Simchi-Levi finds that such a
strategy is not operational due to lead-time constraints and the
diseconomies of small-scale production that would be entailed.

In parallel with the emergence of the Internet, a number of industries
have moved from push strategies to pull strategies and then to hybrids.
Today, firms exploiting supply-chain management capabilities are finding
that a hybrid "push-pull" strategy allows them to apply a push-based
approach to the production stages and a pull-based one to the market
stages. Dell Computers is a good example, using a strategy of delayed
differentiation. At Dell, the generic product is built and transported
based on long-term forecasts, thereby achieving production and transport
scale economies. Product differentiation occurs only after a customer
order is placed, via assembly from generic components. This strategy
minimizes the inventory of fully finished product, but it recognizes
inventory of generic components as a necessary compromise.

Transport is being fundamentally reshaped by these recent hybrid
push-pull strategies in the grocery, book, and general retail
industries. The appropriate strategy depends on industry and company
specifics, but when customer demand is highly uncertain, it is
advantageous to manage more of the supply chain in a pull-based fashion.
This has several important implications for transport. It implies a
shift in fulfillment strategies from cases and bulk shipments to single
items and smaller size shipments. It entails a shift away from shipping
to a small number of stores to serving highly dispersed customers. It
places new importance on reverse logistics, and complicates the process
of reverse logistics.

Dynamic and flexible pricing are increasingly being used to cope with
variability in demand. They can reduce the bullwhip effect and balance
sales variability with production efficiencies. Supply-chain
collaboration, in which separate business partners at different points
along the supply chain share information, coordinate plans, or create
supply-chain communities, are another promising way to balance the
opposing concerns at opposite ends of the supply chain.

Supply-chain visibility is one of the key tools for combating the
bullwhip effect. By sharing actual demand information at each point
along the chain, partners can coordinate production and distribution
more efficiently, as well as reduce lead times. This creates a new
opportunity for logistics firms, which have information that they could
use to boost supply-chain visibility. They will face increased
opportunities to work with retailers, manufacturers, distributors,
carriers, freight forwarders, and other trading partners to apply this
information in ways that improve customer service and profitability.

E-commerce is still very small -- only about 0.6 percent of the market
in the United States. We are in the very early stages of a new
technology. The outcomes are difficult to predict. There may be very few
winners in the first round. Even in the area of logistics, the 200 firms
engaged in e-commerce represent only 3 percent of the market. It is
possible that many, maybe even all, could fail.

The collapse of many dot.coms shows that new technology brings not only
great opportunities but also great risks. The presumption of many of the
failed companies was that there was no need for physical infrastructure
or inventory. Today there is a renewed recognition of the need to hold
inventory and acceptance of strategies that push this need up the supply
chain.

Many of the early transport applications of e-commerce were based on
auctioning of capacity, and some of these exchanges will survive and
grow. Another challenging transport market involving the Internet is
learning how to move information better. All in all, however, changes
appear to be more evolutionary than revolutionary.

Transport expectations will grow tougher as a result of e-commerce,
which is training customers to order at the last minute. Businesses have
done the easy part, namely managing the demand side to avoid inventory.
But on the supply side, they may not be building the rapport that is
essential in relationship-driven business situations. The strains
created by last-minute fulfillment need to be matched by strengthened
supply-side partnerships if e-commerce is to continue to grow in
transport. The real gains in e-commerce may come with increased sharing
in the supply chain in the vertical direction. An example of this can be
found in Holland, where a few manufacturers and two retailers formed new
vertical partnerships. E-commerce will lead to unfamiliar working
relationships, and with trial and error we will gain a clearer
understanding of the limits of those relationships.

Carriers can use this new era to separate the movement of goods and the
movement of information about goods. Carriers clearly control the first
part, but they are also in a good position to capture the second part.
Valuable information is created each time a bill of lading is written.
One can imagine a situation in which carriers create a collective portal
where, for example, carriers as a group could depict current flows to
Asia. There could be great value to such information, and markets could
develop around it, but carriers will miss this potential if independent
third parties come to dominate the production of bills of lading.

E-commerce can also contribute to better asset management. New systems
allow owners to know where their assets are, and may open the door to
asset sharing. Company-specific containers and chassis contribute to a
system where there is an inefficient excess of such assets. "Gray"
containers furnished by some third party might offer an efficient
solution as well as a profit-making opportunity. After all, most
shippers probably do not care whose name is on the container. In Europe,
where the distribution network is very fragmented, separate firms are
sharing warehouses and creating distribution portals.

Transport applications of e-commerce have produced their share of
disappointments, just as in other areas of application. The Burlington
Northern Santa Fe railroad is now writing off a \$25 million investment
in a web-based system to facilitate barter exchange of truckload
traffic, aiming to begin with truck shipments and then move into rail.
There proved to be too little trucker demand to make the system viable.
Logistics firms also report disappointing results, but are seeking to
boost their capacity to serve as advisors to their customers, even to
the point of placing their own personnel in their customers' offices.

The cost of transport is going up in many instances, and shifts toward
more small packages and more instantaneous services will not only drive
costs further up, but will contribute to social costs which will be
increasingly unbearable. Railroads, in particular, face a challenging
situation as asset-laden companies in an ever more virtual world. The
foundation of the rail industry -- bulk movements -- will still be
there, but e-business adds a new multi-faceted layer to all production
processes. Progress in supply-chain management will add to this new
layer, which creates transport problems. It is not possible to ensure
reliability on some rail routes. Curing bottlenecks requires massive
investment. Having traffic with different priority on the same network
is operationally difficult.

With more customers, and more small shipments, it will be increasingly
difficult for railroads to provide the reliability that customers want.
Recent capital investments that railroads have made have been
disappointing. The net return on investment in U.S. railroads has been
only 9.5 percent in the best of recent years. Rail industry executives
anticipate that the United States needs to reconsider how rail is
supplied. "Who will make the investment?" appears to be an open question
in the United States as well as in Europe.

E-commerce has been highlighted as a key driver of new transport
paradigms for a number of years now. Most still believe that it has the
potential to lead to profound changes in logistics management. But
unlike several years ago, today most carriers and logistics companies
have a somewhat more tentative, cautious view of when and how this
potential will be realized. Different parties have varied visions of
where it will lead -- whether gray boxes, vertical supply-chain
integration, or other innovations. Many of the earliest new forays here
have been disappointing or worse and many more false-steps and failures
appear likely. This may encourage a somewhat more cautious "one step at
a time" approach, but it does not diminish the sense that there are
sizable benefits to be gained through ways that e-commerce and transport
may come together.

New intermodal service features may also enhance the potential for
developmental and environmental benefits. As private concerns continue
to seek ways to optimize their use of resources, it is important that
the associated benefits to society be kept in the picture as well.

# Best Practices in Intermodal Transport

Intermodal traffic has been increasing. There are now 9.2 million
intermodal shipments per year in the United States, up threefold from 20
years ago. In spite of the long reach of each railroad's routes, the
United States rail system nevertheless has inefficient bottlenecks, one
of which is Chicago. Paul Nowicke from the Burlington Northern Santa Fe
reported that the Chicago is the World's third largest interchanger of
intermodal traffic -- second only to the ports of Hong Kong and
Singapore. As is apparent from Figure 1, Chicago is a key hub in the
U.S. rail network. (The widths of the lines in Figure 1 are proportional
to volume of intermodal freight traffic.)

![](media/image1.wmf){width="4.25in" height="2.5770833333333334in"}

## Figure 1. Intermodal Freight Volumes in the United States

Separate intermodal hubs -- 17 in all -- compete for this traffic.
Intermodal shipments are often carried by truck from one railroad to
another on the other side of Chicago. These cross-town services operate
on local streets and generally do not share information. The result is
that one third of all interchange miles are empty, a system that is very
inefficient and damaging to the local environment. Starting eight years
ago, railroads joined together to form the Chicago Gateway Project to
develop solutions to this bottleneck. To date, this has resulted in the
investment of some \$420 million in infrastructure improvement. It has
also resulted in the creation in 1999 of an operations coordination
office to bring more efficiency to the complex system, which includes
137 rail interlockings between 12 companies, controlled by 13 separate
dispatch centers. The initial results are very encouraging. Transit
times averaged about 5 hours in 1999 when the operations coordination
began. This fell to about 3 hours in 2000, and under 3 hours for the
first part of this year. This is good, but it does not get at the root
problems, according to Nowicke: the current rail infrastructure was
designed for other purposes, and today's railroads should span the
entire continent. The Chicago Gateway partners are considering a variety
of innovative solutions, including greater information sharing, purchase
of a Chicago bypass route, consolidation of intermodal transfer
facilities, and encouragement of transcontinental railroads.

Short-sea shipping offers an alternative to congested highway facilities
in Europe, argued Manuel Grimaldi. His firm operates a "sea highway"
between Genoa and Barcelona. Trucks are loaded on the ship and the
drivers travel with their loads under very comfortable conditions, with
amenities similar to cruise ships. This takes traffic off the congested
roads along the French Riveria, the Ligurian Riveria dei Fiori, and the
Costa Brava. It could thus bring substantial economic, environmental,
and safety benefits. But these benefits have not been realized because
thousands of small truck operators are focused exclusively on which mode
is cheaper. The result is that short-sea shipping has proven to be a
poor business. Grimaldi argued that governments should take more action
to discourage long-distance road transport and to promote the
development of sea transport. Relative to road transport, he advocated
reducing allowable vehicle speeds for large vehicles, increasing tolls,
tighter controls on the number of hours a driver can work, and
elimination of political restrictions on the price of fuel and
facilities. To promote environmentally advantageous short-sea shipping,
he proposed eliminating harbor fees for piloting and berthing if ships
can provide their own, and ending discriminatory practices by which one
country treats its own ships differently than those from other
countries.

Mauro Pessano described how major investments in the Gioia Tauro port
had led to dramatic increases in the use of this facility, making it a
major hub for movements in the Mediterranean. There are now some 60
container ports along the Mediterranean, but most of the traffic has
been direct-call shipping to the final destination. Gioia Tauro has been
developed to serve as the center of a hub-and-spoke operation throughout
the Mediterranean. Some 13 different operators now use it in this
fashion, providing service to 50 different ports. Its traffic has grown
from 7.3 million twenty-foot equivalent units (TEUs) in 1990 to an
anticipated 42 million TEUs in 1991. Many other ports in the region have
the potential to be developed for hub-and-spoke operations. To increase
its market, Gioia Tauro would like to see improved rail intermodal
services that extend its service territory.

APL's Global Gateway South Terminal is the largest private terminal in
North America, handling 1.7 million TEUs per year. This involves 21,000
lifts and 18,000 gate moves per week. William Hamlin reported that its
full efficiency is not being realized, and suggested a range of actions
that could help boost terminal efficiency. One is to increase gate
automation, although labor resistance has limited the extent to which
this can be done. Moves within the terminal could also be reduced by
making fuller use of information. For example, when containers are
loaded on a ship, it is known which will end up on rail and which will
end up on truck, but this information is not currently being used.
Payments for demurrage could be made in advance, over the Internet,
saving time and processing expense. Hamlin argued that the industry
should think of itself as a factory, not a warehouse, and make greater
use of the terminal twenty-four hours a day, seven days a week. At
present, gate operations are concentrated into normal working hours,
from 9:00 a.m. to 5:00 p.m. for five days a week.

In spite of major investments to upgrade the infrastructure, the U.S.
rail network is fragile. A disruption at any point can cause backups
throughout the system. Constraints at rail ramps cause some users to
turn to drayage to avoid storage costs. Current free-time practices
contribute to the problem, as does the ability for customers to leave
loads on steamship-supplied chassis. Hamlin called for a new paradigm to
increase system efficiency, including four elements. First, "GT Nexus,"
a partnership of 12 ocean carriers, in the formation of which APL played
a leadership role The partnership has created a single website through
which shippers can transact standardized transportation planning and
execution of business with the participating carriers, thus speeding and
simplifying global transportation solutions. Second, use of joint
dispatching to reduce empty mileage and reduce congestion. Third,
creation of a "gray pool" of generic containers to obtain better use by
speeding asset velocity. Fourth, use of "super depots," which would help
reduce the fleet size.

Participants suggested additional ways to increase asset velocity.
Getting customers to own more of their own cars and containers helps in
this regard. It can benefit the customer as well as the railroads. Also,
as steamship lines consolidate, this reduces the variety of
company-specific containers, effectively moving closer to a pool of
"gray boxes." Port community systems like those of the Port Authority of
New York and New Jersey, Emodal, and others could be helpful on a
system-wide scale, but this has not yet occurred. The testing on asset
identification and status that is now going on will help fill the gaps
of information to these systems that could facilitate better business
decisions on the use of equipment and encourage an environment with more
sharing of equipment. This would increase the velocity of equipment and
reduce congestion in ports, container yards, and rail yards. The port of
Hamburg -- which has a terminal that is served by 14 railroads \-- uses
a common platform for railroads and ships.

Problems of interoperability, in processes and procedures, are evident
in both Europe and the United States. Network limitations, idle and
empty equipment, and incomplete sharing of information pose challenges
in both regions. The bottleneck posed by the Alps appears similar to
that posed by Chicago. Consolidating all services into a single railroad
is not necessarily the answer. Rather, it may be more productive to
integrate the processes and procedures of the individual railroads.

Governments can assist this harmonization process, but it is important
to recognize the intrinsically different time frames of the public and
private sectors. Governments struggle to identify actions that are
realistic in a five-years -- a short-term time frame for them.
Businesses may succeed or go bankrupt in months, and a five-year time
frame is a long-term view for them. European Commission policy has
indicated its preferred hierarchy of modal preferences -- by sea, if
possible; by rail, if not; and by truck if there is no other way. While
there is great concern about the congestion and pollution caused by
increasing truck volumes, much of this traffic is very short-haul -- 100
km or less -- and not easily diverted to other modes.

The ports of Long Beach/Los Angeles California are the third largest in
the world, after Hong Kong and Singapore. Container traffic at the ports
has grown at an average of 11 percent per year for the past eight years,
and is projected to reach 30M TEUs by 2020. Both railway and truck
access are hard pressed to accommodate this growth. Arthur Goodwin
described how the Alameda Corridor project was designed to alleviate
these problems by consolidating rail traffic and improving the highway
system. This massive project, costing \$2,430 million, will increase the
rail speeds in the corridor from around 10-15 miles per hour at present
up to 40 miles per hour. It will eliminate 200 at-grade intersections
and will create one main rail route to replace four independent lines,
using 60 miles of new high-speed multi-track main lines. Ten miles of
the main rail route will be situated in a depressed trench. A joint
dispatch center run by the Union Pacific will operate the system. The
project is nearing completion, on time and on budget, with revenue
operations beginning in April 2002.

Goodwin said the key to this project is partnerships -- partnerships
with several branches of the federal government; partnerships with
California transport, planning, and public utilities agencies;
partnerships with each city and county within the corridor; and
partnerships with private railroads, utility companies, and construction
firms. The project is being primarily financed by revenue bonds (48%),
by a federal loan (17%), by the ports (16%), and by the Los Angeles
County Metropolitan Transportation Authority (14%). It brings major
transport benefits to the region in the form of reduced congestion,
improved safety, reduced pollution, and more efficient rail operations.
It improves the competitiveness of the ports and provides a stimulus to
redevelopment. And because many of the containers entering the port are
destined for other parts of the country, it benefits other regions as
well. Goodwin noted that 38 percent of the imports entering the New York
City region actually enter the country through the ports of Long
Beach/Los Angeles.

Similar potential exists in the corridor between Rotterdam and the
German border, argued Leendert Bouter. The Betuwe Route in this
corridor, some 160 km long, was designated by the Dutch Government in
1994 to be a double track, electrified freight railway. These
improvements would connect the port of Rotterdam to the German rail
network and beyond, and would make the port of Rotterdam more
competitive. Holland stands to benefit from the increase in
international through traffic, as well as from the improved access
within Holland. Some 95 km of the overall route would lie alongside the
existing A15 motorway. The project is expected to cost 4,400 million €,
and to be completed in 2005. Proponents recognize that market financing
is not a realistic prospect, given the very long-term nature of the
investment. They are seeking government financing but this has not yet
resulted in solid agreements. They have worked extensively with
communities along the route to minimize the impact on the landscape, to
reduce noise, to protect wildlife, and ameliorate local concerns. The
Betuwe Route will be designed to handle double-stack traffic, but it
could not move this way to many destinations, including France.
Discussions are underway to examine the issues involved in linking the
route with the German rail network.

The Betuwe Route raises a unique mix of economic benefits and other
impacts for Dutch and German communities. The proposed route extends
some 40 km east of Rotterdam to Maasvlakte, which serves large ships. It
would affect the traffic at ports in both countries, and both countries
would also feel the environmental benefits, in terms of reduced highway
traffic.

In contrast with the Alameda Corridor, for which full financing was
secured prior to any construction, work on the Betuwe Route began while
the market for its traffic in Germany was uncertain, and while financing
remained speculative. The availability of financing for the Alameda
Corridor traced from its unique circumstances. Because it was, in
effect, replacing a huge grade crossing with a grade-separated facility,
it became eligible for federal highway support that would not have been
available had not highways been a key part of the project. It also
enjoyed special political support that allowed it to compete
successfully for this form of public financing relative to other special
projects. Indeed, supporters argue, they built this political support by
carefully documenting the benefits in each affected jurisdiction, and by
carefully ameliorating potentially undesirable impacts.

Both European Commission and U.S. policies look to public/private
partnerships to fund major intermodal projects. In the United States,
the passage of the Intermodal Surface Transportation Efficiency Act of
1991 opened the door to allow federal participation in such projects.
The European Commission has long espoused public/private partnerships as
a key feature of European policy. In spite of such support, there have
been relatively few large projects undertaken -- the Alameda Corridor
and the Kansas City Flyover in the United States, and the Oresund Bridge
between Denmark and Sweden and the Betuwe Route through Holland to
Germany. The two projects discussed at the forum both illustrated the
intensive amount of effort required to build up the partnerships, and
the extensive, prolonged communication required to gain public
acceptance. The European Commission's Fifth Framework program for
Research and Technological Development (1998-2002), which devotes 15,000
million € to all areas, includes 2,700 million € devoted to the goal of
competitive and sustainable growth. This allows it enter partnerships in
which it bears from 35 percent to 50 percent of the costs of appropriate
projects. Projects related to e-commerce and transport, and the safety
and security of intermodal units are of particular interest. A joint
EU/US network is being established, as part of the EC research program,
to explore transport research of common interest. U.S. organizations may
join consortiums working on European Commission projects, although they
cannot receive Commission funding.

# Projects for Increasing EC/US Progress Toward Improved Intermodal Operations

Improved tracking and tracing for intermodal shipments has been
developed under the sponsorship of the European Commission (DG INFSO and
DG TREN), reported Guy Robinson. This work combined the passive tag and
reader with short-range radio, GPS, and GSM to monitor cargoes by road
and rail. In 1998 the technology was extended to maritime operations,
using passive tags below deck and radio connection to a satellite
receiver on deck. While the system was a technical success, demand fell
short of the critical mass of users needed to support it. Robinson said
the next phase of development looked at end-to-end supply-chain
operations, estimating the time of arrival at each modal interchange
point and setting up a common interface for all communication modes,
working toward a common architecture for all transport-related services.
By making the interface public, the aim is to allow anyone to connect to
the system, enlarge the communications network, and increase its
usefulness. This would not be a European monopoly, but could reach into
other areas as well.

The U.S. Department of Transportation has found a technique called
"process mapping" to be a useful technique for guiding systematic
improvement of intermodal service. Process mapping charts the entire
range of physical events in the lifecycle of a shipment so that the
critical events can be identified and streamlined. It has evolved to
become a database for anticipating and planning process improvements in
the intermodal chain, including administrative/information-sharing
events as well as physical ones.

Chassis tracking has been identified as one of the early projects to
improve intermodal efficiency. This experiment involves 83 GPS devices
on chassis in the New York and other regions. It allows carriers to
examine different operational strategies and measure their benefits in
terms of reduced repositioning of assets, empty mile reduction, fleet
utilization and reduction, and labor savings. Customers benefit from
increased visibility, and the ability to divert shipments while in
transit. Not all participants are willing to pay the costs associated
with generating the additional data: the project must prove itself
operationally.

It might be instructive to extend the process mapping exercise to
embrace intermodal shipments between the United States and Europe. A
multi-theater tracking test could be a valuable way to identify blind
spots and opportunities in the North Atlantic intermodal network, and to
perform realistic assessments of ways to assess possible improvements at
those critical points. The U.S. Department of Defense has shown possible
interest in international extensions of this process mapping work.

Other recent advances in the area of Intelligent Transportation Systems
offer new opportunities to improve intermodal transport, and new
possibilities for European/U.S. cooperation. Richard Biter described
several of these, including a test in Chicago O'Hare and Newark
International airports to expedite highway to air cargo transfer.
Drivers use smart cards and biometric ID technology to exchange air
cargo efficiently and within tight security requirements. Biter's office
is also testing electronic container seals on shipments out of the Port
of Tacoma, Washington, using low-cost transponders and disposable
container door seals. A key feature of this project is in-transit
visibility, allowing the Customs Service to know that a load never went
off-route, and providing them with notification of possible tampering.
To expedite throughput from terminals to end users, Biter described a
Terminal Dray Operations Test that uses standard message sets to
streamline the pick-up and drop-off of containers inside the terminal
yard. In a trial of asset cargo visibility, Biter is monitoring
container and chassis, improving the efficiency of chassis use by
staging and other operational strategies. All of these offer
opportunities for international cooperation, as does an ongoing project
on battery research. There are about 13 million ISO containers in use,
worldwide. A significant obstacle to widespread use of transponders to
track containers is the lack of a reliable power supply for these units.
Research is now underway at the Volpe Transportation Center to bring
power suppliers and transport vendors together to fill this gap.

Some questioned the operational benefits of tracking and tracing
technologies, and the need to know where each asset is located. Several
executives argued that they practice management by exception, and simply
want to know whether or not operations are proceeding well. Further,
third party logistics providers questioned whether their customers would
be willing to pay additional fees to get tracking information. Most
customers want to hear about the exceptions, only. It will be difficult
to get the intermodal industry, with low profitability and low margins,
to come together and embrace widespread use of tracking and tracing
technologies. But it is realistic to believe that carriers will build
upon the existing information systems that they have developed for their
own purposes. Competitive pressures will lead them to use these systems
to improve the information available to shippers.

Ideally, every shipment would have a trip plan and the carrier would
maintain a profile indicating the customer's schedule tolerance. An
ideal system would flag off-plan, out-of-tolerance exceptions and alert
the carrier. This would be useful in assessing recovery options, in
determining who is at fault, and in figuring out who pays. In the
future, not developing systems with such capabilities may prove to be
competitively damaging. The value of tracking and tracing may be
particularly apparent to carriers, who can use this for pro-active
shipment management. Shippers may be less interested in normal
circumstances, but when problems do occur, they are interested in
real-time updates to expected delivery times.

All in all, the sense of the forum discussion was that the new layer of
information coming from tracking and tracing systems is necessary for
carriers to perform good asset management and to improve service
reliability. It also has some value to shippers. Carrier-developed
systems will likely expand and interact, and allow increased system-wide
tracking and tracing.

# Comparative Data and Performance Measures

Fair and efficient pricing has been the policy of the European
Commission, but actual practices vary. With the possibility that this
could become an issue before the World Trade Organization, it adds new
importance to the need for consistent, comparable data on transport
policies. The European Transport Policy Information System is a portal
that provides access to the independent data systems developed by each
of the European Commission's member states. At present, there are many
gaps in obtaining comparable data across modes and among nations, Marc
Gaudry observed. He noted that there are gross disparities in whether or
not capital costs are included, the extent to which subsidies are
reported, and in how payments are classified as taxes versus user fees.
Generally speaking, very little is known about the traffic that is
actually using the infrastructure. With the transport sector growing
more rapidly than GDP, Gaudry argued that the lack of consistent,
comparable information will hamper policy-making at the Commission
level.

The European Commission is helping to start a European Reference Center
for Intermodal Freight Transport. Mark Major reported that it will work
cooperatively with participating national centers within Europe and will
explore the possibility of including the United States as well. It aims
to provide a neutral and independent source of information on good
practices, and will help support innovation.

Following up on a request made at the previous forum, Wilfred Schumacher
and Thomas Brown examined the data that are available and which might be
collected to get a good, comparative picture of modal and intermodal
traffic features in the United States and Europe. The information that
they found (presented in Appendix A) is often quite qualitative and not
easily compared between modes or regions. One commonality is that both
regions anticipate substantial traffic growth, with volumes expected to
double in the next ten to fifteen years. The infrastructure in both
regions is in places inadequate to meet this demand, although conditions
vary from place to place. Differences are more apparent than
similarities, however. Many key geographic features are fundamentally
different between the two regions, and the railroads in each region were
built for very different reasons. Some ways to develop better data to
compare transport operations in the two regions are included in Appendix
A. These are likely to be very costly to produce, however, and if this
is deemed to be a productive area for future cooperation, it would be
necessary to focus this on a subset of particular interest.

# Global Trade Forecasts and Transport Policy Recommendations

Freight volumes will not only grow in future years, they will also shift
as national markets give ground to the global marketplace, and as the
service economy overtakes that manufacturing economy. Transport systems
will increasingly focus on efficient use of capacity and less on
construction of additional capacity. This will bring pressures for
cross-modal coordination and less modal fragmentation. Continued
progress in supply-chain management will lead producers and retailers to
hold lower inventory. This will increase the demand for reliable,
timely, door-to-door services, as well as for increased flexibility and
visibility.

A key program for addressing these shifts in the United States began
with the passage of the Intermodal Surface Transportation Efficiency Act
of 1991. This legislation made intermodal connectors eligible for
funding as part of the National Highway System. It did not guarantee or
set aside any specific amount for this purpose, but it allowed
intermodal projects of certain types to compete with other projects on
the National Highway System for the total funding that is available.

This context poses difficult challenges for freight policy in the years
ahead. Gary Maring enumerated several of these. He anticipates
diminished growth in productivity from economic deregulation: those
benefits have mostly been captured already. While Highway Trust Fund
revenues are now eligible to be used for some intermodal projects, these
funds are not sufficient to meet all needs and they raise complex
planning and institutional issues. The transport implications of
increased international trade pose a special challenge. This will lead
to new traffic that is concentrated around top gateways for exports and
imports. (Figure 2a.) Each of these serves a network of points within
the United States. Using data from the Bureau of Transportation
Statistics and other supplemental sources, it is possible to trace the
distribution of inputs and outputs through each of these gateways.
(Figure 2b.) For example, current truck traffic in or out of the port of
Charleston, South Carolina fans out from the southeastern coast of the
country toward northeastern cities like New York, toward midwestern
cities like Chicago and Saint Louis, and toward southern California in
the west. The ability to visualize these flows, by port and in
aggregate, gives planners an ability to test different assumptions and
spot potential bottlenecks in advance of problems.

![](media/image2.wmf){width="3.5in" height="3.0729166666666665in"}

![](media/image1.wmf)

![](media/image2.wmf){width="3.8583333333333334in"
height="3.1527777777777777in"}**Figure 2a. Exports and Imports Projected
for U.S. Gateways**

## Figure 2b. Traffic distribution for Freight Moving in or out of Charleston SC

This level of geographic and graphic detail is a powerful tool for
visualizing bottlenecks that may come with future growth in trade.
Maring projected that from 1998 to 2020, freight tonnage will increase
at about three percent per year or nearly double over that time period.
To examine the implications of this growth, Maring plans to translate
these forecasts into traffic assignments along specific parts of the
network. This will allow policy makers to gain a better understanding of
emerging constraints and to develop illustrative multi-modal case
studies. It will provide a framework for "what-if" studies of
alternative policies relative to each transport mode.

Policy makers will face difficult choices. Both passenger and freight
traffic will increase significantly. Freight, for example, will nearly
double by 2020. Current facilities are not adequate to handle such
volumes, but plans and financing are not in place to upgrade them.
Neither can current operational practices sustain this magnitude of
growth. The Federal Highway Administration plans to conduct a national
freight summit in December 2001 to review future policy options. This
will help all parties gain a better grasp of emerging constraints and
ways to address them, including possible federal legislative changes as
part of the upcoming surface transportation reauthorization.

Deregulation of U.S. railroads through the Railroad Revitalization and
Regulatory Reform Act of 1976 and the Staggers Act of 1980 has improved
efficiency dramatically. Robert Martinez reported that in the period
from 1980 to 1996, railroads carried more than 50 percent more freight,
even as they reduced their track by 35 percent, cut their stock of
locomotives by 32 percent, decreased the number of wagons by 27 percent,
and eliminated 60 percent of their employees. These efficiencies have
been passed on to shippers through rate reductions. The rail revenue per
ton-mile (adjusted for inflation) fell 57 percent during this period.
Most rail freight (70 percent) moves under special confidential
contracts; 18 percent is potentially subject to regulation because of a
cost-related threshold in the law, and 12 percent is exempt by
definition. As a generalization, Martinez observed that U.S. railroads
had responded to deregulation with a cost-reducing strategy rather than
a service-increasing one.

Looking ahead, Martinez sees a new era for both railroads and trucks.
While deregulation has been strongly positive for both trucks and rail,
many of the easier benefits from deregulation have played themselves
out. The "highway model" provided by the Eisenhower-era interstate
legislation is also approaching the end of easy additional capacity.
Both truck and rail modes are destined to face increasing congestion.
Patchwork fixes will not solve the problem. Martinez argues that the
United States is at the point where highway financing practices should
reflect the ability of non-highway modes to alleviate congestion. This
consideration could be helped by collection of more complete and
reliable truck origin-destination data as they would yield insights into
where investments in additional capacity (both public and private) would
yield the greatest returns. Rail freight data are already extensive and
fairly robust. Further, future legislation should broaden the
flexibility granted to regions to undertake multimodal projects that
yield highway benefits, even if they are not themselves focused directly
on highway improvements. Also, Martinez would like to see a connectors
and terminals program similar to the borders and corridors program now
in place.

Within the industry, Jeffrey Crowe predicts a massive consolidation down
to a few "best of class" companies in the trucking industry. They will
be the ones who recognize that they are in the information business. He
warned against interpreting the failure of dot.coms as a sign that the
Internet is not important. Technology will continue to differentiate
companies, and it is vital to exploit its business potential. Safety
will likewise remain critical to success. The coming competition will be
intensified by a slowing economy, high fuel and energy costs, a
hardening insurance market, and lack of market liquidity. There will be
winners and losers, and this is all part of a healthy market response.
Crowe argues that less economic regulation is always better than more
regulation, and that policy makers should remain dispassionate and let
the market decide the outcome during the turbulent years ahead.

Railroad executives responded that in a fair situation, the
best-in-class should win, but in actuality there is not always a level
playing field. Government rules can tilt the outcomes. Industry may face
harsh financial outcomes, whether the Government set the right rules or
not.

The growth in U.S. intermodal operations has been hampered by increases
in drayage costs, stemming from drayage operations running 50 percent
empty. These have more than offset reductions in terminal costs. The
result is that the line where rail intermodal service becomes
competitive with truck has gone up, and is now typically around 850
miles.

Railroad interests agreed that the gains of U.S. deregulation have
already been captured, and further productivity gains in the future will
require changing other time-honored traditions. Two of these were
highlighted in the discussion. One is moving toward transcontinental
rail networks. Rail executives see the response to recent rail mergers
as an over-reaction, and argue that U.S. railroads are too small for the
territory. The other is rethinking the traditional ways in which
governments distribute resources. The key is finding the resources,
somehow, to make rail services more reliable. The lackluster profits
history of U.S. railroads makes it unlikely that private financing will
be available to accomplish this. Nor do private financiers recognize the
public benefits in highway operations that would result. Short-haul rail
services will not significantly change the overall picture.

Future rail productivity gains hinge chiefly on further consolidation,
which is not politically acceptable now, in the United States or in
Europe. Indeed, the challenge in Europe may be greater, where it is
necessary not only to merge companies, but in effect to merge countries
as well.

Deregulation is not a clear action that automatically yields a market
optimum, but is typically a reaction to a situation where the rules have
become counterproductive. Fixing those rules through deregulation is a
tricky business, as the recent energy experience in California
illustrates. U. S. rail executives were leery of deregulation that
separated infrastructure and traction. Governments are political bodies,
and when political bodies set prices, they are apt to disrupt the
market. U.S. executives do not believe that it is possible to separate
infrastructure and traction effectively. European leaders do not believe
that Europe could return to privatized rail infrastructure. Unlike in
the United States, where it is possible to go from almost any one point
to another with a few railroads, in Europe a large number of railroads
may be required. European leaders argue that there is not just one way
to deregulate, and that the European model must reflect the unique
circumstances there.

# Further European/U.S. Cooperation in Intermodal Freight Transport

The discussions at the Genoa forum were useful in suggesting better ways
of working together. Participants suggested continuing the dialogue at a
similar meeting in the spring of 2002. In addition, they believe that
there it would be valuable to participate in cooperative projects in
which they work together to improve intermodal transport between the two
regions, and explored a number of possible alternatives including
extending tracking and tracing systems to cover international,
intermodal movements; use of process mapping as a guide to improving the
intermodal system, application of performance measures to intermodal
service, and research on batteries suitable for inside-container
applications. The next set of tenders in the EC Fifth Framework program
includes a focus on the security and safety of intermodal transport
units, and this could provide a working arrangement for increased
European/U.S. cooperation. Participants decided that it would be helpful
to form a European/U.S. working group to review all of the other
opportunities for joint cooperation that were discussed and to seek ways
to advance those that appear mutually promising.

Better intermodal freight transport is a top priority, and policy should
continue to support it. Transport systems are at capacity in both Europe
and the United States due to population increases and economic growth.
The benefits of deregulation in the United States have mostly been
realized, and future gains in productivity will rely on further
improvements to facilities and operations. In Europe, policies to
separate infrastructure and traction are still in an experimental stage.
Both regions will find financing to be a difficult issue. Overcoming
these financial barriers will require more public/private partnerships.
Finding ways to provide, manage, and finance needed capacity will
require active cooperation from a host of economic interests.

Given these issues, topics that appear to warrant special attention at
the next forum are:

-   Public/private financing options for intermodal improvements

-   Trends and key developments that will create major capacity concerns
    within the next five years

-   Common transport policies

It may also be helpful to focus attention on several additional
subjects, namely:

-   Recent developments and issues raised by shared passenger/freight
    use of infrastructure

-   Intermodal connectors -- possibly focusing on air/rail intermodal in
    Europe and truck/rail or RoadRailer operations in the United States

-   Best practices for obtaining operational efficiencies at hubs and
    transfer points, including intermodal information systems.

Vice-President Loyola de Palacio said that the European Commission
attaches particular importance to intermodal freight. Each year, Europe
experiences growth in truck traffic equivalent to the entire trucking
traffic of Netherlands, Luxembourg, and Belgium combined. Freight
traffic is expected to grow by 40 percent between 1998 and 2010, and
freight traffic on the roads will grow by 50 percent. Europe must find
smart solutions, or risk suffocating in the global marketplace.
Development of intermodal transport is one of the keys to coping with
the anticipated traffic. The European Commission is contemplating five
measures for making better use of each mode as part of its White Paper
on Common Transport. These are:

-   Turning intermodality into a new job. Intermodal transport will
    develop only if the policy framework accommodates its unique needs.

-   Standardizing loading units will lead intermodality toward becoming
    a mature industry. The 6^th^ Framework program for RTD might help by
    preparing technical standards for containers and swap bodies.

-   Launching a new, broader program to accelerate the development of
    intermodal services, expanding the Pilot Actions for Combined
    Transport program that began in 1992. It will support the
    introduction of new services that are able to transfer significant
    volumes of road traffic to more sustainable modes. It will support
    strategic initiatives, such as new operating processes or
    techniques, which can be introduced to the market and speed transfer
    of freight from road to other modes. It will stimulate cooperation
    between different segments of the freight sector by supporting the
    broader application of successful models of cooperation.

-   Creating a Trans European Network Policy to support intermodal
    infrastructure. Of the 18 billion € devoted by the Commission to
    infrastructure projects between 2001 and 2006, nearly 4.2 billion €
    comes from the budget of Trans European Networks. The Commission
    will target these funds to large projects that eliminate intermodal
    bottlenecks and to create intermodal centers.

-   Developing short-sea shipping as a viable alternative to congested
    land corridors. As a first step in this direction, the Commission
    recently proposed a package to reduce monopolization of port
    services and to streamline customs and administrative procedures.

> These actions to boost intermodal transport arise in the context of
> wider framework which responds to the threat of global climate change.
> Between 1990 and 2010, projections show that 90 percent of the growth
> in carbon dioxide emissions in Europe come from the transport sector.
> The European Commission is determined to meet the provisions of the
> Kyoto Protocol and reduce greenhouse gas emissions from all sectors by
> eight percent between 1990 and 2010. It wishes to sever the
> longstanding linkage between economic growth and the volume of goods
> transported. Recent reductions in the energy-intensiveness of economic
> activity may be a hopeful sign that transport-intensiveness can be
> reduced as well. Certainly these larger concerns add new urgency to
> the need to make innovative and efficient use of all the transport
> capacity now in place.
>
> Vice President Loyola de Palacio concluded by saying, "It is of
> fundamental importance to take a common step into a practical
> application of our knowledge and the tools we use on both sides of the
> Atlantic. After all, if we are to obtain the highest level of
> performance of intermodal transportation we do need systems that are,
> if not identical, at least compatible\....I am pleased that in the
> transport research field we have had positive co-operation with the
> United States over the past few years\.... In the future we are hoping
> to extend the co-operation with further participation of US
> participants in the European research programs but we would also
> expect that European participation in US-based projects can grow as
> well. I value the invitation and outcome of this forum and also the
> intention to have a new one in 2002, in Florida. I am looking forward
> not only to the conclusions but also to the implementation, the
> practical implementation of all the conclusions and all the good work
> that you are doing."