# Presentation: 518540

## Economic Impacts of Large Scale Freight Investments

***presented to*****Talking Freight Seminar**
***presented by*****Michael Fischer****Cambridge Systematics, Inc.**
**December 12, 2007**

**Economic Impacts of Large Scale Freight Investments**

## Overview

**Background and Purpose**
**Economic Impact Analysis Framework**
**Case Study – Baltimore Rail Tunnel**
**Overview of Toolbox**

## What Is Economic Impact Analysis?

**Investments affect transportation system performance**
**Transportation system performance affects business costs, output, and profitability – economic effects**
**Economic effects impact general economy**
**Output (GDP), employment, income – macro economy**
**Geography of effects**
**Incidence of effects**
**Focus of guidebook is economic effects**
**National scale of benefits – large scale**
**Public vs. private impacts**
**Logistics and supply chain effects – second order**

## Challenges for Evaluating Large Scale Projects 

**Public benefit consideration**
**National level significance**
**Multiple modes of travel**
**Allocation of costs and benefits among wide array of stakeholders**

## Cost and Impact Perspectives

## Five-Step Framework

| Step 1 – Classify the Type of Project (Transportation Impact) | Facility location – Local entry/access point, regional corridor, facility
Modes involved – Air, water, rail, truck, combinations of modes
Transport change – Capacity, access, speed/flow, and cost
Investment – Expand existing facility, build new or alternative facility |
| --- | --- |
| Step 2 – Define the Relevant Evaluation Issues (Economic Impact) | National and international scale freight network capacity and level-of-service needs
Economic competitiveness, growth, productivity, and trade
Benefits to specific regions, modes, or industry-specific targets
Allocation of costs and benefits among affected parties to assess equitable funding |
| Step 3 –Tools for Calculation of Transportation Impacts | Network analysis – Providing links, nodes, capacity, and performance – rail, highway
Facility handling analysis – Capacity/Cost for ports, terminals, bridges, tunnels
Logistics analysis – Ultimate cost implications of mode/facility choices |

## Five-Step Framework (continued)

| Step 4 –Tools for Calculation of Expected Economic Impacts | Form of economic impact – Cost reduction, productivity, income generation, jobs
Geography of impacted markets – Local, regional, national, international
Distribution of economic impacts – Commodity and economic sector
Models – Supply chain, regional economic growth, national productivity, int. trade |
| --- | --- |
| Step 5 – Decision Methods | Benefit/cost analysis
Cost-effectiveness analysis
Equity impact analysis 
Multicriteria weighting analysis |

## Basic Data Requirements

**Transportation impact data**
**Network supply conditions**
**Travel demand patterns**
**Economic evaluation factors**
**Economic performance measures**
**Economic value of performance impacts**

## Analysis Components

**(*****B) Freight Transport Performance & Access***

***(C) Economic Impact***

***(D) Economic Impact***

**Analysis Components**

**Transport Models**
**Network and terminal performance  **
**Logistics cost and mode share**** **
**Economic Models**
**User benefits**
**Market access**
**Econ. simulation**
**Decision Support**
**B/C**
**Cost effectiveness**
**Equity impact**
**Multicriteria**

**Personal & Environ Impact**

***(A) Baseline Demand & Supply***

## Step 1:  Define Project Type

**Functional Activities**
**Facility Type**
**Types of users and spatial scope of impact**
**Transportation Improvement Categories **
**Transportation Benefit Metrics**

## Table 3.1	Examples of Projects by Category of Transportation Improvement

| Improvement Category | Project Action | Mode |
| --- | --- | --- |
| Capacity Expansion – Link | Add general public lanes | Highway |
|  | Add truck-only lanes | Highway |
|  | Add track | Rail |
|  | Upgrade track (speed or weight) | Rail |
|  | Upgrade/eliminate grade crossing | Rail/Highway |
|  | Upgrade locks/dams | Water |
|  | Navigable waterway improvement | Water |
|  | Tunnel upgrades | Rail |
|  | Correct design deficiencies | All |
| Capacity Expansion – Terminal | Channel deepening – harbor | Water |
|  | Air draft improvement | Water |
|  | Added lift capacity | Rail/Water |
|  | Added terminal storage capacity | Rail/Water |
|  | Added gate capacity | Rail/Water |

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

| Improvement Category | Project Action | Mode |
| --- | --- | --- |
| Operational Improvements | Roadway geometrics | Highway |
|  | Track alignments | Rail |
|  | Signalization improvements | Highway |
|  | Electronic control | Rail |
|  | Intelligent transportation systems | All |
|  | Information systems – scheduling/cargo visibility | All |
|  | LCV upgrades | Highway |
|  | Hours of operation | All |
| Connectivity | Intermodal connector improvements | All |
|  | On-dock/near-dock rail | Rail/Water |
|  | Gap closure | Rail/Highway |
|  | Short haul rail | Rail |

## Table 3.2	Transportation Benefits and Metrics by Project Type

| Project Type | Mode | Transportation Benefits | Metrics |
| --- | --- | --- | --- |
| Add general purpose lanes | Highway | Congestion – Travel time savings | Travel time |
|  |  | Reliability – Reduced incident impact | Nonrecurrent delay |
|  |  | Potential accident reduction | Accidents |
| Add truck-only lanes | Highway | Congestion – Travel time savings | Travel time |
|  |  | Reliability – Reduced incident impact | Nonrecurrent delay |
|  |  | Potential accident reduction | Accidents |
| Add track/new link | Rail/Hwy | Congestion – Time savings/car cycling  | Travel time, cycle time |
|  |  | Potential reliability – Queue impact | On time performance |
|  |  | Diversion to rail reduces congestion | Volume, travel time |
| Upgrade track (speed or weight) | Rail | Improved travel time, railcar cycle time | New weight/speed |
|  |  | Potential reliability | On time performance |
|  |  | Potential safety | Accidents |
| Upgrade/eliminate grade crossing | Rail/Hwy | Potential speed/travel time savings  | Average speed  |
|  |  | Accident reduction – Reliability savings | Accidents |

## Step 2:  Define Evaluation Issues

**Identifying Issues and Audiences**
**National and Local Issues**
**Stakeholders:  Incidence of Benefits and Costs**
**Alternative Impact Metrics**

## Step 3:  Transportation Impact Tools

**Identification of Transportation Efficiency Benefits**
**Mode-Specific Performance Analysis**
**Network and terminal performance**
**Nontraditional metrics (e.g., reliability)**
**Modal Diversion Analysis**
**Treatment of Carrier and Shipper Costs – market relationships of costs and prices**
**Final Analysis and Presentation of Results**

## Example Portrayal of Findings from Transportation Analysis

|  | Truck | Rail | Air | Sea |
| --- | --- | --- | --- | --- |
| System Performance Impacts
Increased Vehicle Capacity (TEUs or tons  per vehicle)
Increased Line or Terminal Capacity (vehicles per hour)
Increased Schedule Frequency
Reduction in Recurrent Interchange or Bottleneck Delays
Reduction in Nonrecurrent Incident Delays
Improved Safety |  |  |  |  |
| System Throughput Changes
Predicted Change in Throughput Volume |  |  |  |  |
| Shipper Impacts
Reduced Transport Costs
Reduced Logistics Costs
Improved Productivity
Improved Terminal Access 
Enlarged Delivery Market Area Access |  |  |  |  |

## Step 4:  Select and Apply Economic Impact Tool

**Screening:  Overall Economic Benefit**
**Industry Reorganization Effects**
**Establishing National and Local Distinctions**
**Selection and Application of Economic Models**
**Final Analysis and Presentation of Results**

## Measuring the Economic Impacts of Transportation Projects

| Input | Output | Final Output |
| --- | --- | --- |
| National Economic Impacts |  |  |
| Reduced Transport Costs
Reduced Logistics Costs
Business Market Expansion |  | Exports and Imports
Total U.S. output
GDP (Value Added)
Personal income |
| Local/Regional Economic Impacts |  |  |
| Change in local production costsa; or
Change in final demandb ; or
Change in accessibility/ quality of rail, air/sea port, highwayc |  | Total local outputa,b
Output from new business attractionc
Local personal incomea
Local GDP (value added)a
State and local tax revenuea
Value of externalities (discussed elsewhere) |

## Measuring the Economic Impacts of Transportation Projects (continued)

| Input | Output | Final Output |
| --- | --- | --- |
| Sector-Specific Economic Impacts |  |  |
| Change in production costs | Employment by freight carriers (by mode)
Output by freight carriers (by mode)
Profits by freight carriers (by mode) | Employment at logistics firms
Output and Profits logistics firms
Employment in nontransportation sectorsd
Output in nontransportation sectorsd
Profits in nontransportation sectorsd |

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

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

**Source:****	****Boston Logistics Group, Inc.**
**Note:****	****These benefits are indicative and preliminary estimates only that are based on average companies in a broad cross-section of industries, including many that have little transportation cost and do not move physical product.  More precise estimates that are targeted at specific Supply Chain TypesTM should be developed using the tools referenced throughout this text.**

| Infrastructural Benefit | Supply Chain Impact | Supply Chain Benefit Expressed As % of Operating Cost | Supply Chain Benefit Expressed As % of Transport Cost |
| --- | --- | --- | --- |
| 10% Transport Cost Reduction | Lower material cost by substituting farther cheaper sources | 0.1% | 1.5% |
|  | Consolidate plants due to extended reach | 0.2% | 4.1% |
|  | Switch modes and reduce shipment size, decreasing inventory | 0.1% | 1.2% |
| 10% Capacity Increase | Less safety stock | 0.1% | 1.1% |
|  | Rationalization of fleet and warehouse assets | 0.01% | 0.3% |
| Secondary Effects | Increasing service levels | Not quantified | Not quantified |
|  | Converting cost savings into price reductions | Not quantified | Not quantified |
|  | On demand supply chains | Not quantified | Not quantified |

## Classification of Shipper Types

**Source:****	****Boston Logistics Group, Inc.**

|  |  | FLOW/CONTINUOUS |  | BATCH/CELLULAR |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Make to Plan | Raw Material Source | Vessel/Railcar | TL/IM | Vessel/Railcar |  | TL/IM | LTL/Sm. Pkg/Air |  | Consumer |
|  |  | 1.  Extraction |  | 3.  Discrete Manufacturing |  |  |  |  |  |
|  |  |  | 2.  Process Manufacturing |  |  |  |  |  |  |
| Make to Stock |  |  |  |  | 5.  Distribution |  |  |  |  |
| Assembleto Order |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |
| Make to Order |  |  |  | 4.  Design-to-Order Manufacturing |  |  |  | 6.  Reselling |  |
| Engineer to Order |  |  |  |  |  |  |  |  |  |

## Step 5:  Select and Apply Decision Models

**Alternative Views of Benefits**
**Benefit-Cost Calculation and Presentation**
**Incidence and Equity of Benefits and Costs**

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

**Project Type (Step 1) – Link-level tunnel and track improvements to increase capacity and reduce delay**
**Evaluation Issues (Step 2)**
**Include national and state benefits**
**Include highway user benefits along with freight users**
**Include second order logistics benefits**
**Transportation System and Economic Benefits (Steps 3/4)**
**Reduced freight and passenger rail delay**
**Mode shift (maintain mode shares) – shipper costs**
**Supply chain benefits**
**Full B/C Analysis (Step 5)**

## Benefit/Cost Results

| Benefit | Scenario 1.  750/500 | Scenario 2. 500/300 | % Difference |
| --- | --- | --- | --- |
| Freight Rail Operators
Shipper Costs
Highway Travelers
Amtrak Users
Supply Chain | 	$270,229,331
	$2,694,157,018
	$625,621,147
	$1,422,398,587
	$2,013,629,007 | 	$270,229,331
	$1,655,796,822
	$625,621,147
	$873,653,722
	$1,303,373,082 | 	0.00%
	62.70%
	0.00%
	62.80%
	54.50% |
| Total Benefits
Total Costs | 	$7,026,035,090
	$3,046,338,138 | 	$4,728,674,104
	$3,046,338,138 | 	48.60%
	– |
| Benefit/Cost | 2.31 | 1.55 | 48.60% |

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

## Extending the Case Study Analysis

**Analyze commodity traffic and train types in rail simulations – refined user benefits estimates**
**Service/cost-based modal diversion modeling**
**Network travel demand model for highway user benefits**
**Direct travel time savings**
**Reliability**
**Crashes**
**Emissions**
**Economic simulation (GRP/GSP, employment impacts)**

## Toolbox

**Freight Network and Terminal Performance**
**Modal Diversion and Logistics Cost Models**
**Cost and Access Benefit Calculations**
**Economic Simulation Models**
**Decision Support Tools**

## For More Information

**Copies of the guidebook are available at:**
**	**_**[http://www.dot.gov/freight/guide061018/index.htm](http://www.dot.gov/freight/guide061018/index.htm)**_
**Contact:**
**	****Michael Fischer, Cambridge Systematics, mfischer@camsys.com**