Measuring Economic Benefits of Intermodal Transportation

Usually benefits for transportation investments are analysed within a framework of cost-benefit analysis or its related techniques such as financial analysis, cost-effectiveness analysis, life-cycle costing, economic impact analysis, and others. While these tools are valid techniques in general, their application to intermodal transportation would underestimate the overall economic impact by missing important aspects of productivity enhancement. Intermodal transportation is an example of the so-called general purpose technologies (GPTs) that are characterized by statistically significant spillover effects. Diffusion, secondary innovations, and increased demand for specific human capital are basic features of GPTs. Eventually these features affect major macroeconomic variables, especially productivity. Recent economic literature claims that in order to study GPTs, micro and macro evidence should be combined to establish a better understanding of the connecting mechanisms from the micro level to the overall performance of an economy or the macro level. This study analyses these issues with respect to intermodal transportation. The goal is to understand the basic micro and macro mechanisms behind intermodal transportation in order to further develop a rigorous framework for evaluation of benefits from intermodal transportation. In doing so, lessons from computer simulation of the basic features of intermodal transportation are discussed and conclusions are made regarding an agenda for work in the field. 1 Dr. Yuri V. Yevdokimov, Assistant Professor of Economics and Civil Engineering, University of New Brunswick, Canada, Tel. (506) 447-3221, Fax (506) 453-4514, E-mail: yuri@unb.ca Introduction Intermodal transportation can be thought of as a process for transporting freight and passengers by means of a system of interconnected networks, involving various combinations of modes of transportation, in which all of the components are seamlessly linked and efficiently combined. Intermodal transportation is rapidly gaining acceptance as an integral component of the systems approach of conducting business in an increasingly competitive and interdependent global economy. For example, the United States Code with respect to transportation states: AIt is the policy of the United States Government to develop a National Intermodal Transportation System that is economically efficient and environmentally sound, provides the foundation for the United States to compete in the global economy and will move individuals and property in an energy efficient way. The National Intermodal Transportation System shall consist of all forms of transportation in a unified, interconnected manner, including the transportation systems of the future, to reduce energy consumption and air pollution while promoting economic development and supporting the United States= pre-eminent position in international commerce.@ (49 USC, Ch. 55, Sec. 5501, 1998) David Collenette (1997), the Transport Minister of Canada, noted: AWith population growth came development, and the relative advantages and disadvantages of the different modes changed as the transportation system became more advanced.... Intermodalism today is about safe, efficient transportation by the most appropriate combination of modes.@ (The Summit on North American Intermodal Transportation, 1997) These statements define intermodal transportation as a macroeconomic concept, because an effective transportation system is a vital factor in assuring the efficiency of an economic system as a whole. Moreover, intermodal transportation is an important socio-economic phenomenon which implies that the benefits of intermodal transportation have to be evaluated at the macroeconomic level, or at least at the regional level, involving all elements of the economic system that gain from having a more efficient transportation network in place. Defining Economic Benefits of Intermodal Transportation Traditionally, the benefits of a transportation investment have been primarily evaluated through reduced travel time and reduced vehicle maintenance and operation costs. However, according to Weisbrod and Treyz (1998), such methods underestimate the total benefits of transportation investment by Amissing other important aspects of productivity enhancement.@ It is so because transportation does not have an intrinsic purpose in itself and is rather intended to enable other economic activities such as production, consumption, leisure, and dissemination of knowledge to take place. Hence, in order to measure total economic benefits of investing in intermodal transportation, it is necessary to understand their basic relationships with different economic activities. Eventually, improvements in transportation reduce transportation costs. The immediate benefit of the reduction is the fall in total cost of production in an economic system under study which results in growth of the system=s output. This conclusion has been known in economic development literature since Tinbergen=s paper in 1957 (Tinbergen, 1957). However, the literature does not explicitly identify why transportation costs will fall. This issue is addressed in this discussion with respect to intermodal transportation. Transportation is a multiple service to multiple users. It is produced in transportation networks that provide infrastructure for economic activities. It appears that transportation networks have economies of scale. As discussed below, intermodal transportation magnifies these scale effects resulting in increasing returns to scale (IRS) of a specific nature. It implies that there are positive externalities that arise because of the scale effects, externalities that can initiate cumulative economic growth at the regional level as well as at the national level (see, for example, Brathen and Hervick, 1997, and Hussain and Westin, 1997). The phenomenon is known as a spill-over effect. Previously the effect has been evaluated through the contribution of transportation infrastructure investment to economic growth. Since Auschauer=s (1989) paper many economists have found evidence of such a contribution (see, for example, Bonaglia and Ferrara, 2000 and Khanam, 1996). Intermodal transportation as it was defined at the very beginning is more than mere improvements in transportation infrastructure. From a theoretical standpoint, it posseses some characteristics of the general-purpose technologies (GPT), and it seems appropriate to regard it as an example of the GPT, which is discussed below. It appears reasonable to study intermodal transportation as a two-way improvement of an economic system=s productivity. On the one hand, it improves current operational functions of the system. On the other hand, it expands those functions. Both improvements are achieved by consolidating different transportation systems into a seamless transportation network that utilizes the comparative advantages of different transportation modes. Improvements due to intermodal transportation are associated with the increased productivity of transportation services and a reduction in logistic costs. The former results in an increased volume of transportation per unit cost, while the latter directly reduces costs of commodity production. Expansion of the intermodal transportation network is associated with economies of scale and better accessibility to input and output markets. The overall impact of intermodal transportation can be divided into four elements: (i) an increase in the volume of transportation in an existing transportation network; (ii) a reduction in logistic costs of current operations; (iii) the economies of scale associated with transportation network expansion; (iv) better accessibility to input and output markets. These four elements are discussed below in a sequence. Increase in volume of transportation in the existing network An increase in volume of transportation can lead to economies of density a specific scale effect. The economies of density exist if an increase in the volume of transportation in the network does not require a proportional increase in all inputs of the network. Usually the phenomenon is associated with an increase in the frequency of transportation (traffic) within the existing network (see Boyer, 1998 for a formal definition, Ciccone and Hall, 1996 for general discussion of economies of density, and Fujii, Im and Mak, 1992 for examples of economies of density in transportation). In the case of intermodal transportation, economies of density are achieved through cargo containerization, cargo consolidation and computer-guiding systems at intermodal facilities. Cargo containerization and consolidation result in an increased load factor of transportation vehicles and higher capacity utilization of the transportation fixed facilities, while utilization of computer-guiding systems results in higher labour productivity. For instance, in 1994 Burlington Northern Santa Fe Railway (BNSF) introduced the Alliance Intermodal Facility at Fort Worth, Texas, into its operations between Chicago and Los Angeles. According to OmniTRAX specialists, who operates the facility, BNSF has nearly doubled its volume of throughput at the intermodal facility since 1994. First, containerization of commodities being transported plus hubbing or cargo consolidation at the intermodal facility resulted in longer trains with higher frequency. Second, all day-to-day operations at the intermodal facility are governed by the Optimization Alternatives Strategic Intermodal Scheduler (OASIS) computer system, which allowed BNSF to handle more operations with less labour. Reduction in Logistic Costs Intermodal transportation is characterized by optimal frequency of service and modal choice and increased reliability. Combined, these two features define the just-in-time delivery -a major service produced by intermodal transportation. Furthermore, Blackburn (1991) argues that just-in-time d