Transporting freight by water has been part of the freight network for many years in the United States, but most operations have traditionally been used for the movement of bulk commodities, such as coal, petroleum, grain, and lumber. Waterborne modes, sometimes referred to as short sea shipping (SSS) operations, currently operate along the Mississippi River system, across the Great Lakes, through the St. Lawrence Seaway, and along some coastal routes. Together, these operations moved about 6 percent of the nation’s freight tonnage in 2000. SSS is one of the most cost-effective ways to move heavy, lower-value, and non-time-sensitive goods, but since it is slower and less reliable than trucking or air, shippers tend to move higher- value and time-sensitive freight by faster and more reliable modes, such as trucking or air. Recent years have brought an increasing focus on developing new SSS options that are better suited for moving cargo that normally travels by truck and tends to include higher-value and time-sensitive goods. (See table 1 for examples of traditional and newer waterborne services.) Some of these proposals rely on traditional waterborne methods, such as tug-and- barges, that are adapted to move containerized cargo instead of the traditional bulk commodities. For example, one operation we examined uses a tug-and-barge to move containers between two cities in the Northeast. Other proposals, however, look much different from the traditional waterborne modes. For example, one operation has proposed using two self-propelled ships to move containerized cargo along coastal waterways at faster speeds than tug-and-barges. Another proposal calls for building a dozen “next-generation” vessels that could move trucks and passenger cars along an extensive waterway network at more than four times the speed of tug-and-barges. To develop these newer types of SSS operations, some transportation stakeholders have called for extensive public-sector involvement, while others have advocated for a more limited government role. For example, some transportation stakeholders believe that the federal government should provide money for SSS demonstration projects or heavily subsidize start-up operations to prove to shippers that this is a viable mode of transportation. Others, however, see a more limited government role and argue that government officials should focus their efforts on addressing regulatory provisions that may interfere with the development of SSS operations. The waterborne transportation of freight has a strong presence in Europe, where European Union policies have encouraged its use. In Europe, SSS grew steadily between 1970 and 1998. Shipping in Europe, however, is not directly analogous to shipping higher-value freight in the United States. For example, Europe’s rail system is less efficient for moving freight than the U.S. rail system, and because of Europe’s geography, many of Europe’s main industrial centers are close to waterways. Thus, in many cases, SSS routes in Europe may provide the fastest and most reliable service between destinations. In addition, legal provisions—such as road taxation and driving restrictions—increase the cost of road transport in Europe and play a role in the greater use of SSS. Federal funding that could potentially be used to assist with the development of SSS in the United States is currently limited. Under certain circumstances, however, current federal laws could provide some financing for waterborne options because these laws allow states more flexibility to expend federal aid on certain nonhighway freight projects. The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and its successor, the Transportation Equity Act for the 21st Century (TEA-21), broadened the reach of programs established under title 23 of the United States Code to fund and finance surface transportation projects with user tax receipts credited to the Highway Trust Fund and distributed to states through annual apportionments according to statutory formula. While funds apportioned to the states are most often used to build and maintain roads, innovations in ISTEA and TEA-21 allow transportation decision makers some flexibility in using funds for freight improvement projects. For example, funds can be used to make improvements to rail lines and port facilities. The current federal framework also allows for greater use of public-private partnerships through programs such as the Transportation Infrastructure Finance and Innovation Act of 1998, a program that provides federal loans or loan guarantees to be used in concert with funding from other sources, including the private sector. Transportation planning occurs at the federal, state, and local levels. Although the last two surface transportation reauthorizations provided enhanced project-specific decision authority for the use of formula funds to the state level, the U.S. Department of Transportation (DOT) has responsibility for nationwide transportation planning, as well as program- level oversight. DOT has recently become involved in exploring the potential of SSS to expand the capacity of the freight transportation system to improve freight mobility and reduce congestion. In its strategic plan, DOT states that the U.S. coastal and inland waterway system is underutilized and could provide a practical, safe, and efficient means of transporting freight. Through its National Freight Action Agenda, DOT has specifically identified SSS for accelerated development. As the primary operating agency within DOT responsible for promoting SSS, the Maritime Administration (MARAD) has also made SSS a high-visibility component of its strategic plan. MARAD’s Strategic Plan proposes that greater use of the maritime transportation system, through elements like SSS, offers the potential to reduce passenger and freight congestion, as well as facilitate increased U.S. military reliance on commercial marine transportation systems. Stakeholders, including transportation officials and maritime stakeholders representing both the public and private sectors, see SSS as a potential option for improving freight mobility and creating other benefits, especially in high-demand transportation corridors, but they also note that certain obstacles may limit its development. Benefits cited include improved freight mobility, reduced infrastructure spending, and improved air quality. Potential obstacles to being an effective competitor include laws that increase start-up and operating costs, port facilities that are not readily adaptable to SSS operations, and a general reluctance among shippers to try new modes. For the two operations we examined, the effect of these potential obstacles varied. Some affected the viability of the operations, but others appeared to have little effect or were overcome by the operators. According to stakeholders, the development of SSS operations may produce a number of public benefits. (See table 2.) By providing an additional option for transporting freight, stakeholders contend that such services would increase the capacity of certain freight routes, thus alleviating many of the capacity stresses that currently affect the surface transportation system. For example, an SSS service that moved cargo from New York to Miami might reduce the number of trucks on Interstate 95, the major highway between the two cities, thereby reducing overall roadway congestion. Similarly, SSS services that move containerized cargo out of busy ports to less congested ports could help alleviate dock congestion and reduce the number of trucks and trains traveling on crowded port access routes, thus alleviating capacity constraints affecting many ports. Stakeholders also contend that since SSS services are more fuel efficient than trucks, SSS operations can help improve air quality in certain locations by reducing pollution. Finally, stakeholders contend that SSS services could provide a more cost-effective alternative to building new roadways and rail lines, thus reducing the amount of money spent on infrastructure projects. While stakeholders contend that such SSS operations can produce a number of public benefits, they also note that various obstacles could make it difficult for operators to start and sustain an SSS service that competes effectively with other modes. Since few SSS services have actually been created, there is no consensus about the effect, if any, these obstacles would present to SSS development. The potential obstacles cited involve legal, operational, and acceptance-related challenges. Legal requirements could present a barrier to SSS development by increasing the start-up or operating costs of operations. Operational challenges involve incompatible infrastructure and potential strains on port capacity. Finally, a general unwillingness among the shipping community to switch from well- established modes, such as trucking and rail—even if SSS can be shown to be a competitive option—can present a barrier to SSS development. Paying the Harbor Maintenance Tax. Some proponents contend that the Harbor Maintenance Tax, a general levy on the value of cargo moved through a port, would make SSS less competitive with other modes, such as truck or rail, because it places an additional tax burden on shipping by water. The fee, which pays for such activities as harbor dredging, is levied on the value of cargo (0.125 percent) as it is loaded or unloaded from a commercial vessel in a U.S. port. Stakeholders argue that since shippers may avoid the tax by utilizing other modes, such as trucking or railroads, few would choose to use SSS services. For example, a shipper moving cargo from New York to Miami using SSS would be subject to the tax, but the same shipper can avoid the tax if the shipment travels by rail or truck. Trucking associations note, however, that they, too, are subject to user taxes, such as tolls and federal taxes. Potentially higher vessel costs because of Jones Act requirements. Some SSS stakeholders contend that certain provisions in the Jones Act, which requires that any vessel (including barges) operating between two U.S. ports be U.S.-built, owned, and operated, may increase the start-up costs of SSS operations because ships built in U.S. shipyards tend to be more expensive than vessels that can be acquired from the global market. These higher costs, in their view, could increase start-up costs and make it difficult for operators to create SSS services or sustain profitability.