This section focuses on macro mode-share factors, which are the larger trends affecting mode share, such as productivity, deregulation and regulation, containerization, double-stacking, just-in-time delivery, fuel costs and climate change, and international trade. Later tasks in this study will focus on individual shipment mode choice factors, which are the specifics of individual commodity movements that determine their modal split. These include commodity characteristics (shipment size, package characteristics, shipment shelf life, shipment value, shipment density, and shipper and receiver characteristics access to modes), logistics costs (order and handling costs, transportation charges, capital carrying cost in transit, intangible service costs, inventory costs, loss and damage costs, and service reliability costs), and additional factors (length of haul, shipment frequency and environmental/ sustainability).
Productivity can be a key factor in mode choice. If productivity in one of the competing freight modes increases relative to another mode, that mode will have relatively lower costs and the ability to lower its prices to capture more traffic. Thus, differing trends in productivity among competing modes can lead to mode shifts. In the last 25 years, labor productivity growth for railroads greatly surpassed labor productivity gains in other modes and in the overall economy. Meanwhile multifactor productivity gains for rail, spurred by improvements in capital inputs and the organization of service delivery, far outstripped those in the private business sector (Apostolides 2003).
Figure 9 provides indexes of labor productivity for a variety of transportation industries for which the Bureau of Labor Statistics publishes data, as well as for the business sector as a whole. Modes include air transportation (passenger and freight, combined), line-haul railroads, general freight trucking (long-distance), used household and office goods moving, postal service, and all businesses. Figure 9 also shows that rail productivity gains were substantial during the 1987 to 2004 period, but have leveled off since. Air transportation experienced marked gains during the 2000s, while trucking and the postal service have experienced gains lower than businesses as a whole. Household movers have seen substantial labor productivity decreases.
According to the US DOT, between 1987 and 2012 output-per-hour worked more than doubled in line-haul railroading. Line-haul railroads do not include switching and terminal operations or short-distance/local railroads. Long-distance, general-freight trucking grew by 39% over the same period. However, in recent years trucking has grown more rapidly. Long-distance, general freight trucking establishments exclude local trucking and truck operators that require specialized equipment, such as flatbeds, tankers, or refrigerated trailers (Strocko et al. 2013).
Figure 10 provides indexes of multifactor productivity for air transportation (passenger and freight combined), line-haul railroads, pipelines, and all businesses. As was the case for labor productivity, rail has shown large increases in multifactor productivity, while multifactor productivity for the remaining available modes has increased at rates more in line with the economy as a whole.
According to ((Bureau of Transportation Statistics 2010) increases in rail transportation multifactor productivity stem from technical progress, such as improved capital inputs and technological changes in the form of improved methods of service delivery. Improved technology for locomotives, freight cars, track and structures have increased reliability and reduced maintenance needs. Improved information technology, through computers, has also improved operational efficiency. Industry restructuring, including mergers, has permitted greater efficiency of labor and rail traffic moving over longer distances without interruptions. Railroad company consolidation has led to more efficient use of equipment and lines (Apostolides 2003).
The pipeline industry relies on a system that for the most part was installed during the middle of the last century. However, despite the system and capital infrastructure maturity, recent changes in the industry have allowed it to reduce labor and energy inputs to post large increases in productivity. One speculation is that increases in computerization have allowed reductions in personnel and increased energy efficiency, maximizing output in a mature industry (Jack Faucett Associates Inc. 2007).
Deregulation and regulation
Over the last quarter of the 20th century, Congress has sharply curtailed regulation of transportation. Major legislation included the:
- Railroad Revitalization and Regulatory Reform Act of 1976 (the 4-R Act)
- Motor Carrier Act of 1980
- Household Goods Act of 1980
- Staggers Rail Act of 1980
- Bus Regulatory Reform Act of 1982
- Surface Freight Forwarder Deregulation Act of 1986
- Negotiated Rates Act of 1993
- Trucking Industry Regulatory Reform Act of 1994
- Interstate Commerce Commission (ICC) Termination Act of 1995
Those acts deregulated either totally or in large part, successively, trucking, railroads, bus service, and freight forwarders. In addition, those acts lifted most of the remaining motor carrier restrictions, including those imposed by the states. Deregulation of motor carriers became complete, except for household movers, at the end of 1995. At that time, the federal government also preempted state regulation of trucking, eliminating the last controls over price and service in the motor carrier industry. It eliminated the need for motor carriers to file rates, and authorized truckers to carry goods wherever they wanted to serve. The acts gave railroads more freedom to price, except when “captured shippers” could show that they faced a single carrier without significant alternatives (Moore 2014).
According to most experts and observers, deregulation has worked well (Moore 2014) . For example, Figure 11 provides data on the freight railroad industry since the Staggers Rail Act of 1980 deregulated the industry, showing the tremendous positive effects, with productivity and volumes soaring while rates decreased substantially.
The Surface Transportation Board reports that railroad rates fell by 45% in inflation-adjusted dollars from 1984 to 1999. The demise of the ICC at the end of 1994 eliminated many of the statistics previously collected on the motor carrier industry. However, limited data show that revenue per ton-miles, adjusted for inflation, continued to decline, falling by 29 percent from 1990 to 1999. In addition, service to small communities improved, shippers’ complaints against truckers declined, unionization of drivers declined, reducing wage differentials between nonunionized drivers and the general labor force, while the number of new firms increased dramatically (Moore 2014).
Regulation and deregulation can be important factors in mode shares. One of the four key findings from the US Department of Energy’s study of freight transportation share and a low-carbon future was that “Major mode shifts are unlikely without substantial changes in costs or strong regulatory measures.” (U.S. Department of Energy 2013). Deregulation has clearly played an important role in mode share over the last twenty-five years. Recent regulatory actions, such as hours of service regulations in the trucking industry, and positive train control in the rail industry, continue to play an important role. Future regulatory actions, particularly those related to climate change, truck size and weight regulations, and autonomous vehicles could significantly shape mode shares.
Intermodal freight transport is the use of two or more modes to move a shipment from origin to destination. The concept of logistically linking a freight movement with two or more transport modes is centuries old, however, the recent focus has been on containerization. There is a relationship between transport costs, distance, and modal choice. Rail/waterways are less expensive for longer distances, while trucks are cost-effective in shorter distances. However, intermodal transportation offers the opportunity to combine modes and find a less costly alternative.
Rail intermodal, the transport of shipping containers and truck trailers on railroad flatcars, has grown tremendously over the past 25 years. The railroad industry reported an approximately fivefold growth in trailer and container traffic on the railroads from 1965 to 1995 (Dewitt and Clinger 2014). US rail intermodal volume was 3.1 million containers and trailers in 1980, 5.9 million in 1990, 9.1 million in 2000, and peaked at 12.3 million in 2006. Intermodal volume fell sharply during the 2007-2009 recession, but by 2013, it had rebounded to a record of nearly 13 million units (Railroads 2013, Association of American Railroads 2014). Figure 12 provides a summary of the growth of US rail intermodal traffic from 1990 to 2012 in millions of containers and trailers.
In 2013 through September, intermodal accounted for 22.6% of revenue for major U.S. railroads, more than any other single commodity group. Historically, coal has been the largest single source of rail revenue (Railroads 2013).
One of the four key findings from the US Department of Energy’s study of freight transportation share and a low-carbon future was that “Different freight modes offer different specialized services, limiting opportunities for shifting freight from one mode to another,” while a second was that “Truck-to-rail modal shifts have the greatest overall potential for energy reduction.” These key findings illustrate why the trend toward containerization is so important for mode shift (U.S. Department of Energy 2013).
Related to containerization, yet a unique trend in itself, is the emergence of double-stacking. In 1990, containers accounted for 44% of rail intermodal volume. By 2000, the share was 69%, and in 2012 it was a record 87%. Unlike trailers, containers can be “double-stacked,” thereby sharply increasing productivity and helping to ensure that there is sufficient traffic density to keep rail intermodal cost competitive with all truck movements. Transferring containers to and from ships and trucks is also easier, further enhancing productivity (Railroads 2013).
This important shift in the composition of the North American intermodal rail fleet took place in the 1990s, with the move away from piggybacking or Trailer on Flat Car (TOFC) towards Containers on Flat Car (COFC). Figure 13 illustrates this trend over the twenty-year period from 1981, when the intermodal rail fleet had virtually no double-stacking, through 2001, when 60% of the fleet was double-stack.
As the intermodal market evolved, equipment availability and standardization were constant issues. While the intermodal trailer still plays a role in the market, the primary intermodal equipment type is the domestic container, with trailer traffic continuing to be converted. Railroads have recognized the train efficiencies in double-stack operations, and have configured networks and terminals to accommodate them. Double-stacking of containers saves much more convoy space than the piggyback method, with the added advantage of not having to carry a trailer. Intermodal transportation has traditionally lagged behind the highway industry in equipment size and capacity, but the 53-foot container has become the common piece of equipment (Prince 2010).
The development of long-distance corridors linking major port gateways such as Los Angeles / Long Beach to inland destinations spurred the setting of double-stacked unit train services. However, many rail routes were not compatible with double-stacking because of the required height clearance for bridges and tunnels. Converting a rail line to double-stacking can be a costly undertaking. US railroads have made such investments on high-priority corridors, raising clearances along rail routes to accommodate the additional height required (Railroads 2013).
TOFC services that used to dominate have become marginalized because of the more efficient use of rail assets permitted by double-stacking, and the commitment of trucking companies to integrate their drayage services with long distance intermodal rail services. In addition, most well cars (stake cars) can accommodate 53-foot domestic containers, undermining the need for piggybacking. What railroads used to carry as TOFC, they now carry as COFC.
Just-in-time (JIT) manufacturing or delivery is a production model in which producers create items to meet demand rather than in surplus, or in advance of need. The purpose of JIT production is to avoid the waste associated with overproduction, waiting and excess inventory. Henry Ford described the JIT concept in his 1923 book, My Life and Work (Ford and Crowther 1923):
“We have found in buying materials that it is not worthwhile to buy for other than immediate needs. We buy only enough to fit into the plan of production, taking into consideration the state of transportation at the time. If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever. The carloads of raw materials would arrive on schedule and in the planned order and amounts, and go from the railway cars into production. That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials.”
Toyota adopted JIT in the Toyota Production System (TPS) in the 1970s, as a means of eliminating waste. However, it was not at the Ford Motor Company that Toyota representatives saw the JIT model in action. When Toyota toured plants in the United States in 1956, Ford had not yet fully implemented the JIT model. It was at Piggly Wiggly, the first self-service grocery chain that Toyota representatives saw JIT demonstrated (Whatis 2014).
According to observers such as the Center for Climate and Energy Solutions, “The rise in popularity of JIT inventory management made businesses more reliant on timely delivery, favoring trucks since they have access to an expansive network of roads and can move product quickly. As a result, trucks gained more and more market share throughout the 1990s and into the 2000s (Center for Climate and Energy Solutions 2014).”
Fuel costs and climate change
Different modes use significantly different amounts of energy per unit of freight movement, and as a result, produce different levels of emissions including greenhouse gases. Figure 14 provides estimates of energy use in British thermal units (Btu) per ton-mile of freight. As the figure shows, rail and water modes are 4-5 times more energy efficient than trucking.
Railroads spend relatively less on fuel, reflecting the economies of scale and corresponding fuel savings that rail achieves by hauling very large volumes of freight over long distances. The higher price of trucking services and the lower price of rail services reflect the differences in fuel use (Brogan et al. 2013). Freight railroads are also increasing fuel efficiency faster than trucking companies. Table 4 shows the average annual percent change in energy intensity for trucks and rail over the last 10 and 40 years. Rail has achieved a significantly higher decrease in energy use than trucks, especially on a ton-mile basis.
For trucking, fuel costs in early 2010 accounted for 31% percent of marginal operating costs per mile; driver labor costs for 36%. These proportions have varied considerably in recent years with fuel accounting for 38% in 2008 and 28 percent in 2009. The cost and volatility of fuel prices in the past decade has been a major factor pushing the motor carrier industry to search for more fuel-efficient engines and transmissions, more aerodynamically clean truck shapes, and more efficient head-haul and back-haul routing and dispatching (Brogan et al. 2013).
To make their operations more fuel-efficient, railroads have been moving longer distances between interchanges, buying more fuel-efficient locomotives, using innovative equipment such as aluminum freight cars and lightweight double-stack container cars, and reducing locomotive idling time (Apostolides 2003).
Figure 15 shows the impact of increases in diesel fuel prices on line-haul costs. The fuel-efficient rail and water modes, especially Container on Barge (COB), suffer less from fuel price increases than trucking does. The gap between line-haul costs for truck, versus rail and water widens as fuel prices increase, such that shippers will be able to realize significant savings by diverting to rail and water.
Greenhouse gas emissions directly relate to fuel consumption; moving freight by rail instead of truck lowers greenhouse gas emissions by 75% (Association of American Railroads 2014). Figure 16 shows the relatively low contribution of rail to US greenhouse gas emissions.
Higher fuel prices, the threat of climate change, the push towards energy independence and energy security, and the greening of the supply chain will all create pressure to invest in policies that shift freight from trucks to rail, water and pipelines.
Alterations in trade patterns affect the choices of transportation modes used in this country. For the exports of several countries, such as Canada and Mexico, the United States is a leading destination. This is also the case, to a lesser extent, for imports. Much of the trade between the US and Canada is due to the integration of North American automotive production. The remainder of the trade is either raw or semi-processed materials (e.g., lumber and petroleum products) from Canada, or the exchange of other manufactured products facilitated by strong bilateral relations and the proximity of the two countries. A notable share of the trade with Mexico is exports of automotive products and electronics to Mexico for assembly in Maquiladora factories, and then re-imported into the United States as finished products.
US trade with Asian Pacific countries has grown, although those countries’ imports from, and exports to, the United States represent a smaller share of the total trade of the US compared to Canada and Mexico. As US exports to Asian countries grow, containerized cargo transiting West Coast ports is likely to increase, creating more demands for efficient intermodal services.
The Bureau of Transportation Statistics has identified a number of trends that are affecting international trade and freight mode choice (U.S. Department of Transportation 2003, Bureau of Transportation Statistics 2010). These include:
- US and Foreign Direct Investment: A major factor influencing US trading relations is the outflow of US direct investment abroad, and the inflow of foreign direct investment in the US. These trends are important because investment by businesses could complement the flow of merchandise trade, and affect transportation services carriers, such as shipping lines and airlines. Growth in these investments also results in increased intra-industry and intra-firm trade, as multinational companies establish branch plants or supply chains.
- Changes in US Reliance on Imported Consumer Products: Over the past few decades, as US population and income grew, merchandise trade and freight movements rose greatly. Shifts in age and geographic distribution, immigration, and participation in the workforce have combined to affect consumer tastes for foreign products, thus increasing the demand for traded goods and transportation services. If the US population continues to grow at past rates, and some of the observed shifts in geographic concentrations persist, demand for transportation services will increase, affecting both local freight movements as well as longer distance flows.
- Shift in US Gross Domestic Product (GDP) toward Services: As the structural composition of US GDP shifted toward more services, the nation’s reliance on imports for manufactured goods has increased. It is possible that these changes could continue to influence the volume of US international trade and affect goods movement within the US for many years to come.
- Integration of the World’s Economy: Although societies have traded with each other for millennia, the pace and scale of the integration of the world’s economy during the past five decades may well be unparalleled in history. Today, the world economy continues to change in dramatic ways. Due in part to lower transportation costs, geographic distance no longer protects industries from international competition as it once may have. The global nature of much of manufacturing makes it difficult to determine if a computer is “American,” a car “Japanese,” or a television “Mexican.” Many expect globalization to continue to shape world economic activities, influence the location of goods production and distribution, and ultimately affect the transportation of goods into and out of the US. Even if growth in the volume of freight moved were to taper off, ongoing changes in business logistics, outsourcing, and just-in-time inventory systems that characterize global production could increase the demand for more frequent and smaller shipments.
- Transportation and Telecommunications Technologies: Transportation and telecommunications technologies have contributed to the rapid growth of international trade, helping overcome the resistance of space and time. They have allowed the unparalleled mobility of goods and people. Air and containerized cargo improved merchandise trade dramatically through advances in both vehicles and infrastructure, increasing speed, reliability, and safety, while reducing transportation costs. For telecommunications, improvements in voice, text, and data technologies have allowed fundamental changes in services trade, including transportation services. Improvements in information technologies make it easier to seamlessly coordinate transportation operations across physically distributed transportation networks, facilitate intermodal and multimodal movements of international trade, enhance transportation solutions for freight shippers, and allow significant gains in transmitting preclearance cargo and crew information for security operations.
- Reductions in Trade Barriers: US international trade has expanded globally, in part because of substantial reductions in trade barriers resulting from changes in policy. Reductions in trade barriers included the formation of regional economic groupings such as North American Free Trade Agreement (NAFTA), the European Union, and the MERCOSUR56 (Mercado Común del Sur means Southern Common Market) in Latin America. As trade barriers declined, the relationships between national governments and businesses changed, creating economic conditions that enhanced access to global markets and resources. Significant changes that could affect the economic deregulation of international transportation services, multilateral Open Skies agreements, privatization of infrastructure, and general agreements among World Trade Organization member nations could further facilitate trade interactions.
- Because of these trends, international trade will continue its expected growth, and the demand for improved intermodal access to US ports will rise, particularly at containerized ports in urban areas. Issues and concerns include the condition of local roads accessing ports, at-grade rail crossings, rail drayage time and costs, dredging and channel depths, and availability of truck-only lanes for access to ports.