Congestion Takes a Holiday

By Walter Weart

Testifying to the lack of congestion is the "Port Tracker," a report which includes six-month forecasts, monthly benchmarks, and a port "Congestometer" to indicate the projected situation for intermodal traffic through the largest North American container ports. Port Tracker was developed jointly by Global Insight (www.globalinsight.com) and the National Retail Federation's (NRF, www.nrf.com) Strategic Supply Chain Council.

According to the most recent forecast, August is expected to reach 1.53 million twenty-footequivalent-units (TEUs), breaking last October's record of 1.51 million TEUs. While September is forecast at 1.49 million TEUs, October—traditionally the busiest month of the year as retailers bring in merchandise for the holiday sales season—is forecast at 1.54 million TEUs.

"Even though we are forecasting a high volume of container traffic in July and an even higher level in August, we don't expect any serious problems," say Paul Bingham, principal for Global Insight, Inc. Bingham's view corresponds with those expressed by rail carriers and others in the intermodal community.

"Right now, we are in decent shape with capacity as good as it has been for a number of years," says Steve Branscum, group vice president of consumer goods marketing for the Burlington Northern Santa Fe Railroad (BNSF, www.bnsf.com). "We're doing just fine and are even experiencing some modest growth," agrees Joni Casey president and CEO of the Intermodal Association of North America (IANA, www.intermodal.org).

What led to this turnaround? A more important question is, how did we get into this situation in the first place?

One place to look for answers is a report published in 2005, "Freight Transportation Infrastructure Survey: Causes and Solutions to the Current Capacity Crisis," which was prepared by Chris Caplice and Edgar Blanco with the Cambridge, MA-based Center for Transportation & Logistics of the Massachusetts Institute of Technology (www.ctl.mit.edu). "The report was an outgrowth of the spring 2005 MIT Innovations in Transportation Symposium which is an annual event. During this meeting, there was a great deal of discussion about congestion and capacity and how to handle the resultant uncertainty in supply chains," says Caplice.

According to the MIT report, there was a significant gap in perception of the problem between various government agencies, the shippers, and their service providers. "We wanted to gain an understanding of this "perception gap" so we conducted a survey of more than 500 shippers, carriers, third party service providers, and government agencies," says Caplice

The perception survey asked three questions: What were the root causes of the freight congestion and capacity crisis? What were the impacts on business due to the crisis? And, what actions are being, or should be, taken to alleviate these impacts in the future?

To no one's surprise, the three most widely cited reasons were highway congestion near large cities, growth in off-shore sourcing, and port congestion—particularly on the West Coast. Caplice points out that only the second one is a real "cause" while the other two are examples of where the congestion occurred and how it was felt the most.

"Our research has led us to believe that we are at a critical juncture in the development and health of the US freight transportation network. The current capacity crisis required that we develop a two-pronged approach, both short term and long term," said Caplice.

The results of the study pointed out that in the short term, shippers and carriers would need to find better ways to locate "hidden capacity" that is available within the system without any additional infrastructure investments. "We felt that this will require collaboration between shippers, carriers, receivers and other parties involved in the movement of goods from production to consumption," said Caplice.

It appears that the shippers and carriers took the report's message to heart because that is what happened.

"We saw this approach implemented and by utilizing the latent capacity in the network, we have adequate capacity to handle more volume than 2004 without the resultant problems we had then," said Bingham.

"Things like PierPASS and more recently, the establishment of container chassis pools are just two examples of how working together has enabled us to more effectively use the existing capacity to move more traffic," says Casey. (PierPASS is a program at the ports of Los Angeles and Long Beach designed to shift freight traffic to off-peak hours to reduce road congestion and speed throughput at the ports.)

In a recent announcement, PierPASS Inc. (www.pierpass.org) stated the program has diverted more than 5 million truck trips from peak daytime hours since July 2005 and this has eliminated costly bottlenecks at the Ports of Los Angeles and Long Beach and reduced gridlock on area freeways.

"Port operators have put considerable investment into their facilities and into optimizing flow to and from the ports while West Coast ports introduced pricing schemes aimed at distributing the load away from peak times," reiterates Rosalyn Wilson in her 18th Annual State of Logistics Report.

Other steps which have been taken include the realignment of supply chains. "We have seen port diversions and distribution centers being re-aligned and handling more freight," agrees Casey.

"Everyone--both shippers and carriers—has been very innovative in changing supply chains by doing, for example, such things as moving boxes inland or utilizing new distribution centers" says Bill Matheson, president of Schneider Intermodal Services (www.schneidernational.com/intermodal). He adds that the lessons learned in 2004 led to the creation of "relief valves" that have helped move more freight without the past congestion.

This shipper-carrier cooperation, according to Caplice, recognizes that the days of improving operations internally are gone. All improvements occur at the interface between organizations and modes. These are important steps to take but they are only good for short-term improvements.

Another factor in the current favorable intermodal outlook is the investment made by the railroads. "The railroads' large investments in the past few years in track, terminals, and locomotives and have helped them move more traffic more efficiently," says David Yeager, President of the Hub Group.

However, not everyone agrees that the state of transportation capacity is favorable and there are signs of problems. "I think overall capacity is adequate but we are seeing more serious congestion problems in larger cities," say John Ficker, President of the National Industrial Transportation League (NITL www.nitl.org).

"I think capacity is tenuous at best in relation to the ports and we are approaching a critical point where action must be taken to accommodate the forecast growth," said Kurt Nagle, President of the American Association of Port Authorities (AAPA, www.aapa-ports.org).

In 2000, The Federal Highway Administration (FHWA, www.fhwa. dot.gov) released the original version of its Freight Analysis Framework (FAF1) which provides estimates for 1998 and forecasts for 2010 and 2020. The new version, FAF2, provides estimates for 2002, the most recent year, plus forecasts through 2035 and indicates a very significant growth in freight volumes across all modes.

FAF2 includes pipelines while FAF1 does not, so comparisons between the two are not always possible. But, FAF2 shows 92% growth in tons from 2002 to 2035 with imports and exports growing slightly faster at 112%. Further compounding the congestion problem is the fact that vehicle-miles traveled (vmt) increased by 80% while lane-miles of public roads increased by only 2% between 1980 and 2000—with little new construction since then.

While FHWA is only now beginning to analyze locations of truck corridors and highway congestion, they expect the general patterns to be similar to the old FAF maps, but with more widespread future congestion.

As with FAF2, the research conducted by MIT's Center for Transportation and Logistics shows the projected volume growth will require significant action to avoid not only the return of the congestion problem but much more severe difficulties in the future. "Our research has led us to believe that we are at a critical juncture in the development and health of the US freight transportation network," says Caplice.

While it appears that shippers and carriers working together, combined with the investments and procedural changes, have created some short term relief, the future will require, in Caplice's words, longer term solutions involving more government interaction with shippers and carriers at all levels of government.

"Congestion and capacity issues have not really been resolved but rather we have just been given a breather as the infrastructure needs immediate attention and long-term solutions as little if any capacity has been added to the nation's highway system," says Wilson.

Even though the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEALU) does not expire until 2009, there is already a significant amount of effort being put into developing programs to attack freight-related congestion. None of the programs specifically addresses potential intermodal congestion, but since all of them will examine the transportation infrastructure, intermodal issues would benefit.

One group working on solutions is the American Association of State Highway and Transportation Officials (AASHTO, www.transportation.org). They have just produced a report titled "America's Freight Challenge" which was delivered to the National Surface Transportation Policy and Revenue Study Commission as one of a series of reports addressing various aspects of the nation's transportation infrastructure. The freight report presents a detailed look at the reasons for congestion as well as AASTHO's recommendations.

"Investment in the infrastructure that moves freight is important and it is essential to understand that the US system is part of a global, multi-modal system which cannot fail if we are to remain competitive," says Leo Penne, program director, Intermodal and Industry Activities. The AASHTO report examines all modes and, using the I-95 corridor as an example, Penne points out that modal investment requires an understanding of both intra- and intermodal dependencies.

Another group working on solutions to congestion problems is American Road & Transportation Builders Association (ARTBA www.artba.com) and they have developed a program called "Critical Commerce Corridors" which the group refers to as the 3C program. It would be financed with new, freight-related, dedicated revenue streams that would improve freight movement, reconstruct and upgrade the current Interstate Highway System, international gateways, eliminate bottlenecks, and provide the new capacity and intermodal connections necessary for competitiveness.

In order to finance the 3C program, ARTBA is proposing freight-based user fee(s) which could include a bill of lading tax, customs fees, a mileage tax, a freight transaction fee, or a segregated diesel fuel fee with statutory "budget firewalls" to separate 3C and Highway Trust Fund revenues.

"We believe augmented investment in the core highway and transit programs, and creation of ‘Critical Commerce Corridors' to improve US freight movement and emergency response capabilities should be the driving forces behind the development of a new federal transportation vision," says Jeff Solsby, ARTBA director of public affairs. "The freight challenge before us is about more than congestion, bottlenecks and delayed deliveries. It is about securing America's place in the global competitive market. If we fail to act in a meaningful way, our position as world economic leader may be at risk."

"The longer term solutions involve more government interaction with shippers and carriers as well as involvement with state and federal government, and we need a national agenda that includes all stake holders," agrees Caplice. The private sector role has never been more important and, according to Global Insights' Bingham, public/private partnerships will be needed to solve some of the problems.

The FHWA defines public-private partnerships as contractual agreements formed between a public agency and private sector entity that allow for greater private sector participation in the delivery of transportation projects. "There has been increased dialog on the part of carriers and shippers and their customers about long-term solutions to our infrastructure crisis, with major players ready to ante-up to help foot the bill as everyone realizes that only a solution that involves all the players will succeed," says Wilson.

One of the largest public/private partnerships was the recently proposed I81 Crescent Corridor, a 1,400 mile rail line between Louisiana and New Jersey, that would divert truck freight to rail. The estimated cost of the corridor is in excess of $2 billion. The plan involves upgrading and expanding existing rail lines to accommodate more and faster trains; purchasing new locomotives and railcars; and building new terminals in Maryland and Tennessee and improving others. "The NS is fully prepared to invest—invest a lot of money in fact—up to a point where we earn reasonable rates of return on the projects. But there will be a gap between that number and what the entire project costs," says Michael R. McClellan, vice president of automotive and intermodal marketing for Norfolk Southern. He adds that the railroad is looking for the public sector financing to make up the short fall of what the railroad would contribute.

Another important role of government is providing incentives to invest through tax policy. "We hope that the Freight Rail Infrastructure Capacity Expansion Act of 2007 which would provide incentives to encourage investment in the expansion of freight rail infrastructure capacity will become law," says BNSF's Branscum. He adds that shippers as well as rail carriers would benefit because the incentive would apply to shippers' construction projects that add capacity. As proposed, the legislation would give a 25% tax credit to businesses that invest in new freight rail infrastructure property that expands rail capacity. Examples of projects eligible for the credit include raising tunnel clearances to accommodate double-stacked containers, constructing new intermodal terminals, upgrading single track lines to double or triple track and other such improvements.

But even with public private partnerships, the role of the government in solving the freight transportation is still critical. Without involvement at all levels the problems will not be solved. "The role of the Federal government is to make freight transportation needs a high priority, to develop a coherent national strategy for freight transportation in conjunction with the users of the system, and then to ensure that the right people, organizational structures, processes and resources are in place at all levels of government to execute that strategy," says Janet F. Kavinoky, director of transportation infrastructure for the US Chamber of Commerce.

FHWA officials say it uses the FAF to help estimate future investment needs, analyze policy proposals, and take freight patterns into account as the department pursues its congestion initiatives. The information helps to understand current and anticipated pressures on the freight transport systems, notes one FHWA official.

Further proof that the federal government "gets it" was the creation of The National Surface Transportation Policy and Revenue Study Commission as part of SAFETEA-LU. The Commission is comprised of 12 members, representing all stakeholders and included representatives of the rail and motor carrier community as well as at least one large shipper. The Commission is working to examine not only the condition and future needs of the nation's surface transportation system, but also short- and long-term alternatives to replace or supplement the fuel tax as the principal revenue source to support the Highway Trust Fund over the next 30 years.

Regardless, it will take all participants and stakeholders working together to solve the capacity issues in the future. Even if the FAF is off by 50%, the amount of freight that will have to be moved will be beyond the capacity of the current network. Hopefully, nothing will be off the table, whether it is tolling, size and weight, fuel tax and other income producing ideas, or public investment in private infrastructure—if we want the same flow of goods as we have today.

Walter Weart has more than 40 years' experience in transportation and logistics, including senior management positions with a consumer goods manufacturer, motor carriers, rail carriers and an agency of the US Department of Transportation.

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