Freight Trends and Freight Rail presented to Delaware Valley Goods Movement Task Force 10 th Anniversary Meeting Philadelphia presented by Lance R. Grenzeback Cambridge Systematics, Inc. October 9, 2002 Slide 1
Presentation Evolution of the freight transportation system Freight forecasts Congestion, capacity, and logistics productivity concerns State of the freight-rail system Freight-rail policy and program initiatives Slide 2
18th Century/Sail Era Colonial economies were built on water transport; it cost as much to move a ton of goods 30 miles inland as across the Atlantic; 2 out of 3 settlers lived within 50 miles of the Atlantic coast; coastal and Atlantic trade dominated Slide 3
19th Century/Rail Era Regional economies were built on rail technology that freed business and industry from ports; east-west rail routes were built to follow development of the Midwest and West; domestic trade dominated Slide 4
20th Century/Truck Era National economy was built on truck and highway technology that freed business and industry from rail terminals; an east-west and north-south Interstate highway grid was built to connect cities and regional economies; Pacific and Gulf trade expanded Slide 5
21st Century/Information Era U.S. global trade is being built on information, telecommunications, and low-cost, long-haul transport by water, rail, and air; north-south NAFTA trade is expanding rapidly 600,000 500,000 400,000 300,000 200,000 100,000 Millions of Real (2000) Dollars - Atlantic Coast Canadian Border Pacific Coast Gulf Coast Mexican Border 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950* 1960 1970 1980 1990 2000 Slide 6
Goods Movement Today U.S. freight system moved 14 billion tons of freight valued at $11 trillion over 4.5 trillion ton-miles in 2000 12,000 10,000 Truck 78% Truck 88% 8,000 6,000 4,000 2,000 - Rail 16% Millions of Tons Truck 60% Water Rail 6% 28% Water 12% Billions of Ton-Miles Source: Reebie TRANSEARCH and FHWA Freight Analysis Framework Project Air 5% Rail 6% Billions of Dollars Water 1% Slide 7
Freight-Truck Traffic Trucks moved 11 billion tons valued at $9.5 trillion over 2.6 trillion ton-miles in 2000 Tons (millions) Slide 8 Source: Reebie TRANSEARCH and FHWA Freight Analysis Framework Project
Freight-Rail Traffic Freight-rail moved 2 billion tons valued at $600 billion over 1.2 trillion ton-miles in 2000 Tons (millions) Slide 9 Source: Reebie TRANSEARCH and FHWA Freight Analysis Framework Project
U.S. GDP and Trade History Gross Domestic Product growth has averaged 3.2 percent per year; trade in goods and services is now equivalent to 27 percent of Gross Domestic Product $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 100 90 80 Gross Domestic Product (billions 1996 dollars) Trade as Percentage of GDP 70 60 50 40 30 20 10 $0 0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 Slide 10
U.S. Freight Tonnage Forecast, 2000-2020 With moderate economic growth (e.g., 3.1 percent CAGR), import/export freight tonnage could double by 2020 and domestic freight tonnage could increase by about 60 percent 30 Freight Tons (billions) 25 20 15 10 5 Slide 11 0 Source: Transearch and FHWA Freight Analysis Framework Project 1998 2010 2020 Domestic Import/Export
Photo: Port of Portland Import Program Slide 12
Congested Highways, 2000 Congestion disrupts truck-freight service by making trips slower, less reliable, and more expensive Slide 13 Source: CSI based on FHWA Freight Analysis Framework Project and HPMS data
Potential Congested Highways, 2020 Without additional capacity or improved productivity, logistics costs will rise Slide 14 Source: CSI based on FHWA Freight Analysis Framework Project and HPMS data
Total Logistics Cost Trend Logistics productivity gains have been a key engine behind US economy growth, but gains have stalled with total logistics expenditures at about 10 percent of Gross Domestic Product Percentage of GDP 18 16 Administration Transportation Inventory 14 12 10 8 6 4 2 0 77 79 81 83 85 87 89 91 93 95 97 99 Source: Cass/ProLogis 12 th Annual State of Logistics Report, 2000 Slide 15
Freight and Public Policy Issues Do the truck and rail freight systems have the capacity to handle the growing volume of freight even if mode shares remain constant? 2000 Rail Tons 2000 Truck Tons 2020 Additional Rail Tons 2020 Additional Truck Tons Do the public benefits of a rail-freight system warrant public investment to expand rail-freight capacity? Slide 16
State of the Rail Industry Today The rail industry today is stable, productive, and competitive with enough business and profit to operate, but not to replenish its infrastructure quickly or grow rapidly Cost of rail infrastructure is huge and relatively fixed Competition among railroads and with trucking has driven rail rates down Shippers and the economy have benefited, but Railroads are not attracting long-term investment Market economics will continue to streamline and downsize the rail system Slide 17
Rail Network Today Today s rail network has been rationalized and downsized to a core network that is descended directly from the 19th Century design. Seven Class I railroads now originate 84 percent of national rail traffic and generate 91 percent of railroad revenue. Miles of Rail Line in the U.S. 250000 200000 150000 100000 Slide 18 50000 0 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 Source: Louis Thompson/World Bank Class I Railroads Rail Line Local Railroads Regional Railroads Deregulation
Railroad Productivity Railroad productivity has improved dramatically 300 250 200 150 Index 1981 = 100 Productivity Volume 100 50 0 64 70 76 82 88 94 '00 Source: Railroad Facts, AAR Revenue Price Slide 19
Railroad Return on Investment Railroads return on investment improved through the early 1990s, but is now trending downward; ROI is still below the cost of capital; productivity benefits have gone to shippers more than to investors Slide 20 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Source: AAR Class I Railroad Return on Investment vs. Cost of Capital Cost of Capital Return on Investment 81 83 85 87 89 91 93 95 97 99
Mid-Atlantic Rail Network Major Links and Ownership Slide 21
Mid-Atlantic Rail Program $6.2 billion in improvements $2.4 billion near-term program (within 5 years) - Buildable projects where current demand exceeds supply - Planning projects with long lead times - $620 million of quick-start projects ready now $1.9 billion medium-term program (5 to 10 years) - Important choke points needing design and environmental approvals $1.9 billion long-term program (10 to 20 years) - Growth Slide 22
Mid-Atlantic Rail Network Program Program identified $6.2 billion of public-private improvements over 20 years; the near-term program covered $2.4 billion of bridge, clearance, capacity, and connector project within 5 years Slide 23
Mid-Atlantic Rail Network Program (continued) Near-Term Program: $2.4 billion within 5 years Slide 24
Two Tracks Forward Market-Driven Evolution or Policy-Driven Expansion Market-Driven Evolution A rail industry that continues to be stable, productive, and competitive with enough business and profit to operate, but not to replenish its infrastructure quickly or grow rapidly Public-Policy-Driven Expansion A rail industry that provides cost-effective transport needed to serve national and global markets, helps relieve pressure on overburdened highways, and supports social, economic, and quality-of-life goals Slide 25
The Bottom Line Freight volumes are growing with the economy; this growth will strain the nation s freight system Rail freight productivity is challenged by congestion and capacity choke points along national corridors, at intermodal terminals, and at urban rail interchanges Public rail investment historically has treated the bottom of the system: grade crossings, branch lines, and commuter rail services Present need is to treat the top: nationally significant corridors, intermodal terminals and connectors, and urban rail interchanges Slide 26
The Bottom Line (continued) Market-driven evolution will be stable and productive, but the rail-freight system will slowly lose market share to trucks, which will stress congested highways Policy-driven expansion will accommodate economic growth and relieve some of the pressure on highways Without coordinated public and private action, congestion and capacity constraints will weaken the freight industry, the economy, communities, and the environment The public and private freight community must advance public policy options that improve the productivity and security of the rail freight system as an integral part of the national freight system Slide 27
Freight Trends and Freight Rail Contact Information: Lance R. Grenzeback Cambridge Systematics, Inc. 150 CambridgePark Drive, Suite 4000 Cambridge, MA 02140 617.354.0167 lgrenzeback@camsys.com Slide 28