freight: are innovative solutions the answer?

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Freight: Are Innovative Solutions the Answer?. Presentation to the Ohio Conference on Freight. Pamela Bailey-Campbell Vice-President Public-Private Initiatives September 18, 2007 PB. Topics. National and global freight picture Recent freight improvements from around the US - PowerPoint PPT Presentation

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Freight: Are Innovative Solutions the Answer?

Pamela Bailey-CampbellVice-President Public-Private Initiatives

September 18, 2007

PB

Presentation to the Ohio Conference on Freight

PB 2

Topics

• National and global freight picture• Recent freight improvements from around the US• The challenge of financing freight projects• Solutions for Ohio

PB 3

The big picture

PB 4

The continuing explosion in freight demand,…

0

2

4

6

8

10

12

2005 2015 2025 2035

Trillion Freight Ton Miles

Air

Other

Water

Rail

Truck

AASHTO Freight Transportation Bottom Line Report, 2006

PB 5

…propelled by robust underlying trends,…

• Growth in consumption patterns

• Changes in logistic practices

• Growth in Chinese imports

• Increased in cross-border trade

PB 6

…combined with current capacity shortages already apparent in our nation’s infrastructure,

PB 7

…implies an enormous funding challenge for a national transportation system approaching deficit spending

Cummulative National Highway and Transit Needs and Revenues (2008-2020)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Cummulative Needs Existing Sources of Revenues

Yea

r o

f E

xpen

dit

ure

Do

llars

(B

illio

ns)

$450 billion gap to maintain

$1.2 trillion gap to improve

3.7 trillion to “maintain”

4.5 trillion to “improve”

3.3 trillion in Resources

Source: Based on Future Highway and Public Transportation Finance Study, US Chamber of Commerce (2005)

PB 8

Freight interests are ascending in the federal infrastructure funding agenda.

• SAFETEA-LU went further than previous federal bills in providing for freight interests explicitly

• Industry groups are pushing freight issues to the forefront in the next federal transportation program

– Coalition for America’s Gateways and Freight Corridors’ Freight Transportation Fund (FTF)

– ARTBA’s “Critical Commerce Corridors”

– AASHTO’s “Transportation Future”

PB 9

Potential new rail intermodal

Facilities?

But funding challenges persist for needed projects across the US. Ohio is no exception.

Cincinnati and Columbus and Toledo freight

bottlenecks

Improved Port and Air Cargo

Landside Connections Expansions of

Lake Erie Ports

Highway expansions to accommodate

increasing truck traffic of I-70/71

PB 10

TradeTrade

Patterns

Patterns

ConsumptionConsumption

PatternsPatterns

Capac

ity

Capac

ity

Infrastr

ucture

Infrastr

ucture

Modal

ModalTime/Cost

Time/Cost

Econ

Econ

Global

Global

Patterns

Patterns

Shipping

Shipping

Intermodal

Intermodal

Ship. Data

Ship. Data

Freight feasibility is driven by global dynamics.

• Changes in maritime patterns

• Panama Canal expansion

• Efforts to provide additional capacity on the West Coast

• Efforts to mitigate congestion at national and regional bottlenecks such as Chicago

PB 11

Example of integrating global trends in developing investment strategies: The Panama Canal

• Far-reaching analysis of international markets

• Shifted focus from managing physical infrastructure to “right-sizing” the investment

• Examined factors such as:– Rapid rate of globalization

– Manufacturing shifts to low cost locations: China, Cambodia, and Vietnam

– Shipper logistics requirements to meet growth in demand

– Increases in ship sizes

• Established financial, environmental and operational implications to drive a capital investment plan and financial model

PB 12

Public policy at all levels has a pervasive impact on all freight modes.

Freight Modes Policy/Regulatory Focus Potential Impacts on Freight Costs, Speed

Trucking Size and weight restrictions

Emissions controls

Hours of service rules

Limited payloads/rerouting

Higher vehicle costs

Reduced driver productivity

Rail/Intermodal STB – rates, service regulations

Intermodal connections

Funding/subsidy/credit support

Rail abandonment, operational issues

Rail mode share

Rail investment

Maritime / Port Operators Labor regulations

Container security

Throughput, service interruptions, labor costs

Higher terminal costs, reduced throughput

Air Cargo Environment – noise restrictions Limits development of new air cargo hubs

PB 13

Solutions from around the US

PB 14

What are states doing to improve intermodal links?

PB 15

The context for freight Public-Private-Partnerships is framed by how responsibilities are distributed.

Sector Infrastructure Operations

Water Public / Private Private

Rail Private Private

Truck Public Private

PB 16

Freight PPP Finance models

Model Example

Public sector provides up-front funding through grants and loans; private sector repayment is through user fees

Shellpot bridge

Investment fully paid by the public sector; private sector provides in-kind contributions

North Carolina Railroad Improvement Program

Public-private funded; funding shares agreed to between each sector

ReTRAC

Concessions: private sector financing and long-term lease or ownership

Texas Pacifico Rail Line

Source: Based on USDOT FHWA Report Financing Freight Improvements, January 2007

PB 17

Freight Finance Cases: Alameda Corridor

• Project cost $2.4 billion

• Port access, highway rail-crossing elimination, rail construction

• Constructed by the Alameda Corridor Transportation Authority (ACTA)

• Completed 2002

Funding Source Amount ($M)

US DOT Loan $400

Port of LA / LB $394

Los Angeles Metropolitan Transit Authority

$347

Federal / state / interest Income

$130

Revenue bonds backed by container fee

$1,160

PB 18

Freight Finance Cases: Chicago’s CREATE

• Project cost $1.5 billion (Phases I & II)

• Rail separation, highway crossing, rail rehabilitation & construction, upgrade signaling systems

• Sponsored by Illinois DOT, City of Chicago, METRA, Union Pacific, Burlington Northern Santa Fe, Norfolk Southern, Canadian National, Canadian Pacific, and CSX

• Project implementation has begun with limited funding

Funding Source

(Phase 1 Commitments)

Amount ($M)

FHWA $100

Illinois DOT $100

City of Chicago $30

Railroads $212

PB 19

Freight Finance Cases: Heartland Corridor

• Project Cost of $309 million

• Vertical clearances, intermodal facilities, rail relocation

• Sponsored by Norfolk Southern, Virginia DOT, Ohio Rail Development Commission

• Construction starting

• Connections to Rickenbacker

Funding Source Amount ($M)

Federal $110

VA Rail Enhancement Fund

$48.2

Governors Transportation Funds

$5

VA Match to Federal Funds

$3.7

ORDC grant $0.8

Norfolk Southern $49.8

PB 20

Freight Finance Cases: German High Speed Rail

• Germany’s state-owned rail (Vorsprung durch DB)

• Hartmut Mehdorn (CEO) turned chronic loss-making railway into powerful international business

• Next year offer 30% of shares to public

• World-class logistics company

• Key: control of 90% of rail network & freight

PB 21

The challenge of financing freight projects

PB 22

One barrier to freight projects is sheer complexity.

• Multitude of stakeholders and interests

• Multi-state and multi-jurisdictional issues

• Complicated planning & environmental process

PB 23

Another challenge is translating public and private benefits analysis into a workable financing plan.

0

500

1000

1500

2000

2500

3000

0% 20% 40% 60% 80% 100% 120%

Percent Paid by Railroads

Tota

l Pro

ject

Cost

s ($

Millions)

CREATE22,812,500 cars

Alameda2,007,500 cars

Sheffield flyover11,406,250 cars

Argentine Connection3,650,000 cars

Shellpot358,000 cars

ReTRAC1,095,000 cars

PB 24

Understanding stakeholder interests: railroads

• Will pay for improvements when they see clear business benefits

• Challenged to earn cost of capital

• Cautious about receiving public assistance

• Have strong competitive interests

PB 25

Understanding stakeholder interests: truckers

• Have rate structure allowing for fuel costs but not tolls

• Independent truckers have separate view from large shippers

PB 26

Understanding stakeholder interests: businesses

• Can be powerful supporters of freight improvements if they – Decrease congestion,– Increase economic activity, and – Lower transportation and logistics costs.

• Example: Dell’s ultimatum to Austin area

PB 27

Understanding stakeholder interests: public agencies

• Agencies are now being challenged to effectively incorporate freight into planning process

• Need to meet environmental and transportation objectives

• Economic development is also an objective in some cases

PB 28

Understanding stakeholder interests: shippers

• Shippers are taking control of how routing decisions are made– Wal-Mart

• Value for shippers can mean money for projects– Time savings– Increased service– Reliability

PB 29

Freight PPP Lessons

• Educate stakeholders as to each party’s interests and goals

• Consider relative benefits compared to distributed costs

• Understand strings on funding

• Establish environmental process and issues early

• Deal with expectations in general

PB 30

Opportunities for Ohio

PB 31

Ohio is a nexus for national freight movements

PB 32

Ohio freight opportunities

• Develop a model multi-modal freight system

• Expand air cargo hubs

• Expand ports to capture growing freight demand and international trade

PB 33

Ohio freight opportunities (continued)

• Truck-only toll lanes

• Intermodal rail facilities being planned as part of Heartland corridor

• Rail improvements to relieve growing pressure on Chicago hub

• Air cargo development, possibly modeled on Alliance facility in Dallas

• Increased market share for Great Lakes / St. Lawrence Seaway system ports

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