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Weekly UpdatesTruck service can be any combination, [14] although tank truck deliveries are usually "live" since the cost of stationary silos is so much less than the cost of tank trailers. Rail service is invariably drop and hook with unassisted loading/unloading. [15] The difference in truck and rail service offerings makes comparison problematic. To create parity, this article assumes drop and hook with unassisted loading/unloading for all traffic, with built-in equipment ownership opportunity costs of one day for truck versus a variable number of days for rail equal to the ratio of railcar-to-truck capacity for the equipment type in question (as calculated in Table 2, line C). Another simplifying assumption will be made initially: that shipment lot size can fill a rail car. This assumption will be relaxed for some concluding observations about potential market size.
Urban Trucking Costs
Normative urban truck costs in 1999 for pickup or delivery are estimated in Table 2 for various equipment types. The ratio of railcar capacity to truck capacity is calculated; the pickup or delivery cost for one truck is calculated using variable operating expenses; and the capacity ratio is multiplied times the pickup or delivery cost to obtain the equivalent cost per railcar.
A 1999 survey by Martin Labbe Associates found that the average time elapsed for a drop and hook was 2.83 hours at origin and 2.95 hours at destination. [17] Accordingly, the underlined row in Table 2, which allows three hours for a ten-mile urban trip in, drop and hook time, plus a ten-mile urban trip out, will be used for comparison to rail costs. This row also most closely comports with proprietary data collected by the author when he was in charge of Conrail's Flexi-Flo [R] transloading terminals between 1990 and 1999, and with the Transportation & Inventory Costing model of the Federal Highway Administration's Office of Policy and Development, which assumes an urban intermodal drop and hook charge of $100 plus $1.51 per mile. The weighted average in the three-hour row for the six equipment types, based on the prevalence of each equipment type, [18] is $334. As previously stated, this railcar-equivalent out-of-pocket cost does not include overhead items such as sales, administrative, billing, and collecti on costs. [19]
Urban Rail Costs
The rail costs fixed for each eight-hour local crew, fixed for each locomotive day, and variable with car usage are estimated in Table 3. Each crew's costs of $668 will be spread over the number of cars it handles. Daily engine ownership of $125 will be spread over one, two, or three crews. Car ownership will be $42.66, the weighted average ratio of car capacity to truck capacity (2.89) times the weighted average per diem ($16.16). Car maintenance will be miles traveled times 8.71 [cts.] the weighted average.
To parallel the truck calculation, rail overhead is not considered for sales, administrative, billing, and collection costs. However, "fixed" costs for fight-of-way maintenance need to be considered for rail. Take the worst-case scenario, where the right-of-way is not used for through trains, so that the entire cost of track must be covered by local traffic. [21] The cost to maintain this track, not build track, is the relevant cost in this case because the decision to build new track would not be fixed but discretionary based on special circumstances. Industrial rail lasts indefinitely if properly maintained, and normalized annual maintenance for Class I track (10 mph maximum) is only $5,000 per mile. [22] Therefore, track ownership and maintenance is a minor consideration for urban rail (assuming that opportunity costs for existing track structure components and right-of-way are insignificant).
Comparison: Truck versus Rail
Urban rail costs discussed earlier produce the carload cost permutations in Table 4. These are comparable to the urban truck trip-sensitive costs calculated earlier. Everything depends on how many miles of track must be maintained and traversed and how many carloads can be handled per crew shift.
The permutations below the line in Table 4 show the area where the average urban rail cost is less than the weighted average urban rail-equivalent truck cost of $334. That is, where rail volume exceeds four carloads for a crew on twenty miles of industrial track, rail would be expected to have an economic advantage. This is despite the conservative nature of rail assumptions, such as one crew handling only up to ten cars at a time, and the use of union rates for rail and average rates for truck. Rail is even superior where it is least competitive -- general traffic limited by cubic capacity (where the rail-equivalent truck cost in the three-hour row in Table 2 was $169) over a large range of rail cost permutations. [23]
Sensitivity analysis with various cost factors shows the rail urban advantage to be very robust, despite variations that could alter a particular analysis, such as the following:
* those that might decrease truck costs, such as when the trailer is not dropped off and picked up later, but the driver stays during "live" loading/unloading;
* those that might increase truck costs, such as detention for the wait during "live" loads (which is often imbedded in a linehaul quote and not explicity stated);
* those that might decrease rail costs, such as when the shipper and receiver are served by the same rail crew (i.e., same "spoke" from the "hub"), or when rail motive power could be utilized during multiple shifts, or when labor is non-union; and
* those that could increase rail costs, such as when there is excessive rail circuity, new track construction, or the move is intra-terminal (all in one metropolitan area) so that an interchange between railroads or different "hubs" is required.
These and innumerable other move-specific factors change the economic complexion of each particular move, but do not disturb the magnitude of rail's range of expected advantage for carload lots. It should be a common occurrence to find cases where capital projects can be justified and the fixed rail plant ratcheted outward.
Comparison: Rail Intermodal versus Rail Direct
The rail-direct cost advantage is even more pronounced versus intermodal traffic. Urban intermodal costs would exceed urban truck-direct costs as shown in Table 5. Intermodal costs exceed urban truck costs by row C in Table 5, making rail-direct just that much more economical when compared to intermodal. It is the available speed, reliability, and third-party service options of intermodal which make it currently attractive, not its inherent cost advantage over rail direct.
URBAN RAIL SERVICE POTENTIAL
A hub-and-spoke system like the one Federal Express invented for air freight would provide next-day or better service for rail moves within an urban area. If all local crews worked out of one yard for each urban area, if each customer were served at least once a day, and if all cars were classified each night, intra-urban rail service would be no worse than next-day. Table 4 on Pickup or Delivery Cost per Railcar anticipates the costs for up to three switches per day on each "spoke" in order to provide daily or better frequency of service.
URBAN DEVELOPMENT ISSUES
As urban areas sprawl outward, road congestion grows geometrically. A 1997 Federal Highway Administration study estimated that 60 percent of urban interstate paving is in "fair" condition. [25] The Department of Transportation estimates that "[b]etween 1985 and 1993, delays jumped 41 percent in the Washington, DC area, 39 percent for Greater New York City, 30 percent for Metropolitan Chicago, 21.5 percent for San Francisco, and 16 percent for Los Angeles." [26] More road use is not being met with sufficient road funding. The same DOT report says, "Industry experts estimate that there is a $300+ billion investment shortfall for highways and bridges alone.... Given current budget and tax pressures, indications are there will be no new public investment program to close these investment gaps." [27] A separate DOT report estimated that 1996-2015 annual highway investment of $80 billion would be optimal, with $43 billion of annual investment necessary just to maintain 1995 conditions. [28] If TEA-21 is fully fund ed, it will provide an average of only $26 billion in annual highway funding from 1999 to 2005. [29]
We are entering a new era of potholes, rough pavement, extended-hour gridlock, bridge weight restrictions, no-truck lanes and zones, and truck curfews. Expanded car and small truck use and restricted public budgets combine to spell cost increases for the future users of urban roads. Conversely, railroads control their own right-of-way.
THE NEW PARADIGM
We have arrived at a new freight paradigm, which will become more and more pronounced:
Railroads serve short-haul freight markets more inexpensively than trucks when lots are sufficiently large (such as truckload quantities), when there is sufficient density of business (such as in urban areas), and when origin and destination are reached by rail right-of-way.
Sanity Check
The new paradigm immediately begs the question: How can these mathematics be right, given the seeming reality of unchangable current belief? [30] This is a question better answered by behaviorists and students of human nature than by mathematicians and economists. Returning to Charles Peirce, we are told that perhaps the most pragmatic force of all is the power of prior belief:
...[T]he instinctive dislike of an undecided state of mind, exaggerated into a vague dread of doubt, makes men cling spasmodically to the views they already take. [31]
It is not hard to understand why truckers are only too happy to view their mode as superior for shorter distances. Shippers have no reason to question this, since they are not solicited for rail short-hauls, not provided rail service for short-hauls, and not afforded a staff to research administratively complex projects like building or reactivating sidetrack infrastructure (particularly when all the initial benefit usually accrues to the shipper who pays the freight). Shippers are often left without the option of using rail even if they want to, a solvable problem obscured by the old paradigm.
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