Urban freight economics: A new rail paradigm for large lots

Transportation Journal

Volumn 40, Issue 3, 2001, Pages 1-15

  Erickson Jr , Thomas F ^a  

^a Rail Cents Enterprises Inc   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0035285386     PISSN: 00411612     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (54)

1. 1 1998 truckload revenues (i.e., not including less-than-truckload) are estimated at $290 billion as follows: U.S. Census Bureau, 1997 Census of Transportation, Table 1 Eno Transportation Foundation, 1998 est. General freight trucking, for-hire, local truckload $8.46 billion local truck: $144 billion - = 69.1% ⇒ × 69.1% General freight trucking, for-hire, total local $12.25 billion $100 billion (local truckload) General freight trucking, for-hire, intercity T/L $51.14 billion intercity truck: $283 billion - = 67.2% ⇒ × 67.2% General freight trucking, for-hire, total intercity £76.15 billion $190 billion (intercity truckload) Total 1998Truckload: $290 billion
2. 2 Charles Sanders Peirce, "First Paper - The Fixation of Belief" from "Illustrations of the Logic of Science," Popular Science Monthly (November, 1877): pp. 1-15.
3. 3"...[A] paradigm is 'the basic way of perceiving, thinking, valuing, and doing associated with a particular vision of reality. A dominant paradigm is seldom if ever stated explicitly; it exists as unquestioned, tacit understanding that is transmitted through culture....'" Willis Harmon's definition in An Incomplete Guide to the Future, as quoted by Joel Barker in Paradigms, the Business of Discovering the Future (New York, N.Y: HarperCollins Publishers, 1992), pp. 31-32.
4. 3"...[A] paradigm is 'the basic way of perceiving, thinking, valuing, and doing associated with a particular vision of reality. A dominant paradigm is seldom if ever stated explicitly; it exists as unquestioned, tacit understanding that is transmitted through culture....'" Willis Harmon's definition in An Incomplete Guide to the Future, as quoted by Joel Barker in Paradigms, the Business of Discovering the Future (New York, N.Y: HarperCollins Publishers, 1992), pp. 31-32.
5. 4 John R. Meyer, Chairman, Task Force on Railroad Productivity, "Improving Railroad Productivity, Final Report" to The National Commission on Productivity and The Council of Economic Advisers (November, 1973), p. 159.
6. 5 John Meyer, Morton Peck, John Stenason, and Charles Zwick, The Economics of Competition in the Transportation Industries (Cambridge, MA: Harvard University Press, 1959).
7. 6 Conversely, Meyer's studies of urban passenger economics were not generally accepted. In 1965 he co-authored with John Kain and Martin Wohl The Urban Transportation Problem, which promoted exclusive-use busways, of which only ten miles in Pittsburgh and eight miles in Miami have been built.
8. 7 John Meyer, Gerald Kraft, and Jean-Paul Valette, The Role of Transportation in Regional Economic Development, a Charles River Associates Research Study (Lexington Books, D.C. Health & Co.) p. 41.
9. 8 Interstate Commerce Commission, Cost Finding Section, "Cost Study of Class I Motor Carriers of General Freight in the Middlewest Territory - Year 1953" (Washington, D.C., 1954), p. 7, Table 2, 1/2 col. 2.
10. nd 894, 896: "Regression analysis is a method for establishing a statistical relationship between the mean of a 'dependent' variable and the values of set 'independent' variables. In URCS [Uniform Rail Costing System] regression analysis is used to attribute railroad expenses to capacity and output variables. The portions of expenses thus dichotomized are referred to as 'fixed' and 'variable' expenses, respectively."
11. 10 The Economics of Competition in the Transportation Industries, p. 151.
12. 11 Regression analysis has the biases of measuring current practice, not potential, and of assuming linearity, although rail operations appear to be irregular stepwise functions. Whether linearity or discontinuity is more appropriate is perhaps the oldest argument in mathematics, starting with the four paradoxes of Zeno of Elea in the Fifth Century B.C. See Men of Mathematics, by E. T. Bell, Simon & Schuster, New York, 1937, pp. 23-25.
13. 12 It could be argued that larger equipment capacity makes rail more efficient for billing and collection, or that greater good will makes truck sales and administration more efficient, but these nuances are beyond the scope here.
14. 13 Cass Information Systems, as referenced by John Schulz in Traffic World, June 14, 1999, p. 20.
15. 14 The "1999 Dry Van Drivers Survey" prepared for the Truckload Carriers Association by Martin Labbe Associates of Ormond Beach, Florida found that 42 percent of deliveries to survey respondents were drop-and-hook (p. 12).
16. 15 This limitation is not innate, but institutional - a legacy of work-rules, self-image, and decision makers in cost centers driven by arbitrary efficiency measurements, instead of in profit centers driven by customer utility.
17. 16 Sources: A. car capacities: small end of various railcar types from The Official Railway Equipment Register (i.e., standard 60' boxcars actually average about 6,300 cubes, high-roof 60' boxcars about 7,300 cubes, versus 6,150 cubes used)
18. B. truck capacities: 53' dry van cubic capacity - 1999 production of Wabash National, Lafayette, Indiana; all other truck capacities - 80,000 lbs. less common cab & trailer tare weights
19. D. driver hourly rates: from the ATA's "1997 Driver Compensation Study," page 14 of 1999 American Trucking Trends, assuming 2,500 hours worked and inflation 1997 to 1999 of 3.8 percent per CPI-U - rates corroborated by $15.10/hr. average truckload driver wage per Transportation Technical Service's (TTS) 1999 The Motor Carrier Industry in Transition, which is below the Teamsters' 1998 National Master Freight Agreement of $18.46 per hour
20. D. driver hourly rates: from the ATA's "1997 Driver Compensation Study," page 14 of 1999 American Trucking Trends, assuming 2,500 hours worked and inflation 1997 to 1999 of 3.8 percent per CPI-U - rates corroborated by $15.10/hr. average truckload driver wage per Transportation Technical Service's (TTS) 1999 The Motor Carrier Industry in Transition, which is below the Teamsters' 1998 National Master Freight Agreement of $18.46 per hour
21. E. labor fringe rate estimated as 31 percent per TTS's 1999 The Motor Carrier Industry in Transition, p. 153
22. F. tractor values: from interviews with Peterbuilt and Mack Truck sales and leasing managers
23. G. registration: from ATA's 1999 American Trucking Trends, p.21, $1,567 average divided by 3,120 hours; insurance: estimate of $5,000 per year from truck line interviews divided by 3,120 hours
24. H. special services: refrigerated trailer fuel of 82¢/hr. from Merchants Despatch Transportation (MDT) service experience of 3/4 gallon per hour @ mid-1999 diesel price of $1.09/gal. from Traffic World, July 5, 1999, p. 50; tank truck blower costs of $1.01 from $9,500 investment divided by three years of 261 twelve-hour days, or 9,360
25. I. trailer values: U.S. Dept. of Commerce, Current Industrial Reports - Truck Trailers, 1998, plus inflation 1998 to 1999 of 2.2 percent per CPI-U, plus refrigeration units for reefers of $16,786 per MDT records, @25 percent lease/year
26. J. fuel & repairs: assuming twenty-mile urban round trip @ type-specific miles per gallon according to TTS/A.T. Kearney 1995 research ("Private Fleet Benchmarks of Quality and Productivity") for the National Private Truck Council, 1995, pp.47, 56, 59, and 62, all @ $ 1.09 per gallon per H above; assuming repairs at two times fuel cost K. matrix cell calculation: C × [((drop & hook hours) × (D+E+F+G+H)) + I + J]
27. 17 Martin Labbe Associates, op. cit., bar graph p. 12.
28. 18 TTS's 1999 The Motor Carrier Industry in Transition, chart page 55 from 1992 Truck Inventory/Use Survey, numbers tractor-trailer units at 431,700 vans; 250,400 flatbeds; 115,400 reefers; and 93,000 tank trucks.
29. 19 Historically, the ICC assumed 90 percent of truck costs to be variable, 10 percent fixed. The TTS study cited found 9 percent of truck expenses to be overhead (p. 153). It is likely that the out-of-pocket variable costs understate the actual cost to society. The U.S. DOT's 1997 Federal Highway Cost Allocation Study estimated that trucks actually pay tax covering only 80 percent of the road construction, wear, and operating costs they occasion (Table ES-5, p. ES-9).
30. 20 Sources: engineer: Brotherhood of Locomotive Engineers, 1 July 99 daily rate for yard service, five-day week, for less than 500,000 lbs. on drivers, including differential for no fireman conductor: United Transportation Union, 1 July 99 daily rate for local freight less than 100 miles supervision: Association of American Railroads, "Analysis of Class I Railroads, 1988," page 13, Line 234 (Total Transportation Labor) as a markup over Line 234 minus Line 228 (Administrative Support of Operations Labor) - to cover dispatching, training, and managing engine ownership: survey of typical lease rates for medium maintenance GP-9 or GP-38 engine maintenance: survey of typical maintenance costs for medium maintenance GP-9 or GP-38 engine fuel: 55.5¢ per gallon per Daniel L. Keen of Policy, Legislation and Economics Department, AAR (less than truck due to buying power of larger, longer-term contracts, and no 20¢ user charge) car maintenance: per mile and per day rates estimated by data available-average rates experienced by Conrail under deprescription contracts in August 1996 for foreign cars, using 60' equipped box rate, refrigerator rate, 100 ton < 61 ft. low-side gondola rate, equipped flat rate and > 5000 cu. ft. covered hopper rate
31. 21 Although the overhead burden to the railroad for track ownership and maintenance is spread farther when a side track is located on a line used for through freight, passenger, or commuter operations, there is an increased opportunity cost to the customer because the time windows when the customer can receive local service are restricted. Therefore the worst-case fixed-cost scenario to the railroad is the potential best-case opportunity-cost scenario to the customer because with exclusive use for local freight the customer could negotiate whatever service is required.
32. 22 The $5,000 per mile estimate is from the unpublished data of Randolph R. Resor, at Zeta-Tech Associates, Inc. of Cherry Hill, NJ. Property taxes are not a relevant expense of industrial right-of-way in most states, and they are not considered here. Forty states use the"unit valuation" or "unitary assessment" method of railroad taxation, where the state levies a tax based on a somewhat arbitrary valuation of the entire railroad, and then distributes these taxes to local jurisdictions based on their local percentage of track mileage in state. Five states have a gross receipts tax or income tax instead of a going-concern valuation - CT, IN, LA, ME, and MD. This means that in forty-five states operating railroad property is exempted from local assessment and the original taxes have nothing to do with local mileages. Only four states have local valuation and taxation based on operating property - MT, NY, RI and TX (plus two cities in PA), but these taxes are restricted by the Railroad Revitalization and Regulatory Reform Act of 1976. One state, HI, has no freight railroads.
33. 23 Rail rates need not, indeed should not, be a uniform markup over average cost. Rail rates should depend on the utility to the specific customer, and must only exceed incremental (including any solely-related capital) costs in order to benefit the railroad. Therefore, moves priced under the average for the appropriate matrix cell may still contribute to an irreducible lump of cost (such as for a crew, for a locomotive, for a branch line) and be desirable, if they can be balanced by cars over the average by the same amount. In an article in Economic Journal in March 1927, Frank Ramsey demonstrated that when a fixed amount must be raised, the socially optimal prices are inversely proportional to the customer's elasticities of demand.
34. 24 Sources: A. lift or transload cost in terminal: survey of charges typical to various terminal types, with reefer charge including $18 (per Merchants Despatch Transportation data) and with average terminal rates per Conrail data
35. B. ratio of trucks to car capacity: Table 2, row C, except for dry van limited by cubes, where 48' length with 3,550 cubic foot capacity (per The Official Intermodal Equipment Register) is substituted for 53' length with 4,100 cubic feet, changing ratio from 1.5 to 1.7
36. C. truck cost: Table 2, row E, except for dry van limited by cubes as explained for B above
37. 25 U.S. DOT, Federal Highway Administration and Federal Transit Administration, "1997 Status of the Nation's Surface Transportation System: Condition & Performance, A Summary," (Washington, D.C., 1997), chart p. 3.
38. 26 U.S. DOT, Federal Highway Administration, "U.S. Freight: Economy in Motion, 1998" (Washington, D.C., 1998), p. 59 quote from National Transportation Statistics 1996, report of the Research and Special Programs Administration and Bureau of Transportation Statistics, (Washington, D.C., 1997).
39. 27 Ibid., pp. 61-62.
40. 28 U.S. DOT, Federal Highway Administration and Federal Transit Administration, 1997 Status of the Nation's Surface Transportation System: Condition & Performance, A Summary, (Washington, D.C., 1997), p.7.
41. st Century.
42. 30 Interestingly, the Transportation Technical Services' 1999 report previously cited has a table on page 17 showing, without explanation, that rail dominates across all distances for shipments in excess of 90,000 pounds. The FHA's 1998 Economy in Motion report, also without explanation, copies this table on page 24.
43. 31 Op. cit., Charles Peirce, p. 7.
44. 32 "Lock-in" is an economic principle propounded by the Santa Fe Institute, and described by its originator, W. Brian Arthur, in his article "Positive Feedbacks in the Economy," in Scientific American, February 1990, p. 92. "...once random economic events select a particular path, the choice may become locked-in regardless of the advantages of the alternatives."
45. 33 J. Doyne Farmer, as quoted by M. Mitchell Waldrop in Complexity, (NY: Simon & Schuster, 1992), p. 294.
46. 34 Brian Arthur, as quoted by M. Mitchell Waldrop in Complexity, p. 333.
47. 35 The term "sub-optimization" was coined by C.J. Hitch for an article in the Journal of the Operations Research Society in 1953. It means creating rules for local optimization which preempt global optimization.
48. 36 Meyer, op cit., p. 37. Service quality measures get scrambled as well as profit measures. To a customer, service quality means things like dock-to-dock transit time, frequency, standard deviation, and the availability of clean equipment. To a railroad, service quality means productivity measures like dwell time in yards, bad order ratios, and loss and damage claims. As the General Accounting Office stated in its April 1999 report Railroad Regulation, "...the railroad industry has been reluctant to develop specific service measures....In reaction to widespread criticism of rail service, however, railroads have developed four performance indicators... [which] are more an evaluation of oprating efficiency than of quality of service." (p. 66).
49. 36 Meyer, op cit., p. 37. Service quality measures get scrambled as well as profit measures. To a customer, service quality means things like dock-to-dock transit time, frequency, standard deviation, and the availability of clean equipment. To a railroad, service quality means productivity measures like dwell time in yards, bad order ratios, and loss and damage claims. As the General Accounting Office stated in its April 1999 report Railroad Regulation, "...the railroad industry has been reluctant to develop specific service measures....In reaction to widespread criticism of rail service, however, railroads have developed four performance indicators... [which] are more an evaluation of oprating efficiency than of quality of service." (p. 66).
50. 37 Nature has no such dictum. The only productivity in biology is the end-game of producing progeny. In her details, nature seems very wasteful. For example, a large percentage of the very essence of life, DNA-probably over 50 percent of DNA in complex organisms - seems to serve no useful purpose (except perhaps as grist for favorable future mutations). The co-discoverer of the structure of DNA, Francis H. C. Crick, was surprised by the high incidence of useless or "selfish" DNA. He wrote that "The spread of selfish DNA sequences within the genome can be compared to the spread of a not-too-harmful parasite within its host." (Nature, Vol. 284, p. 605, 17 Apr 1980, L. E. Orgel & F. H. C. Crick) Conversely, Charles Darwin noted the curiously profligate "economy" of nature. "The principle of the economy of growth...by which the materials forming any part, if not useful to the possessor, are saved as far as possible, will perhaps come into play in rendering a useless part rudimentary." (The Origin of Species, Chapter XIV).
51. 37 Nature has no such dictum. The only productivity in biology is the end-game of producing progeny. In her details, nature seems very wasteful. For example, a large percentage of the very essence of life, DNA-probably over 50 percent of DNA in complex organisms - seems to serve no useful purpose (except perhaps as grist for favorable future mutations). The co-discoverer of the structure of DNA, Francis H. C. Crick, was surprised by the high incidence of useless or "selfish" DNA. He wrote that "The spread of selfish DNA sequences within the genome can be compared to the spread of a not-too-harmful parasite within its host." (Nature, Vol. 284, p. 605, 17 Apr 1980, L. E. Orgel & F. H. C. Crick) Conversely, Charles Darwin noted the curiously profligate "economy" of nature. "The principle of the economy of growth...by which the materials forming any part, if not useful to the possessor, are saved as far as possible, will perhaps come into play in rendering a useless part rudimentary." (The Origin of Species, Chapter XIV).
52. 38 John Walker Barriger, Super-Railroads, (NY: Simmons-Boardman Publishing Corp., 1956), p. 12.
53. 39 Al Ries and Jack Trout, Positioning: The Battle for Your Mind (NY: McGraw Hill Book Co., 1981), p. 21.
54. 40 Ibid., p. 35.