Railways vs Trucking in Freight Transport Term Paper

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Railroad vs. Trucking

In this paper a comparison between the trucking and rail transportation has been carried out and the similarities and differences between the two means of transport have been discussed with regards to the supply chain. Information was collected from a wide range of sources for this literature review. Given below is the summary of scholarly research related to the topic of the paper.

Trucking vs. Railways on the context of Supply Chain

In one study, it was found by Armstrong (2001) that the prices are mostly inelastic in case of trucking. There is a need to look for other methods in order to lessen the expenses associated with 3PL's. 4 other methods through which this can be done are: end-to-end matching, visibility of shipment, mode shifting and better carrier negotiation. Main results of this study are as follows:

• The smaller shipments should be aggregated into larger ones in order to reduce the costs. Aggregation is made difficult due to stop-offs, timing etc.

In another study carried out by the Association of American Railroads (2011), results with regards to the falling RR rates are as follows:

• It wasn't possible for the railroads to price differentially prior to Staggers Rail Act which was passed in 1980. Railroads became inefficient due to this since it wasn't possible for them to price them with respect to the demand. With regards to bringing changes in the prices there are a lot of processes and regulations which needs to be followed therefore, in majority of the cases historical costs are represented by the prices rather than the present costs. Low innovation and productivity occurs due to little competition.

• The railroads were able to contest in the free marketplace owing to the Staggers Rail Act. This resulted in an increase in the productivity which ultimately resulted in the falling of prices. Since the passing of the act in the 20 years the rail revenues have fallen by approximately 59%. In case of almost all the commodity types there are huge reductions in the rates.

Furthermore, in another study also carried out in 2012, Association of American Railroads with regards to the railroad tax burdens put on as a result of the Staggers act argued about the alteration of taxes due to which the railroads got into a disadvantage with regards to the trucks. Main results of this study are:

• For the purpose of tax the repairs and maintenance of the railroads must be depreciated. It is for the maintenance purpose that the fuel taxes which are paid by the trucking companies are used and they get deducted immediately.

In yet another study, the Association of American Railroads (2013a) focused on the Economic Effect of American Freight Railroads and the general statistics about the freight railroads with regards to what can be carried, how much can be carried as well as a few of the economic impacts of the railroads have been discussed. Main results of this study are as follows:

• Even though a decline has come in the cost of moving freight, the cost of capital when related to the ROI (return on investment) is still greater.

• As compared to 1981, today it costs about 29% less to move the freight by rail and in case of the inflation-adjusted dollars it costs about 59% less.

• More than 40% of the intercity freight is carried by the railroads in the U.S., about 67% of the U.S. coal which is used for firing up the power plants and about 70% of the vehicles which are manufactured domestically.

Similarly, in one paper related to Infrastructure Investment, it has been argued that changes need to be brought into the transportation programs and that the public-private rail infrastructure investment partnerships should be encouraged by the establishment of tax benefits in case of the intermodal transportation. Main results of this study point out that approximately 20% of the revenue was spent by the railways on the capital investment in comparison to the 4% spent on the manufacturing sector (Association of American Railroads, 2013b).

In another study, Ballou (1999) reviewed and commented upon the proposed Canadian Railways subsidy program. According to him, "In case of Canada the freight needs were met by the rail in the past however, today there exists a need for a more flexible form of transportation in order to cater to the in-time inventory systems and to be synchronized with the manufacturing sector." Main results of this study are as follows:

• The rail companies will be able to increase their rates by an amount which can be compared to the subsidy according to the proposed "Road Support and Transporter Tax Credit" financial assistance

• Before 2020 there will be a rapid decline in the emission of trucks. Pollution specifically nitrous oxide will increase due to the shift of freight to the rail from truck.

In an earlier study, Cambridge Systematics (1995) wrote as a reference source for the economists, analysts and policymakers. It contains examples from the prior studies of the analyses on various issues regarding the demand of freight transport. Main results within this guidebook were as follows:

• In order to model Rail/Truck Modal Diversion the Rail-Truck Diversion Model (T-R, R-T) as well as the Intermodal Competition Model (ICM) and the Truck-Rail have been made use of.

• In order to calculate the change in the rail ton-miles which occurs because of the changes in the truck costs the Truck-Rail cross elasticities are made use of. It is for various types of commodities that the elasticities are presented.

• High elasticities have been shown for the data that has been taken from ICM for the highly processed and finished commodity groups. Lower elasticities have been shown by it for the bulk automobiles and materials.

• With regards to the constant variations in the truck costs, in case of the rail ton-miles the approximate cross elasticity is 0.5 while in case of the rail revenue it is 0.8

In another study, researchers focused on the achievement of fiscal equity across modes, giving incentives in order to optimize modal choice and to promote the integrated transportation solutions (QGI Consulting, 2009). They found that the rail services need to be improved and the freight rates need to be reduced if the Canadian shippers want to have a competitive edge in the North American market. In case of Canada a shift towards the rail from the shipping on truck can be achieved by following these principles. All the stakeholders can benefit from this proposal. Main results of this study are as follows:

• The railway density and railway investment will increase due to a shift in freight from truck to the rail while the highway spending and congestion will get reduced along with the emissions, rail services and rate.

• A "Road Relief and Shipper Tax Credit" was proposed which would make use of the locomotive fuel taxes in order to fund tax credit which would be paid to the shippers who would shift freight to the rail from truck. This tax will be about $160 million each year.

• Also, the redirected road cost savings will also be diverted to the rail.

• The shippers get incentive due to the tax credit to redesign the processes of shipping in order to take advantage of the credit benefits.

• In the economy, the most capital-intensive segment is the railroads and therefore, they have got to get all of these costs back from the customers. Fixed costs can be covered by a lot more users by increasing the densities of railroads and this will also the railroads to decrease the rates.

On average the U.S. railroads are 57% denser as compared to the Canadian Railroads.

• The Canadian government spent $15.7 billion in 1998-1999 on transportation. From this $15.7 billion, $14 billion was spent on transit and roads and from this amount of $15.7 billion$14.5 billion was spent on the trucks.

• As compared to the trucks the long-haul freight locomotives are 4 to 5 times more efficient in term of fuel consumption on the basis of gross ton-mile

• It is estimated that in the U.S. only 80% of the total costs are mostly by the typical semi-trailer to all the governments and just 90% of the it's share in case of the federal road maintenance.

In another study, in order to identify as well as justify the characteristics which can be used in conducting the freight route a formal approach was used by Neal and Kevin (2000). Main results of this study are as follows:

• The Best5 ranked characteristics are:

1. Cost / Rate / Price, Speed,

2. Time of Transit

3. Dependability,

4. Distinctiveness of the goods, and

5. Service (unspecified).

In another study, Technical Strategy Leadership Group (TSAG) (2012) documented the intermodal shipping firms which are making efforts to re-establish their image from that of the usual poor service. The most important player has been rail which…[continue]

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