Railways vs. Trucking in Freight Transport

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 has played an essential part in the creation of this poor image and its rail which needs to be improved if the market share has to be increased for the intermodal firms in the future. Main findings of this study are: • A premium money back guarantee may be offered for the domestic intermodal shipments to diversify clientele.

Although it is merely on the lanes but it is felt by BNSF that it can perform quite well, a signal is sent by it to the customers that the firm is very thoughtful about being punctual. The intermodal companies have been able to get new customers as well with the help of the guarantees. • When it comes to the working together of the railroads the reliability gets very difficult.

It has been noticed quite often that reliability is not always very high in case of the single line shipments with the interline shipment. • Load centering which is a place where all the containers are put together in accordance with their last stop has actually shown to make the performance and transit times better. In the American Trucking Association (2012) study it was observed that the rules which govern the truck size, weight limits and the potential impacts relate to the alteration in these limits.

Modal competition and shipper concerns have also been discussed in the paper. Main results of this study • A reduction in the costs of truck can take place due to the alteration in the size of trucks as, there will be need for less trips. Reduction in other costs like order processing, ware housing, and loss and damage might also take place. • The decrease in the costs of truck can result in a change in the choice of mode and can shift from truck to rail.

• There is no competition between rail and truck for the truck shipments that cover the short distance. • It was in 1994 that the market share especially the intermodal freight was increased by the railroads. • 9.4% was the return on investment in case of railroad in comparison to the return on investment in 1993 which was 7.1%. • The decision-making process of the shipper has been modeled by the report. The carrier and mode switching behavior is step 6. It may be a high cost option to switch the carriers.

The factors which affect the ode choice are: service quality, carrier use and transit time, carrier use, asset productivity and customer satisfaction. • A strong growth is expected to take place in the rail intermodal traffic in the next 10 years. • The public and private sector both benefit from the investments in the roadways which help in connecting the intermodal rail freight terminals In addition, Federal Highway Administration (2004) has studied all the factors regarding the betterment of funding for the freight infrastructure.

The sources from the information has been reviewed are Federal, local and State. Main results of their studies are as follows: • There are various ways in which the freight financing is conducted and there is a need to make these various methods available as a guideline for the decision makers of the transportation. • Quantifying the public benefits from the projects of freight investment is very hard. Comparing the non-freight projects against the freight projects is also a very difficult thing to do.

• Conflicts are there among the long-term project planning and the short-term demands of the market. Because of this it is usually on the high-level financial support that the large-scale projects depend upon. • There are variations in the financing costs which depend upon the sponsoring agency such as the Treasure bonds are not tax-exempt while the municipal bonds are. • Debt is often chosen to be issued by the local sponsors rather than waiting for the offer of funds that comes just once each year.

• Receiving grants had been found to be difficult by the shortline rail companies as the needs might be far beyond the financial capability that they have. It has been argued by American Trucking Association (ATA) (2006) that it is not because of the unfair subsidies that the trucks are dominant, instead its because of their flexible, reliable, timely and efficient nature that they are dominant. These characteristic are very important today when all the manufactured goods have to be delivered in the just-in-time manner.

Main results of this study are: • In order for a sufficient change in the modal shift to take place from truck to rail for the average rail haul length (700km), the highway user fees has to triple for the trucks. There won't be any modal shift in case of the short-haul lengths (under 500km) because of the change in the charges of the users. Approximately 70% of the shipments by the trucks are short-haul.

According to the Road Information Program (2001) the delivery of the services and goods to the customers will become slow with the increase in the traffic therefore, in the future higher costs will be faced by the consumers. The relationship that exists between the living standards in U.S. And the traffic congestion has been analyzed in this paper.

Main results of this study • The demand for the courier freight services and trucks has increased due to the ever-growing service economy as well as the increased productivity of the manufacturing sector. • The trucks carry about 72% of the goods that are shipped from within the U.S. And about 69% of the tonnage of goods. • The total costs for the urban traffic congestion is 78 billion each year in the lost fuel and time.

• One of the problems which is being faced by the freight transport is the bad conditions of the roads that connect the port and rail terminal to the major roads. • It is being estimated by the U.S. Census Bureau that by 2020 the total freight tonnage will double up.

• It is being expected that by the year 2020 trucking will grow in the Western states by approximately 100%, in the Planes and Midwest states by 89%, in the New England and Mid-Atlantic by 79% and in the Southern states by 89% • It is expected that from among all the increases in the freight movement, 82% will occur by the truck. The creation along with the successes of joint intermodal service among the Santa Fe Railway as well as J.B. Hunt Transport Services Inc. was reported by Jeff (2001).

Main results of this study • It was shown by the partnership that the biggest customers of the railroads could be the trucking companies and that they can definitely work together. • It was quoted by the Chairman Hunt, "With the betterment of railroads with the service and the high fuel prices and less number of driver there will be increased intermodal." The aim of the Washington State Department of Transportation (2001) study was to depict the worth of rail freight as the transportation system's part in the state of Washington.

Main results of this study were: • In the absence of rail service there will be a need to add more than 1 million trucks to some sections of the interstate highway which will result in $329 million in the travel-time and vehicle operating costs to the travelers of the highway. • In the absence of the rail service, there will a need for the increased highway capacity which will cost $851 million.

Washington State Department of Transportation is a federal program which, in order to fund the freight rail facility construction and rehabilitation loans money. It hasn't been since 1995 that this program has gotten any appropriations and still it hasn't been harmed as, it is from the repaid loans that the money is collected. Conclusion It can be concluded through this review and by looking at the various relevant studies that there are a lot of factors which influence the freight mode choice.

The freight demand characteristics, commodity characteristics, customer characteristics, cross elasticities, modal characteristics, freight costs have all been studied by the researchers and they have found that all of these have the tendencies to have an impact on the mode choice. Similarly, it has also been noted that in case of the higher valued good and the short trips the trucks are preferred whereas, in case of the low-value and bulky products, and the long trips the railways are preferred.

Most of the times it is important to weigh the cost benefits against the customer service as well as satisfaction for a lot of the commodities where there is a time constraint. In case of the commodities which have either the service guarantees or the time constraints mostly truck is preferred as a mode of transportation because of the reliability, speed and flexibility. It is a reasonable deduction here that the balance between the factors can get shifted due to the intervention of policy.

The characteristics which make the commodities a lot more suitable for a shift to the rail from the truck are the high mileage and tonnage. The key factors along with finding out the shift potential of every commodity through which the mode choice gets affected have been identified as well. Reviewing the at-hand literature reports shows that a lot of the external factors like pollution, traffic and accidents are there in the policy intervention decisions and motivations. Pollution is especially very controversial as.