Financing Freight Improvements

1.0 Introduction

The Federal Highway Administration's (FHWA) Office of Freight Management and Operations and Office of Planning developed this guidebook as a resource for FHWA, states, metropolitan planning organizations (MPOs), and other parties involved in the identification of freight needs, development of financing plans to fund projects designed to address these needs, and involved in the actual delivery of an eligible project.

This guidebook is composed of four sections:

1. Funding and Financing Tools for Freight Improvements – This section describes existing federal funding programs and financing tools that could be considered for funding freight improvements. In addition, this section provides an overview of several programs available through the States that have been created to support the increasing need for the public sector to invest in freight-related infrastructure as a way of promoting economic development and addressing multimodal transportation issues.
2. Case Studies of Freight Financing – Each freight project and the approach to funding various freight projects is unique. Valuable information can be gleaned from investigations into the way that a variety of intermodal freight facility projects have been funded. Obviously, larger, more complex projects require more intricate financial planning and tend to require a wide array of funding instruments in delivery of the project. For this reason, t his section provides brief summaries of how various types of freight-related projects were financed.
3. References – Acknowledging that a significant amount of information is readily available to assist in developing funding strategies for freight projects, additional resources beyond the scope of this guidebook can assist in development of a reasonable project financing plan. This section provides links to such freight financing resources, including additional information on federal and state funding and financing programs.
4. Glossary of Terms and List of Acronyms – This section provides descriptions for the various funding categories and terms used in conjunction with the delivery of intermodal freight facility projects, and a list of acronyms of terms used in the guidebook.

Freight Transportation Needs

The efficient movement of goods is key to the continued economic health of the nation. Freight shipment tonnage moved by truck, rail, water, and air increased by 20 percent from 1993 to 2002, and is projected to increase by 65-70 percent by 2020. By 2020 (Figure 1.1), trucks are expected to haul about 75 percent of the tonnage, followed by rail (about 15 percent), water (about 7 percent), and air (less than 1 percent). [U.S. Department of Transportation, Federal Highway Administration. Freight Facts and Figures 2005.] The efficient movement of these goods will depend on the availability of a reliable and efficient transportation network, including highways, freight rail lines, airports, ports, intermodal terminals, and intermodal connectors.

Figure 1.1 2020 Domestic Freight Shipments by Mode

Trucks carry the largest share of domestic freight movements. In 2002, trucks moved 60 percent of freight by weight. Not surprisingly, truck traffic has doubled over the last 20 years, about the same growth rate as for highway travel as a whole. In 2004, truck traffic accounted for 7.6 percent of the total vehicle-miles traveled (VMT) in the United States, but the impact of truck traffic is noticeable on major routes connecting major population centers, border crossings, and other major hubs of activity. According to the 2004 Status of the Nation's Highways, Bridges, and Transit: Conditions and Performance (2004 C&P Report), trucks account for 30 percent of the vehicles on 20 percent of the Interstate System. [U.S. Department of Transportation, Federal Highway Administration, and Federal Transit Administration. 2004 Status of the Nation's Highway, Bridges, and Transit: Conditions and Performance – Report to Congress. Washington, D.C., February 2006.] A study on freight bottlenecks on highways found that most bottlenecks are located at Interstate urban interchanges. [U.S. Department of Transportation, Federal Highway Administration. An Initial Assessment of Freight Bottlenecks on Highways. Prepared by Cambridge Systematics and Battelle Memorial Institute. October 2005. Available at https://www.fhwa.dot.gov/policy/otps/bottlenecks/index.htm.] Overall, highway truck bottlenecks generate 243 million hours of truck delays annually at a cost of $7.8 billion per year.

Congestion is a problem that affects both the movement of people and goods. Between 1980 and 2004, route miles of public roads increased by 4 percent compared with a 94 percent increase in VMT. The 2004 C&P Report estimates the highway capital investment needs, at all levels of government, at $73.8 to $118.9 billion per year (2004 dollars), which is much higher than current funding available. Meeting highway capital investment needs certainly benefits the movement of goods by truck.

Other important highway infrastructure investment needs include additional and enhanced rest areas, improvements to intermodal connector facilities, improved operations at gateway and border crossings, and delivery of safety improvements at rail-highway crossings

The physical condition of many existing National Highway System Intermodal Connectors has been identified as a concern along with the adequacy of the mileage designated as intermodal connectors. Many large nationally and regionally significant intermodal freight terminals are connected to higher order roadway networks like the Interstate System by local streets and roads that local governments struggle toward keeping in good physical condition. According to the 2004 C&P Report, about one-third of the intermodal connector system is in need of additional capacity due to current congestion conditions and over 40 percent of intermodal connector mileage needs some type of pavement or lane width improvement. Improved land access from highway networks to airports and ports is critical for the movement of goods across the nation.

Railroads are currently serving record volumes, despite the fact that rail miles have continued to decline since their peak in the 1920s. Just a two-year comparison of statistics for the seven Class I railroads operating in the United States shows a decline in rail miles from 97,662 in 2004 to 95,830 in 2005, while tonnage increased from 1.84 billion in 2004 to 1.90 billion in 2005. [Association of American Railroads Class I Railroad Statistics. The seven Class I railroads are Burlington Northern Santa Fe, Canadian National, Canadian Pacific, CSX Transportation, Kansas City Southern, Norfolk Southern, and Union Pacific.] Volumes in 2006 are up 2.8 percent over 2005 through the first 29 weeks of the year. [Association of American Railroads, Freight Traffic Up on U.S. Railroads, July 27, 2006.] Railroads have been reducing track through mergers and branchline rationalization in an effort to reduce costs. Increased volumes are resulting from higher densities on mainlines, which has so far offset traffic lost through the reduction in rail miles. The result is that railroads are currently operating at capacity in many parts of the country and have little ability to expand their role in freight transportation to more desirable levels.

The AASHTO Freight Rail Bottom Line Report estimates that shifting all freight rail to trucks would add 92 billion truck VMT, creating the need for an additional $64 billion in highway improvements over the next 20 years. [American Association of State Highway and Transportation Officials. Freight-Rail Bottom Line Report. Washington, D.C., 2002.] Clearly, it is in the nation's interest to keep the rail system operating effectively. Assuming rail maintains its current share of freight movements, annual capital for freight system needs were estimated between $5.3 to $11.2 billion.

The interface among major transportation modes (i.e., highway, rail, air and waterborne) is a critical junction point in the freight mobility and goods movement chain. Rail and highway access has been identified as one of the main infrastructure needs at major port and airport locations. In addition, the growth of goods moving through ports and airports has increased considerably in recent years, and is expected to continue growing at an increasing rate. Current and future growth projected in freight demand puts increasing pressure on ports' and airports' capacity, especially since demand for port and airport sector has outpaced the growth in capacity. [Hudson Institute. 2010 and Beyond: A Vision of America's Transportation Future. Washington, D.C., 2004.]

The Role of the Public Sector in Financing Freight Improvements

The ability of our nation's transportation system to provide for and maintain the efficient movement of freight is important to the continuing economic health of the United States. Ports, railroads, and intermodal terminals are primarily owned and operated by the private sector. On the other hand, while the trucking industry belongs to the private sector, the infrastructure (i.e., highways) required to move goods by truck is owned and financed, for the most part, by the public sector. Governments at all levels have a critical interest in the health of the freight transportation network due to its role as an important contributor to local, state, regional and national economic growth and productivity. In addition, there has been increasing discussion over the last several years about government's role in financing freight-oriented improvements, including investments in private infrastructure where there is a public benefit and, conversely, private sector investments in public infrastructure where, once again, a public benefit is identified.

State and local governments typically have limited experience with financing freight transportation improvement projects. Although most freight projects have been delivered in the form of highway improvement projects, eligible for the same funds as other highway program projects, they often require a financial plan that includes a variety of funding opportunities derived from multiple sources, sometimes involving complex public-private partnership arrangements. These projects often require specialized finance skills not typically available within State departments of transportation (DOT), metropolitan planning organizations (MPOs), or local governmental units (i.e., county, city, town, etc.).