Office of Operations Freight Management and Operations

Measuring the Impacts of Freight Transportation Improvements on the Economy and Competitiveness

2. Freight Transportation and Competitiveness

Policymakers are often interested in making transportation improvements to their region to improve the competitiveness of their economy. The link between competitiveness as it is popularly understood and the terms and concepts used by economists is worthy of further clarification.

"Competitiveness," as such, is not an established term in the lexicon of economics. It came into common use in the 1980s, when there was considerable public discussion about the rise of Japan as an exporting power and the rising tide of imports of manufactured goods began flowing into the United States. The term was generally used to mean the ability to compete with manufacturers in other countries. It was never precisely defined in economic terms; however, it is important to define competitiveness in clear economic terms so that it becomes measurable. It is also the case that thinking of economic performance only in terms of international competition is too narrow a concept.

Infrastructure, a Pillar of Competitiveness

"Extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy, as it is an important factor in determining the location of economic activity and the kinds of activities or sectors that can develop within a country. Well-developed infrastructure reduces the effect of distance between regions, integrating the national market and connecting it at low cost to markets in other countries and regions."

World Economic Forum, The Global Competitiveness Report 2014-2015, Available at:

When policymakers talk about improving competitiveness as a goal, they are usually seeking to promote the expansion of businesses within their geographic region. Freight transportation improvements can serve this goal through several avenues. Improvements in freight transportation can reduce freight transit times, improve the reliability of freight shipments, and reduce the cost of freight transportation. Reduced transit times can allow businesses to access suppliers in a larger market region or sell their products into a larger market area. Improvements in the reliability of transit times can allow businesses to reduce inventory levels and rely more on just-in-time shipments, reducing their total logistics cost of production. Freight transportation improvements that enable businesses to produce products with lower total input costs will allow them to achieve a relative advantage against other firms who have higher costs. Reducing the total logistics costs associated with obtaining supplies and moving finished goods to market improves productivity by allowing businesses to produce more with fewer resources. Access to low-cost suppliers can also reduce input costs. Businesses may either pass these savings on to consumers or retain them as profits, or some combination of these. If the savings are passed on to consumers through reduced prices, this may allow businesses to increase demand for their products, capture market share and expand production. Freight transportation improvements thus enable competitiveness by improving productivity. Increased competitiveness creates opportunities for business growth and expansion.

By expanding market access to suppliers and customers, improved freight transportation creates more competition for all businesses affected. Over the long run, this enhanced competition can also lead to greater efficiency as all market participants are compelled to innovate and lower costs in the presence of additional competitors.

"Productivity" and "economic efficiency" are the terms associated with the total value of goods and services produced in relation to the resources required to produce them. Since we are talking about the effectiveness of the freight system, we are not concerned with production of services—only with production and distribution of goods. In a loose sense, we are talking about the "biggest bang for the buck," but we have to be careful about what we mean. We are concerned with the quantity and the quality of goods produced with available resources. It is not just the quantity of widgets being made; it is also about the satisfaction people get from using those widgets. A more productive economy doesn't just produce more widgets, it produces better widgets.

Competitiveness and Productivity Intrinsically Linked

"For a given industry in a region, productivity and competitiveness are intrinsically related, for productivity may be viewed as the ratio of [output produced per unit of input cost] and cost competitiveness is measured through the ratio of [input cost per unit of output produced]. Thus, productivity can be viewed as a driver and an indicator of net national economic impact (affecting economic growth net of business relocation effects)..."

— NCHRP Project 2-24 Economic Productivity & Transportation Investment, Task 1 Report

As U.S. manufacturers become more productive, they are better able to compete in global markets. But that is only part of the story. As the domestic manufacturing and distribution systems become more productive, the nation's standard of living rises. More and better goods are available to consumers using the same levels of labor and capital. These are, if you like, more competitive goods, so more of them are likely to be exported. One effect of rising exports is that consumers get to choose among a wider array of goods, from both foreign and domestic sources.

Greater productivity leads to a higher standard of living. So to consider how transportation improves competitiveness, we focus here on measuring the impacts of transportation on productivity. Improving the productivity of businesses within a region provides a relative competitive advantage over firms located elsewhere. The focus on productivity gives us more precise economic terminology and a broader view of the benefits of a more efficient economy. In economic terms, productivity and efficiency have essentially the same meaning. For simplicity's sake, we will use the term "productivity" in this document.


Investments in the freight transportation system help to improve productivity by allowing for improvements in logistics. Logistics is the management of the supply chain. It includes managing the flow of goods, information, and other resources between the point of origin and the point of consumption in order to meet the requirements of consumers. Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, logistics network design, inventory management, and supply/demand planning. Logistics management also addresses issues such as sourcing, procurement, and production planning.

Logistics is essentially about freight carriage and inventory. Put another way, it is about the supply chain and the efficiency of the supply chain. Supplies of raw materials, parts, and intermediate products have to be moved from sources to plants where goods for sale to customers are produced. (Note that not all goods are sold to consumers. Some are sold to firms for use in production of goods or services.) Plants have to hold some level of supply in inventory to keep production going smoothly. Finished goods have to flow from plants to customers, but relatively few sales are direct from the factory. Generally, the flow is from plants to distribution centers (warehouses) where inventory is held either by wholesalers or retailers and thence to retail outlets where, again, inventory is held.

The major components of logistics costs are transportation, interest rates (on inventory), and costs of obtaining and operating distribution centers.1 Highway-freight performance affects all three of these costs. To understand why this is the case, we need to understand how firms—manufacturers, distributors, and retailers—think about inventory. Inventory is a cost; it requires investment of capital to hold a stock of goods at a given level. Firms choose the level of inventory carefully. It is not just a matter of minimizing cost. There are significant trade-offs between the interest cost of a given stock and the potential costs of holding too small a stock.

For a manufacturing firm, the risk is shutting down production for lack of materials or parts. The firm must consider the probability that a critical input does not arrive on time. It estimates that probability and chooses a level of stock accordingly. The greater the probability of delivery failure, the larger the extra ("buffer") stock the firm must hold, which increases its inventory cost.

At the downstream end of the supply chain, the retail operation, the situation is a bit more complex. Retailers also have to hold buffer stocks to avoid the risk of running out of an item and thereby losing sales. They also make a judgment based on the probability of delivery failure. But a retailer also has to think about the variety of items he carries in stock. If he holds only items with high turnover, he will miss some sales. Some customers want the slower moving items, or want them occasionally, and may take their business to the place that carries them. The retailer makes a judgment on the trade-off between higher inventory cost and additional revenue gained from holding a wider variety of goods and, accordingly, chooses his inventory level.

Distribution centers may be owned either by wholesale distributors or large retailers. In any event, they must hold some buffer stock at these centers to ensure ability to meet promptly demands from retail outlets.

Highway-freight performance affects all components of logistics costs—transport costs and inventory costs. Improved highways directly reduce the cost of carriage. Reduced congestion reduces transit times and unexpected delay; it also reduces vehicle operating costs. There are two main effects on inventory cost. Reduction in unexpected delay translates to increased probability of on-time delivery and, thus, reduces the amount of buffer stock needed. Transport costs also affect the number of distribution centers required. If transport costs fall relative to interest rates, shippers will opt for longer hauls and fewer distribution centers. Fewer distribution centers usually lead to reduced inventory levels. As more stores are served from a given center, there is some reduction in buffer stock per store. Conversely, when transport costs rise relative to interest rates, there is a tendency towards shorter hauls and more distribution centers.2

It is important to note that highway performance also affects intermodal movements as well. Global supply chains involving the movement of containers by multiple modes are sensitive to delays anywhere in the supply chain. Changes in highway performance thus affect the competitiveness of U.S. export and import supply chains that involve intermodal movements by marine, air, rail, and truck modes.

The main point here is that improved highway-freight performance increases efficiency all along the supply chain and, thus, increases the efficiency of manufacturers, distributors, and retailers. It is also important to note that the supply chain is never static. All the firms along the supply chain are constantly watching changing transport, labor, land, inventory and other costs and factors and acting accordingly when they make new location decisions for factories and distribution centers.


As we consider the efficiency of the supply chain, we need to bear in mind issues about choice of mode. All along the supply chain, shippers make decisions about which mode to use for moving their goods. The choices they make, and their reasons in choosing, are important to agencies making decisions about transportation investment projects. When considering possible projects in a given traffic lane, decision makers should know which modes are currently used and whether a particular infrastructure investment is likely to change the modes shippers use. Therefore, we include a discussion of mode choice in this section.

In domestic freight movement, the central mode-choice decision is between rail and highway carriage. For the highest-value traffic, there are cases where the choice is between air and highway (The 2007 Commodity Flow Survey (CFS) shows goods carried by air as less than 0.1 percent of total freight tonnage). Traffic moving by air typically comprises highly perishable goods—cut flowers would be one example—or very high-value goods needed quickly. Traffic of this kind is a very small percentage of total freight tonnage. For the lowest value traffic, e.g., coal and grain, there are cases where the choice is between rail and barge. Coal and grain account for 15.4 percent of total tonnage on all modes. Bulk commodities such as coal and grain will not be shipped by highway any farther than necessary to reach a rail connection or a river loading point. Their low value per ton does not justify higher transportation cost.

A significant fraction of the traffic between these extremes of high and low value might move by either highway or rail, but by no means all of it. An important issue is length of haul. It is difficult to fix with precision the minimum length of an intermodal haul, but rail would not be a viable option for nearly all traffic moving less than 300 miles. Intermodal moves have been getting shorter in recent years, and hauls in the 400-500 mile range are not uncommon. The 2007 CFS shows that 44.0 percent of inter-city for-hire truck tonnage was on moves between 50 and 250 miles. On this basis, we can safely say that rail carriage is not a viable option for more than 50 percent of for-hire tonnage. (Private carriers are unlikely to use their own fleets for intermodal drayage.) This leaves a large volume of traffic for which rail could be an efficient choice.

In order to understand the factors that drive mode choice, it is helpful to know something about this part of the market for freight carriage. Rail-freight service is available in three principal forms:

  • Unit trains for bulk commodities,
  • Intermodal—unit trains carrying containers and trailers,
  • Carload service—also known as mixed trains.

A unit train is loaded at one point and moves to another point where it is unloaded. The entire train, typically 100 cars or more, consists of the same type of equipment. In the case of bulks, the train is carrying only one commodity—a coal train, a grain train—or, more recently, a train carrying crude petroleum. In these cases, the whole train is a single shipment. As noted above, highway carriage is uneconomic for shippers of these commodities; their mode choice, if they have one, would be between rail and barge.

An intermodal train, however, carries many shipments; every trailer or container is an individual shipment. But the intermodal train is a unit train in the sense that, generally, the whole train is comprised of the same/similar equipment and is loaded at one terminal and then unloaded at the destination terminal. (There are variations; part of an intermodal train, for example, is sometimes dropped at one terminal, with the rest being dropped at the destination terminal.)

Carload service is available only at locations on a siding. A typical carload shipper might load, at most, three cars at a time. These cars are gathered by local trains and brought into a classification yard where the cars are placed in various outbound trains according to their final destinations. Getting a shipment to a final destination usually entails movement through two or more intermediate terminals before reaching the destination terminal. At each intermediate terminal, inbound trains are broken up and cars placed in various outbound trains. From the destination terminal, local trains take shipments to their final destinations. These are slow movements; a car is likely to sit for a day in each terminal before it moves on in the next train. And the number of movements between terminals and the complexity of the sorting process in each terminal provides plenty of occasions for unintended delays. With a few exceptions (auto parts, chemicals), this is low-value traffic and not time sensitive.

Of these three types of rail service, only intermodal is a viable option for the great preponderance of shippers who would otherwise use all-highway carriage.3 We also need to understand the types of trucking service available to shippers. This is shown in the following table.

Table 1. Types of trucking services available to shippers
Inter-city Trucking
For-hire: Truckload
For-hire: Less-than-truckload (LTL)
Private carriage

Private carriage is the practice of shippers moving their own goods in their own fleet of trucks. Usually, it is somewhat more costly than for-hire truckload service. Shippers use private carriage to maintain tight control over their shipments and to minimize the probability of delivery failures. A private carrier is unlikely to maintain a large enough fleet for all its transport requirements. It would use for-hire carriage in peak demand periods or for moves that do not fit well with the regular patterns of its own carriage. When a private carrier turns to for-hire service, it would consider the option of using intermodal service. A private carrier would be very unlikely to use its own equipment for the drayage move to an intermodal terminal.

In truckload service, a truck is ordinarily loaded at the origin point and proceeds to the destination where it is unloaded. It is the truckload shipper for which intermodal rail can be a viable option. In LTL service, small shipments (average around 1,000 pounds)4 are collected by local trucks, brought to a terminal where loads to various destinations are consolidated and carried over the road to their destination terminals. Local fleets at destination terminals make the final deliveries to receivers. Some over-the-road moves between LTL terminals are made by intermodal rail, but the decision to use rail is made by the LTL carrier, not by the shipper. (The largest single user of intermodal rail is UPS; but UPS, not its customers, decides how to move the packages.)

As noted above, length of haul is an important concern for a shipper. Shippers select railroads for long distance hauls because the pickup and delivery portion of a typical move costs about $700.5 Spreading this fixed cost over a longer haul reduces the total per mile cost. We have to be a bit wary of stating an absolute minimum length for viability of intermodal. The "minimum" length has been coming down in recent years due to a number of factors, such as increasing fuel prices and improved efficiency in intermodal operations. Further, the minimum will vary according to a shipper's location, the length of the drayage moves at either end of the trip, and the volume of freight moved between two points. Under current conditions, a rough generality would be that few hauls under 400 miles would be viable and nearly zero under 300 miles. The next threshold is whether the intermodal service available to a shipper fits its existing supply-chain network. Factory and warehouse location decisions may well have been made without regard to rail service. So the corridors in its supply-chain network may not be well served by the available intermodal terminals.

When the existing supply chain and length of haul are compatible with intermodal service, a shipper considers price and service quality when making the choice of mode. Price for intermodal service is typically lower than for all-highway service, so the issue really comes down to quality of service and proximity to major intermodal terminals. Service quality has two components: transit time and reliability. Generally, transit time for intermodal will require at least an additional day; loading and unloading intermodal trains requires approximately a half day on each end.6 More importantly, there will be some time lag from the time a container or trailer is dropped at the intermodal yard and the loaded train ultimately departs. The phrase "intermodal is highway plus a day" is often heard as a rough rule of thumb. Improvements in intermodal service are reducing transit times in some lanes, but it will be almost always slower than truck. (Likeliest exceptions would be in lanes with frequent highway congestion and high frequency of intermodal train departures.) Also, the time penalty for intermodal is reduced as length of haul goes up. This would be especially true for trips longer than one driver can do in a day. Another cost associated with intermodal is that intermodal freight needs to be loaded differently. There is a need to put more blocking and bracing in to keep the load from shifting because of the slack action and the lifting on and off of the flatcar.

In any event, many shippers can tolerate the longer transit time of intermodal carriage. For them, reliability is the key question. In this context, reliability means delivery before a fixed time. Often, it also means delivery not before a fixed time; the delivery must be made in a certain time window, often referred to as "just-in-time." Given a cost advantage for rail and an acceptable transit time, shippers will choose rail when they are confident the rail carrier can meet truck standards of reliability—often as high as 95 percent on-time performance. Some industry observers report that intermodal reliability has been increasing in recent years.7

Most of this discussion has been in terms of choices made by shippers. We have noted that LTL carriers and package carriers choose the mode for those kinds of service. Frequently, this is also the case when a shipper turns traffic management over to a third-party logistics (3PL) provider.8 The 3PL has to meet certain conditions regarding cost and service quality but can make its own choices within those constraints.

It is also worth noting that shippers or 3PLs using intermodal usually do not deal directly with the rail carrier. Much of the intermodal service retail sales are made by intermodal marketing companies (IMCs). The shipper never talks to the railroad; the IMC arranges the dray at both ends and bills the shipper for the entire move. Some large truckload carriers provide intermodal service in the same way; the trucking firm makes all the arrangements with the railroad, and the shipper gets one bill and one set of shipping documents.

Understanding mode choice is critical to properly characterizing the relationship between freight transportation, cost, and economic competitiveness. Improvements in transportation infrastructure occur within the context of a multimodal transportation system. Where shippers have access to an intermodal option, freight traffic can shift between transportation modes in response to relative cost or service improvements. Shippers also have an interest in sourcing transportation from multiple modes to maintain the resilience of their supply chain. Many shippers will thus utilize multiple modes of transportation (and service providers) to ensure that they are not overly reliant on a single entity for transportation. It is important to consider potential mode shifts when estimating the economic benefits of transportation improvements. The discussion above also illustrates that mode choice is an economic decision that is complex, influenced by numerous institutional and market factors, and not easily predicted by merely the price of transportation services available.


Benefits and impacts of an investment—a project or a set of projects—can be placed in three basic classes:

  • Direct user benefits
  • Economic development—income, output, employment
  • Productivity

At first glance, the distinction between economic development and productivity may seem artificial, but it is not. Economic development is about increases in economic activity: more production, more jobs, more income, and more spending. This turns into increased economic well-being for some or most of the population in the affected region. Productivity is about the efficient use of resources in producing goods and services. Output, for example, can increase just because demand increases due to a population increase. If output rises only in proportion to population, the standard of living stays the same, even though the total level of economic activity has risen. If resources are used with greater efficiency, the ratio of output to cost rises and the standard of living rises. These are thus two distinct types of impacts, and they are measured differently.

Direct user benefits are the immediate effects on users of a facility—speed, safety, and other factors. As noted above, economic-development impacts are in the form of output, employment, income, and similar aspects of economic activity. Productivity impacts are output per units of labor and capital. Table 2 provides more detail on the measures of these classes of impacts.

Table 2. Typical public sector highway performance metrics
Time Benefits Operating Cost Benefits Safety Benefits Economic Development Productivity
Average speed Labor Crash rate Goods produced Per man-hour
Transit times Fuel Fatality rate Services produced Per $ of capital
Congestion Maintenance Injury rate Business revenue Labor/capital combined
Incident-based congestion Loss & damage Income
Weather-based congestion Employment
On-time arrival Investment
Transit-time variance

Time benefits are not just reduced transit times. They also flow from increased reliability as incident-based congestion diminishes. For a great many shippers, reliability is more important than transit time. Reduction in unpredictable congestion9 increases consistency in travel times, but also reduces fuel and maintenance costs. Labor costs go down as transit times decrease and variance in transit times shrinks. Reduced transit-time variance10 allows for more efficient use of drivers and vehicles. Less congestion, fewer crashes, and smoother pavement in turn decrease loss and damage. From the perspective of carriers and shippers, fewer crashes can mean somewhat lower rates due to lower insurance premiums. Decreased crash rates also mean some lessening of loss, damage, and missed deliveries.

These benefits are associated with highway improvement, but similar benefits could flow equally from an improved intermodal connection such as a new intermodal terminal that allows shippers to use intermodal rail. A shipper might or might not save time using intermodal rail, but there would be a cost reduction and a safety benefit. Shippers will accept some increase in transit times when using intermodal rail, if reliability is acceptable.

Economic development follows from lower costs and increased efficiency all along the supply chain. Shippers—manufacturers and distributors—experience an immediate impact in reduced cost of carriage. Reduced cost of carriage then leads to what are often called "reorganization effects." As the cost of shipping drops, supply areas and market areas increase in size. Supplies can be drawn from a larger area and a given factory or distribution center can ship to a larger market area. Reliability gains allow smaller buffer stocks, further reducing logistics costs. Business revenues rise, income rises, and employment rises. This is the economic development effect.

Some of this effect stems from growth in firms in the region in question (organic growth), and some of it stems from relocation to the region as reduced costs makes it a more attractive location for some businesses. From the perspective of the region, it is all economic growth. From the national perspective, the effect from relocation is net zero or close to it. Growth in Region A is offset by reduced growth in Region B.

The role of improved transportation and logistics on job growth in the United States is a complex issue. In some cases improved freight transportation can encourage firms to use low-cost suppliers in other countries, which can lead to the creation of jobs overseas. Access to low-cost suppliers can be an important factor in allowing U.S.-based companies to be competitive, allowing firms to maintain or expand operations in the U.S. More broadly, increased trade encourages regions and nations to specialize in industries and economic activities where they have a comparative advantage. This leads to improvements in industry productivity over time and increases economic output.

Productivity is measured by the ratio of the dollar value of output to the dollar value of labor and capital inputs. Productivity improvements may occur for several reasons. For one, increases in supply-chain efficiency reduce costs; that is an immediate productivity gain. As economic development brings rising output, there may be scale economies leading to further productivity gains. Beyond that, increasing scale could change production technologies with additional gains.

FHWA is currently working with freight stakeholders to develop new freight performance measures that are focused on the overall performance of the supply chain as experienced by transportation users. These Freight Fluidity measures will combine measures of reliability, speed, and delay across the entire supply chain and provide an assessment of the performance of freight moving by multiple modes for a specific origin-destination. For instance, for a container freight shipment from China to a destination in the United States, a freight fluidity measure could include the time in transit on a container ship, the dwell time of the container in a port, and the time spent in transit by truck or rail to its final destination. Freight fluidity performance measures may provide an important tool to more effectively link transportation improvements to their economic impacts. These measures can also be used to benchmark trade routes and identify bottlenecks.


The following matrix shows some of the key linkages between performance measures and economic factors. It should be noted that increases in the value per ton of freight would tend to strengthen the relationship of the performance measures to the other economic factors discussed.

Some of these measures are closely related to each other, but we discuss them separately since they may examine performance from a different stakeholder perspective or in a different way. For example, it should be noted that the average speed and the transit time performance measures discussed below have similar economic impacts. The difference in these performance measures is in how they are measured and the perspective of the agency using the performance measure. The transit time performance measure is more often used by shippers, who focus on how long it takes to move a particular shipment between two points. The average speed measure is more often used by transportation planners, who are considering how investments in infrastructure can improve the performance of specific segments of the transportation network.

Reliability and transit time variance are also closely related performance measures. Reliability measures the unexpected congestion or delay on a specific roadway segment. This measure would typically be used by a transportation planner. Transit time variance provides a measure of performance from the perspective of the shipper, measuring the level of unexpected delay for the shipment.

There can be significant differences in what these performance measures capture. For instance, vehicle speeds are often measured for peak and off-peak traffic. If freight traffic moves disproportionately at night, improvements in peak speeds may have a smaller impact on truck traffic. Factors other than vehicle speeds on the network affect transit times. The hours-of-service rule for truck drivers is one example of this. A driver who has exhausted his allowable driving time will be required to stop. Transit time and average vehicle speeds measured on the network are thus not always related in linear fashion.

Because some of the performance measures discussed are closely related or overlap, there is also some overlap in the economic factors. It is thus important to note that not all of these factors are additive with each other, although some of them are.

Some of the economic factors are more easily measured than others. For instance, the average speed and transit time performance measures affects vehicle and driver costs for the truck, which affects the cost of delivering freight. These costs are traditionally measured in benefit cost analyses (BCA). Estimating driver labor costs is relatively straight-forward, as time savings can be translated into monetary values using estimates of average driver wages and benefits. There is also data available to represent the capital and operating costs associated with the truck. The cost of delay for the freight shipper and receiver is more complex, depending greatly on the type and value of the freight carried, and how the freight shipment is being used by the customer. The average cost of delay for freight can mask a wide range of costs for different commodities, consuming industries and customers.

Estimating how performance measures affect long term productivity improvements in industry is even more complex still. These effects include increasing the supply and market areas, providing access to lower cost or higher quality suppliers, allowing for improved inventory management and a more efficient supply chain. Over the long term, improvements such as these may allow for business reorganization, expansion and increased economies of scale. The table below summarizes the performance measures and the economic factors that can be linked to them.

Table 3. Key linkages between performance measures and economic factors
Performance Measures Economic Factors
Average speed Size of supply and market areas. Higher average speeds may increase the geographic area from which supplies can be drawn and the effective market into which supplies can be sold. A larger supply area can mean lower-cost and/or better inputs. A larger market area means greater production in a given facility—thus, greater productivity.1  It also improves access to and connection with the freight network.2
Reliability A greater probability of on-time delivery reduces both production and distribution costs, due to lower buffer stocks.
Transit times in key freight lanes Affects the size of supply and market areas for firms in regions served by those lanes. Reduces cost of carriage due to improved utilization of truck and driver. This reduces both driver labor costs and vehicle operating costs.
Variance in transit times More predictable transit times means more efficient scheduling and improved utilization of truck and driver. Also, it creates a higher probability of on-time delivery and reduces the cost of reliable service.
Crash rates Crash rates drive insurance costs, loss and damage of goods, and delivery failures.
Pavement quality Smoothness of pavement increases speeds, reduces loss and damage, and lowers vehicle operating costs. 
Vehicle operating costs Lower cost per mile reduces cost to shippers and increases supply and market areas.

1 It should be noted that greater production does not automatically translate into greater productivity, but that economies of scale may become possible and attainable. Economies of scale can occur as the cost per unit of output decrease with increasing scale. This happens when fixed costs are spread out over more units of output. Economies of scale do have many limits, including exhausting nearby supplies of raw materials or saturating local consumption markets, requiring finished goods to be shipped further to generate new sales. Transportation costs thus play an important role in allowing scale economies.

2 Improving vehicle speeds could improve access to the freight network by reducing the time and cost required to access an intermodal rail facility, making intermodal shipments more economically viable.

1 We focus here on the largest logistics cost components for all commodities. Note that there are other logistics costs, including spoilage or other costs associated with perishability that can be significant for some commodities. [ Return to note 1. ]

2 In recent years, residential development in some urban areas has reduced the amount of land available for industrial and logistics related facilities. Policymakers in some areas have recognized the need to preserve land for these facilities near key freight routes. [ Return to note 2. ]

3 Rail carload service can have a significant cost advantage for longer hauls, but this advantage is often eroded by actual equipment utilization, route circuitry, and pickup and delivery expenses. Because many destinations are not rail-served, incremental handling and truck delivery add to rail costs. Other logistical expenses rise due to the large size of rail deliveries, the slower transit, the unreliability and the higher incidence of damage. [ Return to note 3. ]

4 S.V. Burks, M. Belzer, Q. Kwan, S. Pratt, and S. Shackelford, "Trucking 101: An Industry Primer," Transportation Research Circular E-C146 (Washington, DC: TRB, December 2010). Available at [ Return to note 4. ]

5 N. Perry. The State of Truck/Rail Modal Share: An Analysis for Transportation Customers, sponsored by U.S. Express Enterprises (Transport Fundamentals, Inc., April 2010). Available at: [ Return to note 5. ]

6 Joseph Bryan. Measuring Freight Fluidity Performance, Briefing on Work of DOC Advisory Committee on Supply Chain Competitiveness & FHWA/I-95 Pilot. ITTS Freight in the Southeast Conference – Tampa, FL, March 2014 [ Return to note 6. ]

7 Improvement in intermodal service is based on information from the team's industry and academic contacts. The information on factors considered in mode choice is, in part, from "Inhibitors to Rail Carload and Intermodal Market Share Growth," a 2009 report by Norbridge, Inc. The team's industry and academic contacts confirm the essentials of the Norbridge findings. [ Return to note 7. ]

8 A 3PL is a firm that provides multiple logistics services for use by customers. Preferably, these services are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding. In freight transportation, 3rd party logistics providers serve a market niche by consolidating and organizing shipments across a variety of modes. [ Return to note 8. ]

9 Unpredictable congestion is primarily of function of vehicle crashes and other traffic incidents. [ Return to note 9. ]

10 Variance in transit times can be measured with vehicle probe data. This data is derived from private sector sources, although some data has been made available for public sector performance measurement. [ Return to note 10. ]

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