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

3. Selecting the Right Analytical Tool

Given the variety of methods available for transportation economic analysis, it is important to recognize that not all methods are applicable in all circumstances. There are a number of key factors that affect the appropriate selection of a methodology. The key questions that the analyst should consider are:

• What are the goals of the analysis?
• What data, tools, and resources do we have available?

3.1. WHAT ARE THE GOALS OF THE ANALYSIS?

The first question to consider is "What is the goal of the analysis?" Answering this question will typically include several components, including project type, freight modes considered, time horizon, geographic scope, outcomes measured, and precision required.

3.1.1. PROJECT OR POLICY TYPE

The goals of the analysis are in part related to the type of project or policy. Does the agency wish to analyze the impacts of an individual project with local impacts or a larger project with regional or statewide impacts? Large-scale projects could cost hundreds of millions or billions of dollars and encompass numerous smaller projects. These could include large multimodal projects and corridor projects, such as new tuck roadway routes, tunnels, major interchanges, or overpasses. Projects with national impacts include investments in intermodal transportation, such improvements to the Alameda Corridor, which connects to the Ports of Los Angeles and Long Beach and handles nearly half of the containers entering the United States.

In some cases projects targeted to specific freight network segments could have broader impacts as well. For instance, improvements to intermodal freight connectors for key freight facilities could have broader impacts on intermodal freight transport. Investments in truck freight bottlenecks could have significant impacts on the interstate freight transportation network. Investments targeted towards the National Freight Network would be likely to have broad impacts. The national freight network includes the primary freight network, other portions of the Interstate System, and critical rural freight corridors. Investments in border crossings, such as the Blue Water Bridge Border Plaza, can be important conduits for trade that have national significance.

In a similar fashion, some transportation policies are of national significance. The Hours of Service Regulations and Truck Size and Weight regulations are examples of Federal policies that significantly affect the cost of moving freight. Significant changes in these rules could have national significance and have been analyzed using more sophisticated methods that can consider industry productivity impacts. Policies that affect regional or local freight operations have less significant impacts.

The types of economic impacts to consider are related to the scale of the project or policy, and are discussed further below. Direct user benefits can be measured with a benefit-cost analysis (BCA), and this may be appropriate for a smaller project level analysis. A more extensive economic analysis may be recommended for larger transportation infrastructure investments that will have significant economic impacts across a region. Simplified approaches might be recommended for projects that are not as significant.

3.1.2. FREIGHT MODES CONSIDERED

A key analysis consideration is whether the benefits of regional transportation improvements are only considered in the context of a single mode such as highway or rail, or whether it is important to conduct a multi-modal analysis that considers the impacts of freight transport mode-shifts. For instance, investments in intermodal facilities could improve access to rail intermodal transportation options for shippers.

Typically the potential for mode shifts are measured by analyzing data on commodity movements and determining what share of freight may have competitive alternative modes of transportation. This analysis would incorporate the type of cargo, length of haul, value and volume of freight. Availability of infrastructure and alternative transportation services must also be taken into account. Statistical models, expert judgement, or the combination of the two can be used to determine the probability that freight of different types could be shifted to an alternative mode based on changes in transit time, cost, or reliability. For some applications, off-the-shelf models may be available as well.

If the impacts of a proposed project or policy are small or otherwise unlikely to have a significant impact on the choice of transportation mode, it may be appropriate to omit this analysis.

3.1.3. TIME HORIZON

Project and policy BCA can use an analysis time period of 20 years or more. If an infrastructure project is being analyzed, the analysis time period specified can be influenced by the expected life-span of the infrastructure. Some projects, such as investments in ITS, may have a lifespan that is shorter than 20 years.

Even if a project or policy does not have a specific lifespan, when project benefits are discounted in the future, adding to the length of the analysis period will result in smaller and smaller increments of benefit. The time period can often be restricted based on the fact that most benefits will accrue in the early years of the analysis. Lengthening the time period of the analysis also increases the uncertainty associated with the benefit and cost estimates, as it becomes more difficult to predict what will happen and the assumptions on which the analysis is based are more likely to change.

The time horizon considered also has an important impact on estimating the productivity benefits of a policy or project. In the short term, a project may have direct benefits to the current users of the facility. Over the long term, businesses may reorganize their supply chain to adjust to changes in transportation costs. This reorganization can lead to additional productivity benefits to the economy and provide additional demand for freight transport. These benefits would typically not occur in the first year of the analysis time period, but would require a number of years for the benefits to emerge as businesses adjust their operations.

As an example, if a lane is added to a roadway and reduces congestion, existing traffic will experience an immediate time and cost savings. In the near future businesses can adjust operational and tactical business decisions relatively quickly to take advantage of changes in the price of transportation. A carrier might adjust delivery routes to improve transit time for their trucks if congestion and transportation costs are reduced.

Some decisions, such as the location of facilities or strategic decisions about the structure of the supply chain cannot be changed easily in a short period of time. Nonetheless, businesses do make long-term decisions based on what they believe will happen in the economy and with future transportation prices.

Public policies can also have important long-term effects. The deregulation of the trucking and rail industries has caused transportation rates to fall significantly in inflation-adjusted terms since 1980. As a result, there has been a shift in the long-term demand for transportation. Many manufacturing industries have restructured their operations to use just-in-time inventory management. The economy has become more reliant on international trade and the movement of supplies and finished products from locations across the globe. The productivity impacts of changes in transportation costs can be very important, but may take years to emerge.

3.1.4. GEOGRAPHIC SCOPE

The methods and tools selected and approaches used may differ based on whether the scope of the analysis is focused on a State, a region, or a specific transportation corridor. It is important to consider how and where economic benefits will be produced. For instance, will businesses relocate from other regions, subtracting economic growth from other areas? Will it be important to account for these impacts? Will it be important to account for benefits that may accrue to regions other than the target region?

3.1.5. OUTCOMES MEASURED

There are a number of different outcomes that can be measured. These include the costs and benefits to the direct users of the facility, such as time savings, vehicle operating costs, and safety, as well as the more diffuse benefits that impact a larger population, such as air quality impacts. In addition to direct benefits, there are larger indirect and induced impacts to the economy that generate output and employment impacts. Another level of analysis might consider the longer term productivity impacts and future impacts on industry and regional competitiveness that investments might create. Data for some of these outcomes may be more readily available than others. It is important to note that not all of these outcomes are additive. Proper documentation and presentation of what these outcomes measure is important to ensure that readers interpret the results correctly. The selection of the analytical approach or specific model is driven in part by the types of outcomes that policymakers need to estimate.

3.1.6. PRECISION REQUIRED

The level of analytical precision required can range from extremely detailed studies that are performed to satisfy legal mandates to less precise sketch planning analyses whose purpose is simply to develop an initial estimate of the benefits. For instance the Montana Legislature mandated the inclusion and consideration of economic development issues in transportation planning and funding. In response, Montana DOT created the Highway Economic Analysis Tool (HEAT) model in 2004 to estimate the economic development and industry productivity impacts of transportation investments. Larger projects typically require more rigorous analysis methods, while less effort would likely be expended studying smaller investments. A controversial project could require a more in-depth and sophisticated analysis to satisfy public demand for information.

3.2. WHAT DATA, TOOLS, AND RESOURCES ARE AVAILABLE?

3.2.1. DATA AVAILABILITY

The availability of data is an important consideration for an agency that is conducting and an economic analysis of a freight transportation infrastructure investment. National data sources such as the Freight Analysis Framework (FAF) or the Commodity Flow Survey (CFS) can provide data on commodity flows in and out of States and regions by mode. In addition, the FAF contains data on truck volumes by segment for the highway network and includes data for the following roadway types: Interstate Highways, other FHWA-designated NHS routes, National Network (NN) routes that are not part of NHS, other rural and urban principal arterials, intermodal connectors, rural minor arterials for those counties that are not served by either NN or NHS routes, and urban bypass and streets as appropriate for network connectivity. FAF allocates freight to five truck types, which are single unit trucks, truck plus trailer combinations, tractor plus semitrailer combinations, tractor plus double trailer combinations, and tractor plus triple trailer combinations. While the FAF estimates empty trips for vehicles that carry freight, it does not estimate trips for trucks that are not engaged in freight carriage, such as utility trucks and business service vehicles. While the FAF data provides a comprehensive picture of freight movement among States and major metropolitan areas by all modes of transportation, allocating freight flows to smaller geographies is more difficult. In addition, it is important to be aware of the coverage and limitations of national data sources.

Depending on the nature of the regional economy and the goals of the study, these data gaps may be more or less important. For instance, the FAF does not provide local detail or temporal (seasonal, daily, or hourly) variation in freight flows that are typically necessary to support project planning. While statistical methods exist that allow analysts to disaggregate FAF data from FAF regions to counties or smaller areas, FHWA has not reviewed any of these methods in detail to determine their reliability or accuracy. FAF estimates of truck tonnage and number of trucks on the network, particularly in regions with multiple routes or significant local traffic between major centers of freight activity, should be supplemented with local data to support local applications.¹¹

Some State or local planning agencies may have more detailed data on truck movements in a region. These data may be purchased from vendors (such as the Global Insight Transearch data), obtained from surveys, or derived from truck models. If detailed data is readily available, it may affect the decision of what type of approach to use. For instance some models discussed in section 4 can take advantage of detailed commodity flow data.

In many cases regional transportation agencies may spend more effort estimating and forecasting light-duty vehicles. Less data is typically available to understand medium and heavy-duty truck movements, which must by estimated using different methods than those used for passenger travel. Larger metropolitan regions and States may have invested in developing truck models, truck trip tables or detailed data on freight movements based on publically available data from sources such as the County Business Patterns, data on land use, and other sources. Typically, economic activity as characterized by land use, employment or economic output is used to estimate truck trip origins and destinations (or the generation of freight tonnage, which is then converted into truck trips). Where truck movements connect to other modes, data from the Carload Waybill Sample, Waterborne Commerce Statistics, or other data sources may be used to estimate trucks carrying intermodal shipments. Many States and regions have not invested in developing detailed data on local truck movements. As a result, data constraints may be important to consider when selecting a tool for or approach to analyzing the impacts of freight transportation improvements on the economy.

3.2.2. APPLICABILITY OF SHORTCUTS AND RULES OF THUMB

Some transportation agencies have developed simplified methods or rules of thumb that they use to conduct abbreviated economic analyses. If agencies are engaged in a sketch planning type of analysis, they may find that these simplified and abbreviated forms of analysis are perfectly adequate for obtaining the answers they need. For instance, SEMCOG has developed a simplified spreadsheet tool that incorporates elasticities from their economic model. The tool simplifies the economic analysis process for projects. The Minnesota DOT has developed guidance, a spreadsheet template, and sample values that are used to streamline the performance of BCAs. Rules of thumb for evaluating the transportation impacts of infrastructure investments are also available from a number of different sources, and these are discussed in Section 4.

3.2.3. MODELING TOOLS

The types of tools that agencies are currently using may influence what tools they choose to analyze the impacts of freight transportation improvements on their economy. Modeling often occurs in a two-step process. Transportation impacts are often represented in a travel demand or freight model. The outputs of transportation models then serve as the inputs to an economic model to estimate economic impacts. States and regional transportation agencies vary significantly in both the economic and transportation models at their disposal. While many larger MPOs have transportation demand models, the freight components of these models are less well developed or non-existent in many areas. States also vary substantially in the extent to which they have freight models. While some States have developed integrated modeling frameworks to estimate the economic benefits of improving freight transportation, many States do not have well developed modeling tools.

While not having dedicated freight models, some State or local transportation agencies may be active in using economic models to estimate the impacts of transportation investments, estimating the direct, indirect and induced impacts of expenditures. Agencies that are already using private commercial models may have State or local economic data, and models that can be used with marginal additional investment of resources to purchase software, train staff, or obtain data. Taking advantage of existing modeling tools may thus be an important consideration for model selection for many agencies. It is important to note that without a freight model, customized approaches may be needed to represent transportation impacts in economic impact models that cannot model freight flows on their own. Smaller agencies will typically have fewer resources and may not have conducted similar economic modeling projects in the past. Relying on simplified methods may be an attractive option for some of these agencies.

3.2.4. RESOURCES: BUDGET AND STAFF SKILLS

Transportation or economic models may require a substantial financial investment in software licenses. In addition, an investment in staff time and training may be required to allow agency staff to use these models. Beyond the technical knowledge needed to navigate the software and develop data inputs, having access to a trained economist is usually desirable to ensure that model results are interpreted correctly. In many cases, a trained economist who is familiar with economic models can use creative solutions to represent transportation and logistics investments and incorporate their impacts into the model. This may be especially important if there are data gaps or limitations that must be overcome, or if the agency wishes to represent complex supply chain impacts and the industry productivity improvements that may be made possible by improvements in freight transport efficiency. The budget and staff skills available to an agency are often important factors in determining what types of tools are best to answer specific policy questions.

previous | next