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Freight: Are Innovative Solutions the Answer? Pamela Bailey-Campbell Vice-President Public-Private Initiatives September 18, 2007 PB Presentation to the Ohio Conference on Freight
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PB 2 Topics National and global freight picture Recent freight improvements from around the US The challenge of financing freight projects Solutions for Ohio
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PB 3 The big picture
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PB 4 The continuing explosion in freight demand,… AASHTO Freight Transportation Bottom Line Report, 2006
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PB 5 …propelled by robust underlying trends,… Growth in consumption patterns Changes in logistic practices Growth in Chinese imports Increased in cross-border trade
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PB 6 …combined with current capacity shortages already apparent in our nation’s infrastructure,
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PB 7 …implies an enormous funding challenge for a national transportation system approaching deficit spending $450 billion gap to maintain $1.2 trillion gap to improve 3.7 trillion to “maintain” 4.5 trillion to “improve” 3.3 trillion in Resources Source: Based on Future Highway and Public Transportation Finance Study, US Chamber of Commerce (2005)
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PB 8 Freight interests are ascending in the federal infrastructure funding agenda. SAFETEA-LU went further than previous federal bills in providing for freight interests explicitly Industry groups are pushing freight issues to the forefront in the next federal transportation program –Coalition for America’s Gateways and Freight Corridors’ Freight Transportation Fund (FTF) –ARTBA’s “Critical Commerce Corridors” –AASHTO’s “Transportation Future”
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PB 9 Potential new rail intermodal Facilities? But funding challenges persist for needed projects across the US. Ohio is no exception. Cincinnati and Columbus and Toledo freight bottlenecks Improved Port and Air Cargo Landside Connections Expansions of Lake Erie Ports Highway expansions to accommodate increasing truck traffic of I-70/71
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PB 10 Trade Patterns Consumption Patterns Capacity Infrastructure Modal Time/Cost Econ Global Patterns Shipping Intermodal Ship. Data Freight feasibility is driven by global dynamics. Changes in maritime patterns Panama Canal expansion Efforts to provide additional capacity on the West Coast Efforts to mitigate congestion at national and regional bottlenecks such as Chicago
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PB 11 Example of integrating global trends in developing investment strategies: The Panama Canal Far-reaching analysis of international markets Shifted focus from managing physical infrastructure to “right- sizing” the investment Examined factors such as: –Rapid rate of globalization –Manufacturing shifts to low cost locations: China, Cambodia, and Vietnam –Shipper logistics requirements to meet growth in demand –Increases in ship sizes Established financial, environmental and operational implications to drive a capital investment plan and financial model
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PB 12 Public policy at all levels has a pervasive impact on all freight modes. Freight ModesPolicy/Regulatory FocusPotential Impacts on Freight Costs, Speed TruckingSize and weight restrictions Emissions controls Hours of service rules Limited payloads/rerouting Higher vehicle costs Reduced driver productivity Rail/Intermodal STB – rates, service regulations Intermodal connections Funding/subsidy/credit support Rail abandonment, operational issues Rail mode share Rail investment Maritime / Port Operators Labor regulations Container security Throughput, service interruptions, labor costs Higher terminal costs, reduced throughput Air Cargo Environment – noise restrictions Limits development of new air cargo hubs
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PB 13 Solutions from around the US
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PB 14 What are states doing to improve intermodal links?
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PB 15 The context for freight Public-Private-Partnerships is framed by how responsibilities are distributed. SectorInfrastructureOperations WaterPublic / PrivatePrivate RailPrivate TruckPublicPrivate
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PB 16 Freight PPP Finance models ModelExample Public sector provides up-front funding through grants and loans; private sector repayment is through user fees Shellpot bridge Investment fully paid by the public sector; private sector provides in-kind contributions North Carolina Railroad Improvement Program Public-private funded; funding shares agreed to between each sector ReTRAC Concessions: private sector financing and long-term lease or ownership Texas Pacifico Rail Line Source: Based on USDOT FHWA Report Financing Freight Improvements, January 2007
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PB 17 Freight Finance Cases: Alameda Corridor Project cost $2.4 billion Port access, highway rail-crossing elimination, rail construction Constructed by the Alameda Corridor Transportation Authority (ACTA) Completed 2002 Funding SourceAmount ($M) US DOT Loan$400 Port of LA / LB$394 Los Angeles Metropolitan Transit Authority $347 Federal / state / interest Income $130 Revenue bonds backed by container fee $1,160
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PB 18 Freight Finance Cases: Chicago’s CREATE Project cost $1.5 billion (Phases I & II) Rail separation, highway crossing, rail rehabilitation & construction, upgrade signaling systems Sponsored by Illinois DOT, City of Chicago, METRA, Union Pacific, Burlington Northern Santa Fe, Norfolk Southern, Canadian National, Canadian Pacific, and CSX Project implementation has begun with limited funding Funding Source (Phase 1 Commitments) Amount ($M) FHWA$100 Illinois DOT$100 City of Chicago$30 Railroads$212
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PB 19 Freight Finance Cases: Heartland Corridor Project Cost of $309 million Vertical clearances, intermodal facilities, rail relocation Sponsored by Norfolk Southern, Virginia DOT, Ohio Rail Development Commission Construction starting Connections to Rickenbacker Funding SourceAmount ($M) Federal$110 VA Rail Enhancement Fund $48.2 Governors Transportation Funds $5 VA Match to Federal Funds $3.7 ORDC grant$0.8 Norfolk Southern$49.8
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PB 20 Freight Finance Cases: German High Speed Rail Germany’s state-owned rail (Vorsprung durch DB) Hartmut Mehdorn (CEO) turned chronic loss-making railway into powerful international business Next year offer 30% of shares to public World-class logistics company Key: control of 90% of rail network & freight
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PB 21 The challenge of financing freight projects
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PB 22 One barrier to freight projects is sheer complexity. Multitude of stakeholders and interests Multi-state and multi-jurisdictional issues Complicated planning & environmental process
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PB 23 Another challenge is translating public and private benefits analysis into a workable financing plan.
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PB 24 Understanding stakeholder interests: railroads Will pay for improvements when they see clear business benefits Challenged to earn cost of capital Cautious about receiving public assistance Have strong competitive interests
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PB 25 Understanding stakeholder interests: truckers Have rate structure allowing for fuel costs but not tolls Independent truckers have separate view from large shippers
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PB 26 Understanding stakeholder interests: businesses Can be powerful supporters of freight improvements if they –Decrease congestion, –Increase economic activity, and –Lower transportation and logistics costs. Example: Dell’s ultimatum to Austin area
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PB 27 Understanding stakeholder interests: public agencies Agencies are now being challenged to effectively incorporate freight into planning process Need to meet environmental and transportation objectives Economic development is also an objective in some cases
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PB 28 Understanding stakeholder interests: shippers Shippers are taking control of how routing decisions are made –Wal-Mart Value for shippers can mean money for projects –Time savings –Increased service –Reliability
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PB 29 Freight PPP Lessons Educate stakeholders as to each party’s interests and goals Consider relative benefits compared to distributed costs Understand strings on funding Establish environmental process and issues early Deal with expectations in general
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PB 30 Opportunities for Ohio
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PB 31 Ohio is a nexus for national freight movements
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PB 32 Ohio freight opportunities Develop a model multi-modal freight system Expand air cargo hubs Expand ports to capture growing freight demand and international trade
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PB 33 Ohio freight opportunities (continued) Truck-only toll lanes Intermodal rail facilities being planned as part of Heartland corridor Rail improvements to relieve growing pressure on Chicago hub Air cargo development, possibly modeled on Alliance facility in Dallas Increased market share for Great Lakes / St. Lawrence Seaway system ports
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