Freight Transportation
Short Sea Shipping Option Shows Importance of Systematic Approach to Public Investment Decisions Gao ID: GAO-05-768 July 29, 2005A dramatic increase in freight moving on the nation's highways and rail lines, coupled with growing congestion and infrastructure limitations, has prompted DOT to explore new mobility-enhancing options like short sea shipping (SSS)--transporting freight by water between domestic ports, either along the coast or on inland waterways. This report describes (1) why SSS is being considered and factors affecting its viability, (2) the department's role in the development of this option, and (3) issues that should be considered by public transportation decision makers when making investment decisions about this option or other types of projects for addressing freight mobility challenges. This report is based on a review of pertinent studies, federal activities, and an examination of two new SSS operations.
Transportation experts have cited numerous benefits, such as congestion mitigation, for developing short sea shipping, but they have also noted numerous obstacles, such as shippers' reluctance to try a different mode for transporting their cargo, that impede its development. Absent in-depth information on the benefits and obstacles, opinions vary on how to proceed. Some stakeholders favor extensive public involvement, including federal funding for projects while others see a more limited public role, such as addressing regulatory provisions that may interfere with its development. The two new services GAO examined provide insights--but no clear answers--about the viability of this approach. The Department of Transportation (DOT) has made short sea shipping a high-priority option to enhance freight mobility and has drafted a policy proposal to provide potential federal funding. So far, the department's efforts have been too narrowly focused. Before determining that federal funding should be applied to its development, a thorough understanding of key issues is required, such as the potential effect of federal involvement on the competitive balance among all transportation modes, lessons to be learned from recent start-up services, and actions that could mitigate identified obstacles, particularly with respect to reluctance to use this option. Public transportation decision makers are also actively considering short sea shipping in the context of a range of other options to address freight mobility challenges in their jurisdictions. Improving freight mobility, however, is a particularly complex challenge because the freight transportation system encompasses many modes on systems owned, funded, and operated by both the public and private sectors. In light of growing budget deficits, public decision makers must guard against waste of limited public resources when making investment decisions. This report contains a four-step approach for helping public decision makers define the rationale for public involvement, assess the merits of projects, determine the appropriate level and type of public support, and evaluate project results.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-768, Freight Transportation: Short Sea Shipping Option Shows Importance of Systematic Approach to Public Investment Decisions
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Report to the Senate Committee on Commerce, Science, and Transportation
and the House Committee on Transportation and Infrastructure:
July 2005:
Freight Transportation:
Short Sea Shipping Option Shows Importance of Systematic Approach to
Public Investment Decisions:
GAO-05-768:
GAO Highlights:
Highlights of GAO-05-768, a report to the Senate Committee on Commerce,
Science, and Transportation and the House Committee on Transportation
and Infrastructure:
Why GAO Did This Study:
A dramatic increase in freight moving on the nation‘s highways and rail
lines, coupled with growing congestion and infrastructure limitations,
has prompted DOT to explore new mobility-enhancing options like short
sea shipping (SSS)”transporting freight by water between domestic
ports, either along the coast or on inland waterways. This report
describes (1) why SSS is being considered and factors affecting its
viability, (2) the department‘s role in the development of this option,
and (3) issues that should be considered by public transportation
decision makers when making investment decisions about this option or
other types of projects for addressing freight mobility challenges.
This report is based on a review of pertinent studies, federal
activities, and an examination of two new SSS operations.
What GAO Found:
Transportation experts have cited numerous benefits, such as congestion
mitigation, for developing short sea shipping, but they have also noted
numerous obstacles, such as shippers‘ reluctance to try a different
mode for transporting their cargo, that impede its development. Absent
in-depth information on the benefits and obstacles, opinions vary on
how to proceed. Some stakeholders favor extensive public involvement,
including federal funding for projects while others see a more limited
public role, such as addressing regulatory provisions that may
interfere with its development. The two new services GAO examined
provide insights”but no clear answers”about the viability of this
approach.
The Department of Transportation (DOT) has made short sea shipping a
high-priority option to enhance freight mobility and has drafted a
policy proposal to provide potential federal funding. So far, the
department‘s efforts have been too narrowly focused. Before determining
that federal funding should be applied to its development, a thorough
understanding of key issues is required, such as the potential effect
of federal involvement on the competitive balance among all
transportation modes, lessons to be learned from recent start-up
services, and actions that could mitigate identified obstacles,
particularly with respect to reluctance to use this option.
Public transportation decision makers are also actively considering
short sea shipping in the context of a range of other options to
address freight mobility challenges in their jurisdictions. Improving
freight mobility, however, is a particularly complex challenge because
the freight transportation system encompasses many modes on systems
owned, funded, and operated by both the public and private sectors. In
light of growing budget deficits, public decision makers must guard
against waste of limited public resources when making investment
decisions. This report contains a four-step approach for helping public
decision makers define the rationale for public involvement, assess the
merits of projects, determine the appropriate level and type of public
support, and evaluate project results.
Self-propelled Short Sea Shipping Vessel:
[See PDF for image]
[End of figure]
What GAO Recommends:
GAO recommends that the Secretary of DOT and the Administrator of the
Maritime Administration: (1) develop a more thorough understanding of
SSS issues before defining a federal role involving substantial federal
investment and (2) use current mechanisms to encourage other public
decision makers to use a systematic approach for making investment
decisions on freight mobility projects.
DOT officials generally agreed with the contents and agreed with the
recommendations in this report.
www.gao.gov/cgi-bin/getrpt?GAO-05-768.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact JayEtta Z. Hecker at
(202) 512-2834 or heckerj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Transportation Stakeholders See Short Sea Shipping As Having Multiple
Benefits, but Also Cite Obstacles That May Impede Development:
The Department of Transportation's Role in the Development of SSS and
Freight Transportation Improvements Needs More Careful Study:
A Sound Investment Approach Is Needed to Guide Current and Future State
and Local Public Investments in Freight Improvements:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Characteristics of Traditional and Newer Waterborne Services:
Table 2: Benefits of Short Sea Shipping Cited by Stakeholders:
Table 3: Summary of Operating Characteristics of SSS Services GAO
Studied:
Figures:
Figure 1: The Sea Trader:
Figure 2: Map of the Gulf Coast Service:
Figure 3: Map of the Northeast Service:
Figure 4: Investment Approach to Guide Public Investment Decisions:
Abbreviations:
CMAQ: Congestion Mitigation and Air Quality:
DOT: Department of Transportation:
FAST: Freight Action Strategy:
FHWA: Federal Highway Administration:
FTA: Federal Transit Administration:
ISTEA: Intermodal Surface Transportation Equity Act:
MARAD: Maritime Administration:
MPO: metropolitan planning organization:
NYMTC: New York Metropolitan Transportation Council:
PIDN: Port Inland Distribution Network:
SEA-21: Sea Transportation Efficiency Act of the 21st Century:
SSS: short sea shipping:
TEA-21: Transportation Equity Act for the 21st Century:
TIFIA: Transportation Infrastructure Finance and Innovation Act:
Letter July 29, 2005:
The Honorable Ted Stevens:
Chairman:
The Honorable Daniel K. Inouye:
Co-Chairman:
Committee on Commerce, Science, and Transportation:
United States Senate:
The Honorable Don Young:
Chairman:
The Honorable James Oberstar:
Ranking Democratic Member:
Committee on Transportation and Infrastructure:
House of Representatives:
A robust U.S. economy depends on the efficient movement of freight to
fuel domestic production and satisfy consumer demand. In 2002, 16
billion tons of freight, valued at about $11 trillion in year 2000
dollars, moved through the U.S. transportation system. The efficient
movement of these goods across roadways, rail lines, and inland
waterways, helps ensure that factories remain efficient, packages are
delivered on time, and retail and grocery store shelves are stocked.
Efficient freight movement also tends to lower total shipping costs,
helping keep production costs and consumer prices lower, and these
savings to households and businesses help ensure that American products
remain competitive in global markets.
Increases in freight volume coupled with current rail, roadway, and
port capacity problems, however, are stressing the capacity of the U.S.
transportation system and interfering with the efficient movement of
these goods. Estimates made in 2003 suggest that growing international
trade and domestic production will increase overall freight traffic by
70 percent by 2020. Adding this much freight to the transportation
system is particularly worrisome since the system is currently showing
signs of strain. For example, roadway congestion, which affects 60
percent of the freeway mileage in urban areas, is causing significant
delays for truck traffic in certain cities. Driver shortages further
impact the efficient movement of goods and make it difficult for
trucking companies to expand capacity--a factor that is particularly
relevant since trucks carry 78 percent of the nation's goods (measured
in terms of freight tonnage). Freight movement by rail is also
encountering serious capacity problems in many areas. In July 2004, for
example, Union Pacific took measures to limit service because
increasing freight volumes were affecting service levels.[Footnote 1]
The 2002 Mid-Atlantic Rail Operations Study,[Footnote 2] which analyzed
rail traffic in five states in the Northeast, noted that there was a
lack of capacity on critical rail lines in at least 25 different
locations. Congestion at freight gateways--container ports and land
border crossings--is also expected to worsen as containerized imports
from our international trading partners are estimated to double in the
next 15 years.
There are no quick and easy remedies for these capacity problems.
Addressing these problems is a particularly complex challenge because
the surface transportation system encompasses many modes--water,
highway, transit, and rail--on systems owned, funded, and operated by
the public and private sectors, or both. State and local governments,
for example, have primary responsibility for selecting projects within
their jurisdictions, while private sector companies conduct most of the
actual transportation of cargo. Public transportation decision makers
who attempt to expand infrastructure capacity face a myriad of funding,
planning, and regulatory constraints. Highway projects costing from
$100 million to several billion dollars, for example, are becoming
commonplace and can take as much as two decades to complete. In the New
York City area, transportation officials estimate that transportation
projects will cost an estimated $147.1 billion (in 2005 dollars) by
2030, and most of this money is needed just to maintain the current
infrastructure.[Footnote 3] Freight railroad expansion efforts, which
are largely a private-sector endeavor, are also costly. The Mid-
Atlantic Rail study estimated that it would cost $6.2 billion to
address freight rail capacity needs in that region.[Footnote 4] These
problems are only exacerbated by difficulties in accessing federal,
state, and local funding sources for freight projects. Public officials
have noted that inadequate funds for freight projects also hinder
expansion efforts. Finally, in many larger urban areas, a lack of
available land to build new roads or rail lines adds to the constraints
imposed by the costs to expand capacity.
The continued growth in freight volume has led the U.S. Department of
Transportation to explore alternatives to improve freight mobility. One
of the options the agency is exploring involves the use of waterborne
freight, known as short sea shipping. Broadly defined, short sea
shipping encompasses waterborne transportation of commercial freight
between domestic ports through the use of inland and coastal
waterways.[Footnote 5] The department is exploring whether moving more
freight in this manner could provide an economically viable option to
relieve some highway and rail congestion while increasing freight
mobility. We conducted this study to provide information to the
Congress about this effort as it considers various ways to enhance
freight mobility. Our report addresses (1) why short sea shipping is
being considered as an option for addressing freight mobility concerns
and the factors that affect its viability as an approach, (2) the
Department of Transportation's role in the development of short sea
shipping, and (3) issues that should be considered by public
transportation decision makers when making public investment decisions
about short sea shipping or other types of projects for addressing
freight mobility challenges.
To determine why short sea shipping is being considered as an option
for addressing freight mobility concerns and the factors that affect
its viability as an approach in the United States, we conducted a
literature review of public-and private-sector reports and studies
related to freight mobility issues and the waterborne transport of
goods, and interviewed known short sea shipping experts in the public
and private sectors. To determine whether the issues identified through
the literature review and interviews were evident in practice, we
visited two short sea shipping operations and interviewed a wide range
of public and private transportation officials involved with or
knowledgeable about the services. In identifying existing services, we
relied on information gleaned from the literature review and
interviews, and selected a private-sector operation that ships cargo
along the Gulf of Mexico and a publicly funded operation that ships
cargo between the Port Authority of New York and New Jersey and the
Port of Albany. We also interviewed officials at the federal level,
including at the Department of Transportation and the Department of
Homeland Security's Customs and Border Protection agency, to supplement
information obtained through the literature review and interviews. To
determine the Department of Transportation's role in the development of
short sea shipping, we interviewed officials at the department and its
agencies, including the Maritime Administration and the Federal Highway
Administration. We also collected and analyzed documents supplied by
the department and its agencies. To determine issues that should be
considered when making public investment decisions, we analyzed the
results of this review of short sea shipping and built on the
perspectives gained from our past work in transportation systems and
federal investment strategies.[Footnote 6] We performed our work from
July 2004 through June 2005 in accordance with generally accepted
government auditing standards.
Results in Brief:
Transportation stakeholders representing both the public and private
sectors believe that incorporating short sea shipping into the surface
transportation system can produce numerous public benefits, but
stakeholders also note that numerous factors may limit the development
of short sea shipping services in the United States. Potential benefits
of new applications of short sea shipping, according to these
transportation stakeholders, include improved freight mobility,
improved air quality, and reduced public expenditures on large
infrastructure projects. For example, some transportation officials in
the Northeast believe that a short sea shipping service operating out
of the Port Authority of New York and New Jersey could relieve
congestion in and around New York City because cargo could move by ship
rather than by truck. Transportation officials note, however, that
numerous legal, operational, and acceptance-related factors, such as
laws that increase start-up costs, necessary modifications to port
facilities, and a general reluctance among shippers to try new modes,
may present obstacles to a wider development of short sea shipping
services. For example, ports may be mainly set up to lift containers
from large cargo ships using cranes, but short sea shipping operations
may instead use trucks to roll containers on and off barges or small
ships--an approach requiring new truck ramps and holding areas. The
effect of such factors, however, remains somewhat unclear, given that
few new applications of short sea shipping have been developed. For the
two operations we examined, many of these factors were apparently not
insurmountable, although there were indications that some factors may
interfere with further development. For example, operators of a service
between several ports in the Gulf of Mexico said the federal
requirement to use a U.S.-built ship for domestic shipping was limiting
their ability to expand capacity, because there are a limited number of
U.S.-built ships available on the market. Sponsors of a service between
the Port Authority of New York and New Jersey and the Port of Albany
said that shipper reluctance to use the service was limiting their
ability to attract more business, even though the subsidized service is
being offered at a lower cost than trucking.
The Department of Transportation has established short sea shipping as
a high priority component of the federal freight transportation
strategy and has drafted a policy proposal to provide targeted
incentives for short sea shipping projects. The department has been
exploring the potential of the option to reduce congestion and expand
capacity of the freight transportation system, but its efforts to date
have been narrowly focused--that is, they have been focused on the
option itself and not on the impact of this option on other
transportation modes or of federal involvement in its development.
Nonetheless, the Department of Transportation is already contemplating
a potential role for the federal government; it has developed policy
proposals that would include short sea shipping as a central component
of increased federal investment in the maritime sector. Before
determining that federal involvement is appropriate, a more
comprehensive understanding of key issues should be explored. If a
federal role does exist, key issues that are pertinent to this role are
(1) how to go about providing federal support to privately owned and
operated infrastructure and (2) whether and how to increase funding
levels for freight improvement projects. Considering the implications
of these broader issues can help guide the agency in defining the
federal role and ensure that the federal approach for short sea
shipping development is part of an integrated federal approach to
addressing the nation's congestion and capacity problems.
As the federal role is being defined and clarified, public
transportation decision makers at the state and local levels are also
actively considering short sea shipping and other options to address
the freight mobility challenges affecting their jurisdictions.
Increased funding constraints and compartmentalized funding programs,
however, create challenges for public decision makers in setting
transportation priorities and linking resources to results to ensure
that limited public dollars are wisely and effectively spent. A
systematic investment approach to guide public investment decisions at
all levels--federal, state, and local--could help public decision
makers in making those difficult choices. Building on the perspectives
gained from our past work in federal investment strategies and the work
of transportation experts, we developed a four-step approach that may
be helpful. The first step of the approach involves determining whether
public support for a proposed project is warranted by considering
whether it is expected to produce public benefits, such as reduced
congestion, improved air quality, and economic development
opportunities. If a rationale for public involvement can be
established, the second step involves a closer scrutiny of the proposed
project through an analysis of the costs and expected benefits of the
proposed project to determine if the project is the most cost-effective
option among alternatives. The third step of the approach involves
determining the level and type of public support to be provided. This
step involves recognizing that public support does not necessarily mean
financial support, but when financial support is provided, it should be
structured in such a way to minimize distortion of any competition. The
final step involves the evaluation of ongoing and completed projects to
determine if intended benefits have been achieved and to hold decision
makers accountable for their public investment decisions.
We recommend that the Secretary of Transportation and the
Administrator, Maritime Administration, (1) ensure that a comprehensive
understanding of key issues is developed before defining a federal role
that would involve any substantial federal investment in short sea
shipping projects and (2) use current mechanisms to encourage decision
makers at all levels to take a more systematic approach to making
decisions about freight mobility projects. In commenting on a draft of
this report, the Department of Transportation generally agreed with its
contents and agreed with the recommendations. The department also
provided technical comments that we incorporated, as appropriate.
Background:
Transporting freight by water has been part of the freight network for
many years in the United States, but most operations have traditionally
been used for the movement of bulk commodities, such as coal,
petroleum, grain, and lumber. Waterborne modes, sometimes referred to
as short sea shipping (SSS) operations, currently operate along the
Mississippi River system, across the Great Lakes, through the St.
Lawrence Seaway, and along some coastal routes. Together, these
operations moved about 6 percent of the nation's freight tonnage in
2000. SSS is one of the most cost-effective ways to move heavy, lower-
value, and non-time-sensitive goods, but since it is slower and less
reliable than trucking or air, shippers tend to move higher-value and
time-sensitive freight by faster and more reliable modes, such as
trucking or air.
Recent years have brought an increasing focus on developing new SSS
options that are better suited for moving cargo that normally travels
by truck and tends to include higher-value and time-sensitive goods.
(See table 1 for examples of traditional and newer waterborne
services.) Some of these proposals rely on traditional waterborne
methods, such as tug-and-barges, that are adapted to move containerized
cargo instead of the traditional bulk commodities. For example, one
operation we examined uses a tug-and-barge to move containers between
two cities in the Northeast. Other proposals, however, look much
different from the traditional waterborne modes. For example, one
operation has proposed using two self-propelled ships to move
containerized cargo along coastal waterways at faster speeds than tug-
and-barges. Another proposal calls for building a dozen "next-
generation" vessels that could move trucks and passenger cars along an
extensive waterway network at more than four times the speed of tug-
and-barges.
Table 1: Characteristics of Traditional and Newer Waterborne Services:
Characteristics: Cargo;
Traditional services: Mostly lower-value non-time-sensitive cargoes,
including bulk commodities, such as grain, coal, and lumber;
Newer services: Many different types, but many are targeted at the
higher-value time-sensitive containerized freight that normally moves
by truck.
Characteristics: Vessel speed/type;
Traditional services: Mostly slower-moving tug-and-barge operations;
Newer services: Higher-speed self-propelled vessels; many propose using
ships that can allow trucks to roll on and roll off, instead of the
traditional methods in which cargo is lifted on and off by large
cranes.
Characteristics: Areas served;
Traditional services: Along inland waterways and the Great Lakes;
Newer services: Proposals include the Great Lakes and inland waterways,
but many are focused on coastal routes that parallel high-traffic
interstates.
Characteristics: Purpose;
Traditional services: To provide the most economical way to move low-
value and non-time-sensitive freight;
Newer services: To remove cargo from busy truck cargo routes and port
areas.
Source: GAO analysis of information from studies, interviews, and other
sources.
[End of table]
To develop these newer types of SSS operations, some transportation
stakeholders have called for extensive public-sector involvement, while
others have advocated for a more limited government role. For example,
some transportation stakeholders believe that the federal government
should provide money for SSS demonstration projects or heavily
subsidize start-up operations to prove to shippers that this is a
viable mode of transportation. Others, however, see a more limited
government role and argue that government officials should focus their
efforts on addressing regulatory provisions that may interfere with the
development of SSS operations.
The waterborne transportation of freight has a strong presence in
Europe, where European Union policies have encouraged its use. In
Europe, SSS grew steadily between 1970 and 1998.[Footnote 7] Shipping
in Europe, however, is not directly analogous to shipping higher-value
freight in the United States. For example, Europe's rail system is less
efficient for moving freight than the U.S. rail system, and because of
Europe's geography, many of Europe's main industrial centers are close
to waterways. Thus, in many cases, SSS routes in Europe may provide the
fastest and most reliable service between destinations. In addition,
legal provisions--such as road taxation and driving restrictions--
increase the cost of road transport in Europe and play a role in the
greater use of SSS.
Federal funding that could potentially be used to assist with the
development of SSS in the United States is currently limited. Under
certain circumstances, however, current federal laws could provide some
financing for waterborne options because these laws allow states more
flexibility to expend federal aid on certain nonhighway freight
projects. The Intermodal Surface Transportation Efficiency Act of 1991
(ISTEA) and its successor, the Transportation Equity Act for the 21st
Century (TEA-21), broadened the reach of programs established under
title 23 of the United States Code[Footnote 8] to fund and finance
surface transportation projects with user tax receipts[Footnote 9]
credited to the Highway Trust Fund and distributed to states through
annual apportionments according to statutory formula.[Footnote 10]
While funds apportioned to the states are most often used to build and
maintain roads, innovations in ISTEA and TEA-21 allow transportation
decision makers some flexibility in using funds for freight improvement
projects. For example, funds can be used to make improvements to rail
lines and port facilities. The current federal framework also allows
for greater use of public-private partnerships through programs such as
the Transportation Infrastructure Finance and Innovation Act of
1998,[Footnote 11] a program that provides federal loans or loan
guarantees to be used in concert with funding from other sources,
including the private sector.
Transportation planning occurs at the federal, state, and local levels.
Although the last two surface transportation reauthorizations provided
enhanced project-specific decision authority for the use of formula
funds to the state level, the U.S. Department of Transportation (DOT)
has responsibility for nationwide transportation planning, as well as
program-level oversight. DOT has recently become involved in exploring
the potential of SSS to expand the capacity of the freight
transportation system to improve freight mobility and reduce
congestion. In its strategic plan, DOT states that the U.S. coastal and
inland waterway system is underutilized and could provide a practical,
safe, and efficient means of transporting freight.[Footnote 12] Through
its National Freight Action Agenda, DOT has specifically identified SSS
for accelerated development.[Footnote 13] As the primary operating
agency within DOT responsible for promoting SSS, the Maritime
Administration (MARAD) has also made SSS a high-visibility component of
its strategic plan.[Footnote 14] MARAD's Strategic Plan proposes that
greater use of the maritime transportation system, through elements
like SSS, offers the potential to reduce passenger and freight
congestion, as well as facilitate increased U.S. military reliance on
commercial marine transportation systems.[Footnote 15]
Transportation Stakeholders See Short Sea Shipping As Having Multiple
Benefits, but Also Cite Obstacles That May Impede Development:
Stakeholders, including transportation officials and maritime
stakeholders representing both the public and private sectors, see SSS
as a potential option for improving freight mobility and creating other
benefits, especially in high-demand transportation corridors, but they
also note that certain obstacles may limit its development. Benefits
cited include improved freight mobility, reduced infrastructure
spending, and improved air quality. Potential obstacles to being an
effective competitor include laws that increase start-up and operating
costs, port facilities that are not readily adaptable to SSS
operations, and a general reluctance among shippers to try new modes.
For the two operations we examined, the effect of these potential
obstacles varied. Some affected the viability of the operations, but
others appeared to have little effect or were overcome by the
operators.
Benefits Cited Include Improved Freight Mobility, Improved Air Quality,
and Reduced Infrastructure Spending:
According to stakeholders, the development of SSS operations may
produce a number of public benefits.[Footnote 16] (See table 2.) By
providing an additional option for transporting freight, stakeholders
contend that such services would increase the capacity of certain
freight routes, thus alleviating many of the capacity stresses that
currently affect the surface transportation system. For example, an SSS
service that moved cargo from New York to Miami might reduce the number
of trucks on Interstate 95, the major highway between the two cities,
thereby reducing overall roadway congestion. Similarly, SSS services
that move containerized cargo out of busy ports to less congested ports
could help alleviate dock congestion and reduce the number of trucks
and trains traveling on crowded port access routes, thus alleviating
capacity constraints affecting many ports. Stakeholders also contend
that since SSS services are more fuel efficient than trucks, SSS
operations can help improve air quality in certain locations by
reducing pollution. Finally, stakeholders contend that SSS services
could provide a more cost-effective alternative to building new
roadways and rail lines, thus reducing the amount of money spent on
infrastructure projects.
Table 2: Benefits of Short Sea Shipping Cited by Stakeholders:
Benefit: Improved freight mobility (increased freight capacity);
Explanation: At a basic level, incorporating SSS into the surface
transportation system may add capacity to certain cargo routes because
it increases modal alternatives. SSS operations may also help increase
capacity in other ways, such as helping remove containers from busy
ports, thus freeing up needed dock space for incoming cargo.
Benefit: Improved freight mobility (less congestion);
Explanation: By taking trucks off the road, SSS may help alleviate
congestion along key corridors.
Benefit: Improved air quality;
Explanation: Barging services may be more fuel efficient than trucking,
and one barge may be able to carry as much freight as 58 trucks.
Removing these trucks from the road and using a more fuel-efficient
option may reduce emissions and improve air quality.
Benefit: Reduced need to build roadways and rail lines;
Explanation: By reducing the pressure on existing transportation
infrastructure, SSS can reduce the need to build new infrastructure.
Large infrastructure projects, such as new roadways and rail lines, are
expensive, time consuming, and in some cases may be limited because of
population density or land costs.
Source: GAO analysis of studies, reports, interviews, and position
papers.
[End of table]
Potential Obstacles Cited Include Legal, Operational, and Acceptance
Issues:
While stakeholders contend that such SSS operations can produce a
number of public benefits, they also note that various obstacles could
make it difficult for operators to start and sustain an SSS service
that competes effectively with other modes. Since few SSS services have
actually been created, there is no consensus about the effect, if any,
these obstacles would present to SSS development. The potential
obstacles cited involve legal, operational, and acceptance-related
challenges. Legal requirements could present a barrier to SSS
development by increasing the start-up or operating costs of
operations. Operational challenges involve incompatible infrastructure
and potential strains on port capacity. Finally, a general
unwillingness among the shipping community to switch from well-
established modes, such as trucking and rail--even if SSS can be shown
to be a competitive option--can present a barrier to SSS development.
Legal Requirements:
Paying the Harbor Maintenance Tax. Some proponents contend that the
Harbor Maintenance Tax, a general levy on the value of cargo moved
through a port,[Footnote 17] would make SSS less competitive with other
modes, such as truck or rail, because it places an additional tax
burden on shipping by water. The fee, which pays for such activities as
harbor dredging, is levied on the value of cargo (0.125 percent) as it
is loaded or unloaded from a commercial vessel in a U.S. port.[Footnote
18] Stakeholders argue that since shippers may avoid the tax by
utilizing other modes, such as trucking or railroads, few would choose
to use SSS services. For example, a shipper moving cargo from New York
to Miami using SSS would be subject to the tax, but the same shipper
can avoid the tax if the shipment travels by rail or truck. Trucking
associations note, however, that they, too, are subject to user taxes,
such as tolls and federal taxes.
Potentially higher vessel costs because of Jones Act requirements. Some
SSS stakeholders contend that certain provisions in the Jones
Act,[Footnote 19] which requires that any vessel (including barges)
operating between two U.S. ports be U.S.-built, owned, and operated,
may increase the start-up costs of SSS operations because ships built
in U.S. shipyards tend to be more expensive than vessels that can be
acquired from the global market.[Footnote 20] These higher costs, in
their view, could increase start-up costs and make it difficult for
operators to create SSS services or sustain profitability. Another
stakeholder argued that SSS operators are overstating the cost
differences between U.S. and foreign-built ships and note that even if
U.S.-built ships are more expensive, these additional capital
expenditures, given the long operating life of a ship, would add little
to the cost of each trip.
Operational Issues:
Potential need to alter port facilities. Current port infrastructure is
often designed to accommodate large and deep-draft oceangoing vessels
and may not be compatible with ships designed for SSS operations. For
many oceangoing ships, large cranes are generally used to load and
unload containers. This approach, referred to as "lift-on/lift-off,"
may be compatible with some SSS operations, but others may use
different loading and unloading techniques. For example, some SSS
operations may use a different approach, such as "roll-on/roll-off," in
which trucks drive off and on the ship. Therefore, starting an SSS
service might require ports to build ramps that allow trucks to move on
or off the ship or additional dock-side space where truck trailers wait
to be loaded and unloaded from the ramp. SSS vessels are also smaller
than oceangoing ships, and this size difference has raised concerns
that SSS ships will not be compatible with docks designed for larger
oceangoing vessels.
Added handling costs. Shipping operators must pay dockworkers to lift
cargo on or off ships, and some stakeholders have argued that the cost
of these "lifts" will make SSS services less cost competitive with
other modes. A shipper moving a container by SSS from New Orleans to
Houston, for example, would need to pay for at least two "lifts"--one
at the port of departure and one at the port of arrival. This could add
hundreds of dollars to the total shipping costs, according to some
proponents. A shipper choosing to move the goods by truck avoids the
costs of the "lifts." An SSS service using a roll-on/roll-off approach
rather than cranes to load its vessels, however, might encounter cost
savings.
Potential strains on port capacity. While some SSS services may improve
port efficiency, thus reducing strains on port capacity, other types of
SSS services might have the opposite effect, according to some
stakeholders. For example, a service that attracted additional
containers to a port for shipment by SSS rather than by truck would add
to the number of containers entering and leaving the port. Because of
these concerns, some proponents have advocated basing SSS services at
ports that handle less cargo than the nation's major freight gateways,
but these are often further away from the major market areas that
demand the cargo.
Acceptance-Related Challenges:
A viable economic advantage. Some stakeholders note that short sea
shipping must offer economic advantages before shippers would be
willing to use such services. Stakeholders note that for shippers to be
willing to try this new approach, SSS operations would need to provide
service that is cost-competitive with other modes and is as consistent
and reliable. In addition, shippers would need to identify some
advantages to shifting to SSS services, such as faster, more reliable,
or cheaper service than other transportation modes.
General reluctance to try new modes. A general reluctance among
shippers, freight forwarders, and others involved in moving freight to
try new shipping modes, regardless of the potential benefits, poses an
additional challenge, according to many stakeholders. One
transportation stakeholder told us that since shippers have operated
under negotiated contracts with trucking companies for many years, they
may be unwilling to shift business to SSS operations regardless of
perceived benefits.
SSS Services Examined Were Operationally Different, but Both Attempted
to Address Similar Freight Capacity Concerns:
While the two SSS services we examined--one in the Gulf Coast and one
in the Northeast--differed in many ways,[Footnote 21] both of the
services were designed to address capacity concerns. The two operations
differed in such ways as the types of vessels used, operating
schedules, types of cargo moved, and structure of funding (public or
private). (See table 3.) Both services, however, were designed to
provide a modal alternative that could help improve freight mobility
around ports and along congested cargo routes.
Table 3: Summary of Operating Characteristics of SSS Services GAO
Studied:
Characteristic: Operator/sponsor;
Gulf Coast service: Osprey Line, LLC (private operator);
Northeast service: Port of Albany, Port Authority of New York and New
Jersey (primary project sponsors), and private barge operator (vessel
operator).
Characteristic: Funding source;
Gulf Coast service: Private funding only: Operator charges shippers for
the service; Northeast service: Private funding: Operator charges
shippers for the service;
Public funding: Shipping rates are subsidized with money from a federal
grant (Congestion Mitigation and Air Quality program) and funds from
the Port of Albany and the Port Authority of New York and New Jersey.
Characteristic: Type of cargo;
Gulf Coast service: International and domestic containerized cargo,
mostly bulk commodities but also finished manufactured goods;
Northeast service: International containers (no domestic) carrying
mostly bulk commodities.
Characteristic: Vessel type;
Gulf Coast service: Self-propelled ship (lift-on/lift-off);
Northeast service: Tug-and-barge operation (lift- on/lift-off).
Characteristic: Service frequency;
Gulf Coast service: Once every 7 days;
Northeast service: Once every 7 days.
Source: GAO analysis of information provided by SSS operators.
[End of table]
Gulf Coast Service:
The Gulf Coast service, which began in 2000, is a private-sector
initiative designed to attract shippers concerned about several freight
capacity issues at ports and along key transportation routes. Operating
on a 7-day cycle[Footnote 22] around the Gulf of Mexico, the Gulf Coast
service uses a self-propelled U.S. flagship vessel (named Sea Trader)
to move international and domestic containerized cargo, such as
building supplies, finished manufactured goods, and chemicals, to and
from ports in Houston, New Orleans, Tampa, and other cities as needed.
(See fig. 1 for picture of the Sea Trader.) For example, the service
moves finished manufactured products from Houston to Tampa and empty
containers from Florida to Gulf Coast ports. The self-propelled vessel
completes these types of trips in about half the time of a tug-and-
barge service, according to the operators of the service. Speed is
important, they said, because it allows them to compete with trucking
along these cargo routes.
Figure 1: The Sea Trader:
[See PDF for image]
[End of figure]
The service has provided a successful solution to several of the
freight mobility concerns in the area, according to operators. (See
fig. 2 for a map of the Gulf Coast service.) Two concerns, in
particular, attracted customers to the service, according to officials
we spoke with. One was the difficulty of finding truck drivers for
several routes covered by the service. These routes, such as Houston to
Tampa, are reportedly undesirable to many truck drivers because they
involve a long-distance trip that may take multiple days, and the
drivers often receive compensation for only one leg of the trip. One
logistics provider[Footnote 23] told us that a company in the region
began using the SSS service because it was unable to find drivers
willing to move cargo from Houston to destinations in Florida.
Operators of the service maintain that the service provides shippers
with an alternative means of moving cargo along these routes. The
second concern was declining rail service, which has become
increasingly unreliable, according to the operators and the logistics
provider we spoke with.
According to the operators, the service has also been able to help
relieve port congestion and provide other public benefits, including
the following:
* Because containers can be transferred directly from other ships to
the SSS vessel at the Port of Houston, fewer trucks will need to travel
along port access routes, thus reducing congestion on roadways leading
to and from the port.
* This ability to pick up cargo from the port also increases the amount
of cargo that can be removed from the docks during a 24-hour period,
increasing overall port capacity and reducing the amount of time that
cargo normally sits on the docks[Footnote 24] before it is loaded onto
another mode for delivery to its final destination.
* Finally, to the degree that containers are transported to their
destination on the SSS vessel instead of on the highway, the service
reduces the number of trucks traveling along congested roadways.
Figure 2: Map of the Gulf Coast Service:
[See PDF for image]
[End of figure]
The Gulf Coast service has been able to attract enough business that
the service is currently covering most of its operating expenses. The
logistics provider we spoke with said the cost of the service was
competitive with trucking rates. Although the service has been able to
move enough cargo to sustain operations, the operators said that they
are still operating below full capacity and have had a difficult time
attracting more business from shippers in the area. Nonetheless, the
operators said they plan to add an additional self-propelled vessel to
the Gulf Coast route within the next 12 months. They expect future
customers to be attracted because of (1) problems that trucking
companies are having with finding drivers for certain long-distance
routes and (2) continued concerns on the part of shippers about rail
service in the region.
Northeast Service:
The Northeast service, which began in April 2003, is a public-sector
initiative designed to help alleviate many of the port capacity
problems at the Port Authority of New York and New Jersey as well as
relieve congestion on crowded roadways in the New York City area. The
Port Authority of New York and New Jersey, the Port of Albany, and
regional and state planners spearheaded an SSS service for moving
containerized cargo up and down the Hudson River between the Port
Authority of New York and New Jersey in the south and the Port of
Albany in the north. This service is part of a proposed inland
distribution network that planners hope will include multiple rail and
SSS services.
This service, called the Albany Express Barge, uses a privately owned
and operated tug-and-barge to transport the containers, which are
primarily loaded with bulk commodities, such as logs and silicon. (See
fig. 3 for a map of the Northeast service.) Shipping containers between
these ports by barge is slower than shipping them by truck, so the two
ports decided to use a public subsidy to make the shipping rate more
attractive to potential shippers. With the help of the public subsidy,
the ports were able to set a shipping rate 10 percent below the rate
for shipping by truck. Officials at the Port Authority of New York and
New Jersey, faced with space limitations and expecting a dramatic
influx of international cargo in future years, believed that within 15
years, such operations would be able to transfer more than 18 percent
of all containerized cargo moving into and out of the Port Authority of
New York and New Jersey.
Figure 3: Map of the Northeast Service:
[See PDF for image]
[End of figure]
To set a shipping price that was lower than trucking rates, the ports
have used public funding from several sources as a way to supplement
the amount the operator is receiving. The main sources for this subsidy
are two federal grants secured by the Port of Albany through the
Congestion Mitigation and Air Quality Improvement (CMAQ)
program.[Footnote 25] The first grant was for $3.3 million for 2003 to
2004; the second, an extension of the first grant, was for $2 million
for 2005. Under the rules of the CMAQ grant, Port of Albany officials
are required to provide a 20 percent match to receive the funds. The
Port of Albany has been providing much of this amount from its budget,
although Port Authority of New York and New Jersey officials have
recently provided $500,000 to help meet the requirement.[Footnote 26]
Operators of the service also collect a fee from users of the service
for each container shipped, which, according to port officials is about
10 percent less than what it costs to move the same goods by truck.
This service is not meeting officials' expectations.[Footnote 27] Port
officials said that during the first 2 years, it has moved
significantly less cargo than originally projected and will likely
remain dependent on public subsidies for the next 10 years. The
operation initially began as a twice-weekly service, but shortly after
its launch, officials cut service to once a week because the volume of
freight was not sufficient to sustain two trips a week. During the
first 12 months of service, the operation moved an average of 105
containers per month. Usage rose to an average of 383 containers per
month in the next 11 months (April 2004 through February 2005), but
this higher level is still far less than originally projected. In
addition, port officials said that about half of the containers that
travel on the service are empty and, thus, do not generate revenue for
the service.[Footnote 28] Because usage is lower than expected, the
ports have had to use more grant moneys than expected to meet the
operator's costs. According to port officials, without the 1-year $2
million extension of the CMAQ grant, the operation would likely have
been discontinued. Plans for the service after grant moneys are
exhausted are uncertain.
Effect of Potential Obstacles Varied for the Two Services:
Some of the factors that stakeholders identified as potential obstacles
appeared to affect the development and continued operations of the Gulf
Coast and Northeast services, but others had little effect or were
overcome by the operators.[Footnote 29] For example, neither the
Northeast nor the Gulf Coast operators cited inadequate port
infrastructure as a major obstacle to development, but both said that
shipper reluctance was affecting the viability of their services. Some
factors, such as handling costs, affected the two services in different
ways. Below, we describe how each identified obstacle affected the two
SSS operations we examined.
Harbor Maintenance Tax. The Harbor Maintenance Tax did not appear to be
a significant obstacle to the development or operation of either SSS
service, but in both cases, the operators of the services still
expressed concern about its potential effect. While users of the
Northeast or Gulf Coast service are required to pay the Harbor
Maintenance Tax, the operators said they were not sure whether the
shippers using these services were submitting their payments. Operators
of both services nonetheless said they were concerned that if the tax
is ever explicitly levied on these domestic movements, shippers may be
unwilling to use the services because they can avoid the cost by using
land-based options.
Jones Act requirements. The Gulf Coast operators said that, in general,
the high capital costs of U.S.-flag vessels are affecting their ability
to expand operations and keep shipping prices competitive with
trucking, while the Northeast operators said that this requirement was
not affecting them. The difference, however, may lie primarily with the
type of vessel each service uses. According to the Gulf Coast
operators, this obstacle did not prevent them from starting their
service because they were able to buy a used U.S.-flag ship--a cheaper
alternative than buying a new U.S.-flag vessel. For expansion, however,
the Gulf Coast operators said the limited number of used U.S.-flag
ships available on the market poses a greater difficulty. Operators of
the Northeast service, by contrast, said the requirement was not a
significant concern because they use a tug-and-barge option in which
the U.S. and foreign-built versions, compared with self-propelled
vessels, are more similarly priced.[Footnote 30]
Handling costs. The Gulf Coast operators said that handling costs were
not a significant concern because they were able to negotiate special
rates with dockworkers. In contrast, the Northeast operators said that
handling costs are affecting the sustainability of their service. In
both instances, the operators were able to negotiate special contracts
with dockworkers that reduced the cost of each "lift," thus helping
decrease overall shipping costs. The Northeast operators, however, said
even their negotiated rates are still high enough to affect viability.
Port infrastructure. Neither service cited port infrastructure as a
problem. Gulf Coast operators said they worked with transportation
officials in various locations to provide needed infrastructure
additions or upgrades at ports, such as roadway access routes. However,
both operators used lift-on/lift-off equipment (such as cranes), and it
is unclear whether SSS operators who attempted to use roll-on/roll-off
technology would encounter port infrastructure problems.
Adverse impact on port capacity. According to port officials in the
Northeast and the Gulf Coast, the SSS operations have not had a
significant impact on port capacity. For the Gulf Coast operation,
officials at the Port of Houston said that the SSS service was moving a
small amount of freight; thus, it did not add to capacity problems at
the port. In the Northeast, officials from the Port of Albany and the
Port Authority of New York and New Jersey said that the operation was
also not adding to capacity concerns.
Shipper acceptance. The Gulf Coast and Northeast operators both said
that a general unwillingness among the shipping community to try new
and untested modes, such as SSS, was affecting the viability of their
SSS services. The Northeast operators said that even though they are
offering a service that is cheaper than trucking, they have been unable
to convince shippers to switch. The Gulf Coast operators also said that
they have had a difficult time convincing many shippers to switch from
trucking to SSS, even though they believe they offer a service that is
comparable in price and speed to trucking. Our discussions with
logistics providers produced two main explanations for this lack of
acceptance. One concerns speed. For example, one logistics official in
the Northeast told us that SSS services in general are too slow for
shippers' needs, and thus many shippers are unwilling to use them. The
other concerns frequency of service. Logistics providers in the
Northeast and the operators of the Gulf Coast service said that the SSS
services are at a disadvantage to trucking because they cannot
currently offer more-frequent service, while trucking companies can
move goods daily. This frequency of service, according to logistics
providers, is an important factor for many shippers.
Operators of the Gulf Coast service echoed these concerns in their own
comments about potential obstacles to keeping or expanding a viable SSS
service. They said the ability to provide service that is comparable
with trucking is critical, especially if the goal is to remove trucks
from major roadways and port access routes. In this regard, they said,
tug-and-barge operations are too slow to compete with trucking along
certain cargo routes, and even self-propelled vessels are still slower
than trucks along many cargo routes. Likewise, frequency of service was
a concern because more-frequent service allows shippers to integrate
SSS services into their supply chains. The Gulf Coast operators also
said that Coast Guard crewing requirements were an impediment to SSS
operations that use self-propelled vessels because the Coast Guard
requires a larger crew for self-propelled vessels that carry
containers. Because the operators of the service must pay for a larger
crew, these requirements decrease the cost competitiveness of the SSS
operation, according to the operators of the Gulf Coast service.
Finally, the most important factor, according to the Gulf Coast
operators, is that SSS services must be cost-competitive with trucking
if such operations are going to attract business from shippers.
Stakeholders involved with the Northeast service said that a lack of
commitments from ocean carriers--those responsible for exporting and
importing international shipments--is also affecting the viability of
their SSS service. According to officials at the Port Authority of New
York and New Jersey, ocean carriers often decide how international
cargo entering the United States will reach its final destination, and,
therefore, having their commitment to move goods on the Northeast
service might make it more successful. This is a factor that could
affect other SSS operations in other regions of the country.
The Department of Transportation's Role in the Development of SSS and
Freight Transportation Improvements Needs More Careful Study:
While SSS appears to have merits worth considering, it is unclear why
DOT has already identified SSS as a high-priority component of the
national freight transportation strategy and chosen to promote and
accelerate its development. Such an endorsement appears premature given
the limited experience in the United States in using this approach, the
preliminary nature of the information generated so far through the
agency's exploratory efforts, and the absence of a comprehensive
understanding of key issues necessary to define the appropriate federal
role needed, if any. Before moving ahead, more work is necessary to
establish whether federal intervention in the development of SSS in
this country is appropriate. Then, if an appropriate federal role
exists, a necessary next step is to consider what changes, if any,
might be needed to carry out that role. Two questions appear central to
such a discussion: (1) Should federal support be provided for privately
owned and operated infrastructure? (2) Should funding levels be
increased and existing funding sources expanded?
DOT Has Identified SSS Development as a National Freight Priority
before Determining Why the Federal Government Should Be Involved:
DOT has identified the acceleration of SSS development in the United
States as one of six high-priority freight initiatives through its
National Freight Action Agenda and has taken steps to explore the
viability of the approach.[Footnote 31] According to agency officials,
SSS is an important concept for the agency to explore because of the
potential of the approach to produce public benefits, such as reducing
traffic congestion in areas experiencing heavy freight movement and
expanding the capacity of the freight transportation system to support
continued economic growth. At this stage, however, agency officials
acknowledge that all of the public benefits of SSS and factors that may
affect its development in this country have not been fully considered.
DOT has undertaken a number of exploratory activities, most of which
were undertaken to promote and accelerate the approach in the United
States. For example, MARAD--the primary agency within DOT responsible
for the SSS initiative--has funded studies of the concept, created a
public/private partnership of stakeholders to share resources and in-
kind services for accelerating SSS development in the United States,
and sponsored conferences to exchange industry knowledge of SSS and its
potential contribution to the nation's transportation system. Agency
officials emphasize that MARAD's exploration of these issues spans only
a few years and results to date can be characterized as preliminary.
DOT does not yet appear to have a sound basis for identifying SSS as a
high-priority component of the national freight transportation
strategy. Thus far, federal efforts have focused on studying and
exchanging industry knowledge on the concept, and not on whether
federal involvement in its development is necessary. This information
may be useful in understanding the potential of the approach to reduce
congestion and expand system capacity, but it will not help
policymakers determine whether federal involvement in its development
is warranted, and it does not begin to broach issues involving the
effects of federal involvement on the freight transportation system as
a whole. For example, DOT has not thoroughly assessed key issues, such
as:
* the potential impact of federal involvement in developing SSS on the
competitive balance among all transportation modes;
* lessons learned from new SSS services, such as the Gulf Coast and
Northeast services that we examined; and:
* obstacles and mitigating actions necessary to developing SSS,
particularly with respect to the reluctance by shippers and logistics
providers to using this option.
In-depth insight into these and other issues is an important
prerequisite in order to establish the extent of federal involvement
needed, if any, in the development of SSS in this country. However, it
is unclear at this time whether DOT and, in particular, MARAD are
planning to address these issues. DOT's Office of Freight and Logistics
and MARAD's Directorate of Port, Intermodal, and Environmental
Activities, which together account for the bulk of federal SSS
activities undertaken to date, have recently reorganized and are
rethinking where next to focus their SSS efforts. Both are developing
plans for future SSS activities in which they plan to engage, and these
plans were not yet finalized and were not available for our review
during the course of our work.
Before asserting a federal role in the development of a domestic SSS
system, DOT should consider whether federal involvement is even
appropriate. As part of the agency's information-gathering efforts, it
would be important for DOT to consider the potential of the private
sector to develop SSS without any involvement from the federal
government. Many transportation experts maintain that government
involvement in freight projects should be limited to circumstances in
which market-based solutions would produce less than efficient
results.[Footnote 32] Government-imposed solutions to freight problems
have the potential of superseding solutions that the private market
would reach on its own. Determining whether SSS development could occur
solely in response to market forces is an important issue to explore,
in part, because the federal involvement may be spurred by
considerations other than freight efficiency. For example, the federal
government is interested in maintaining the safety and condition of the
transportation system in addition to improving the efficiency of the
system. Therefore, without fully exploring the implications of federal
involvement, policymakers may adopt an approach that unintentionally
causes market distortions and reduces efficiency. In the extreme,
providing federal support for a project has the potential of producing
overcapacity and distorting shippers' choices about which
transportation mode to use.
Part of determining the advisability of a federal role involves
assessing the risks associated with providing federal support for SSS
projects. While lessons learned from the two SSS operations we reviewed
are not necessarily transferable to other operations, they serve as
examples of how government intervention might produce the risk of
resources being used inefficiently. One of these services (the Gulf
Coast service) had little or no federal involvement and demonstrates
the willingness of users to pay for a project; the second (the
Northeast service) involved a federal subsidy and demonstrates the risk
associated with providing a subsidy when demand is not completely
understood. The unsubsidized Gulf Coast service depends on private-
sector demand and has been able to attract enough business that the
service has been able to cover most of its operating expenses. In
contrast, the subsidized Northeast service is not meeting the
expectations established for it, even though the ports were able to set
a shipping rate 10 percent below the rate for shipping by truck with
the help of the federal subsidy. Additionally, an extension of federal
funds had to be secured, without which the operation would have been
discontinued, according to project sponsors.
At the very least, the lessons learned from the two operations we
reviewed suggest that more information should be developed to help
policymakers weigh the risks associated with federal involvement in
SSS. However, the available evidence indicates that DOT is already
proposing a role for the federal government in SSS and is considering
federal financing mechanisms that will, in part, provide support for
SSS projects. DOT has recently developed federal policies intended to
benefit the maritime sector and packaged these policies within a
proposal referred to as the SEA-21 initiative. According to DOT
officials, the purpose of the SEA-21 initiative would be to create a
federal maritime program similar to the surface transportation program
governed by ISTEA and TEA-21. This proposal has not been formally
introduced, but, according to the prepared remarks of the Under
Secretary of Transportation for Policy, DOT has endorsed SEA-21 and
appears to be committed to its eventual enactment.[Footnote 33] DOT
officials have stated that the proposal includes SSS as a central
component and involves increased investment in the maritime system by
leveraging federal, local, and private sector funds. It would thus
appear that DOT has determined that the federal role would involve the
provision of targeted incentives for SSS projects. These decisions seem
premature by establishing that federal involvement is warranted before
determining how SEA-21 will impact the competitive balance among all
transportation modes, such as rail and trucking.
If a Federal Role Exists, Key Policy Issues Merit Close Consideration:
If DOT determines that federal involvement in the development of SSS is
appropriate, changes may be needed at the federal level to realize the
concept's potential. These changes potentially affect the federal
surface transportation program established under Title 23 of the United
States Code because the vast majority of freight moves across the
nation's roadways, and this program provides most of the federal
support forroadways.[Footnote 34] This program is also important in any
discussion of providing federal support to advance freight improvements
in that freight transportation is typically intermodal and through
these acts the Congress established intermodalism in federal policy.
If a federal role exists for SSS, the potential change involved appears
to center on two broad policy questions: (1) Should federal support be
provided for privately owned and operated infrastructure? (2) Should
funding levels be increased and existing funding sources expanded?
Understanding the implications of these broader policy issues can help
guide DOT as it wrestles with defining the federal role for SSS
development and ensuring that the approach adopted will be part of an
integrated approach to addressing the nation's congestion and capacity
problems.
Determining How Federal Aid Could Be Applied to Projects That Provide
Benefits to the Private Sector:
Accommodating freight projects under federal aid programs involves
considering the implications of providing public support to projects
both that provide substantial private benefits and that individuals and
firms would be willing to pay for on their own. The high level of
private sector involvement in freight transportation is a major factor
distinguishing freight improvements from other transportation projects.
For example, most freight carriers are private companies, and they own
and operate significant components of the nation's freight
transportation infrastructure, such as port terminals, trucking
companies, and rail lines. Therefore, any freight improvement,
including SSS projects, would likely involve privately owned or
operated infrastructure. Funding such types of projects might thus
provide a significant benefit to the SSS operator that owns and
operates the service.
The rationale for considering whether federal aid programs should be
broadened to include freight improvements is that these types of
projects also have the potential of producing a public benefit. Broadly
stated, a freight improvement project may produce benefits that are not
captured in market transactions. For example, an SSS project might
alleviate congestion over a wide area by removing some freight from
highway and rail, thereby increasing the capacity of the surface
transportation system. These types of benefits provide benefits to
society but do not in themselves generate incentives to the private
sector to invest because the benefits do not accrue to the projects'
users and, therefore, would not be reflected in the prices they would
be willing to pay.
Although freight improvement projects may have potential to produce
public benefits, current decision-making processes and federal funding
requirements can limit the consideration they receive. Transportation
decision making has been established primarily as the responsibility of
state departments of transportation and local metropolitan planning
organizations,[Footnote 35] based on the premise that these levels of
government would know best how to identify transportation priorities
and dedicate funding to them. As we have reported in the past, however,
consideration of freight improvement projects within this state and
local process is limited because the process is oriented to projects
that clearly produce public benefits, such as passenger-oriented
projects.[Footnote 36] Because of eligibility requirements, many
federal-aid programs also limit the use of federal support for
privately owned or operated projects. The exceptions to such
restrictions include the Congestion Mitigation and Air Quality (CMAQ)
program, which requires a correlation between the use of funds and
improved air quality, and loan or loan guarantee programs, such as the
Transportation Infrastructure Finance and Innovation Act (TIFIA)
program, that require that the projects being supported have the
ability to take on debt.
When public subsidization is being considered for freight
infrastructure projects--which to a large degree would likely benefit
the private sector--the appropriate scope of government involvement
must be considered carefully. Apportioning the cost burden of freight
projects among participants equitably[Footnote 37] is important not
only to guard against the waste of limited public resources but also to
enhance the efficiency of the transportation system by supporting only
the most worthy projects. Federal subsidies should not be assumed for
all projects, since this increases the risk of resources being used
inefficiently. Encouraging or requiring state and local decision makers
to establish cost-sharing frameworks between the public and private
sectors would better ensure that federal funds or support are being
applied in the most effective way.[Footnote 38] Cost-sharing involves
two important factors:
* First, the degree of public involvement, whether local, state, or
federal, should be limited to the public benefits the project is
expected to produce--for example, those related to congestion
reduction, pollution reduction, accident avoidance, and other public
benefits. In other words, the cost-sharing framework should ensure that
the private sector is assessed the costs of projects commensurate with
the benefits it receives from them.
* Second, care should be taken to adequately consider the capabilities
and resources of the private, state, and local entities to fund freight
improvement projects. These stakeholders may seek to use federal funds
to reduce the levels of commitment they would have provided otherwise.
Federal assistance, when deemed appropriate, should promote or
supplement expenditures that would not otherwise occur and should not
supplant private or other public investors.
Encouraging or requiring the quantification of project costs and
identifying all parties who will bear the costs can help ensure that
costs are apportioned among all stakeholders equitably. When federal
support through a loan or loan guarantee is used to advance a project,
rather than using federal funds, DOT could consider encouraging or
requiring that project sponsors plan the project to be self-supporting
by targeting user fees to retire debts. Relying on revenue from users
and encouraging public/private partnerships to provide efficient
solutions to freight transportation needs should increase the
likelihood that the most worthwhile improvements will be implemented
and that projects will be operated and maintained efficiently.
There are precedents in which cost-sharing frameworks have been devised
for freight improvement projects that stress reliance on federal,
state, local, and private partnerships to share in the costs of freight
projects. One such example involves a rail project in the Los Angeles
area--the Alameda Corridor Project--which created a 20-mile railroad
express line connecting the ports of Los Angeles and Long Beach to the
transcontinental rail network east of downtown Los Angeles. Project
sponsors secured a federal loan to cover a relatively small portion of
the project cost and planned the project in such a way that revenues
from fees assessed on the users of this service were targeted to retire
debts. Also, the Freight Action Strategy (FAST) project in Washington
state, involving a series of freight improvement projects in the
Everett-Seattle-Tacoma region, received funding from a variety of
public sources and private railroads. These projects illustrate how a
cost-sharing framework--not largely dependent on federal funding--can
be devised in such a way that all stakeholders share in the cost of
freight projects.
By requiring or encouraging state and local decision makers to develop
equitable cost-sharing frameworks as a condition for public support,
the federal government would help ensure that costs are borne by all
relevant stakeholders and that public resources are used as effectively
and efficiently as possible. This approach would likely involve the
least intrusive change at the federal level because it would retain the
basic structure of transportation decision making by leaving the
identification of transportation objectives and solutions to address
those objectives in the hands of state and local decision makers. This
change, however, might not change the perspectives of state and local
transportation decision makers, who tend to give freight improvements
limited consideration in the transportation-planning process. Left in
the hands of state and local decision makers, freight improvement
projects may continue to receive secondary consideration even if the
eligibility requirements of existing federal-aid programs have been
broadened to include freight improvements.
Determining Whether Funding Levels Should Be Increased and Sources of
Funding Expanded:
After deciding if federal financial support should be provided for SSS
development, a follow-on consideration is whether additional resources
beyond what is currently available should be provided. The primary
source of federal support for freight improvements is the federal
surface transportation program. The revenues collected and disbursed
through this program involve excise taxes on highway users, which are
credited to the Highway Trust Fund and apportioned to states by
formula. States are given some flexibility in selecting projects on
which federal-aid funds are expended, making possible the expenditure
of federal aid on nonhighway freight projects in certain limited
circumstances. Limited availability of federal funds, coupled with the
hesitancy of state and local decision makers to devote public resources
to projects that produce direct benefits in readily identifiable forms
to the private sector, has resulted in freight improvement projects
typically not receiving the level of federal support that perhaps some
in the freight industry believe is necessary.
Considering whether Highway Trust Fund revenues should be expanded to
nonhighway freight projects is a controversial issue. The argument
against increasing flexibility in the use of federal-aid funds is
related to the way revenues are collected. However imperfectly it may
be implemented, the method by which revenues are collected and credited
to the Highway Trust Fund is based on the user-pays principle, which
contributes to efficiency.[Footnote 39] In this instance, the user-pays
principle ensures that users value the facility at least as much as the
cost of providing it. However, the opposing view holds that highway
users do not pay for the effects of air pollution and the congestion
delays they cause for others, and user-fee payments are not well
matched to highway agency costs attributable to individual highway
users. For example, the Transportation Research Board has reported that
the heaviest combination trucks pay a smaller share of the expenditures
highway agencies incur to serve them. Therefore, an argument in favor
of increased flexibility in the use of these funds is that nonhighway
uses of trust fund revenues may be defended as offsetting the effects
of imperfect pricing of highways.[Footnote 40] Another argument for
increased flexibility is that states should manage their transportation
infrastructure programs by defining their transportation objectives and
then identifying the optimal means to obtain those objectives. Limiting
consideration of nonhighway solutions is an arbitrary constraint that
will lead to suboptimal investment solutions.
In the face of controversy over use of the Highway Trust Fund for
nonhighway projects, DOT has proposed a separate funding source to
address improvements involving the maritime system. According to DOT
officials, the SEA-21 proposal--a maritime version of the federal
surface transportation program--is intended to benefit the maritime
sector. Creating a new system of providing federal funds for freight
projects based on one mode, however, addresses neither the problems of
the overall system nor the source of the federal aid that will be
necessary to implement the SEA-21 initiative. An integrated approach to
addressing the impediments to freight mobility involves evaluating
investment decisions across modes and making modal trade-offs. For
example, a nonhighway project, such as SSS, may have the potential to
relieve highway congestion and is, therefore, not a project that should
be viewed in isolation of other modes.
Adopting an approach that involves new funding sources and federal-aid
programs would require substantial changes at the federal level.
Therefore, careful consideration should be given to the implications of
implementing such changes. More work needs to be done to determine
whether new sources of funding are actually required for SSS
development or whether existing funding levels and sources could
accommodate these types of projects. While the freight transportation
industry and transportation agencies might agree that improving freight
mobility is an essential factor for maintaining the nation's economic
health and competitiveness and that adequate funding must be made
available for freight projects, reaching agreement on where the money
should come from or how federal aid should be administered will be much
more difficult.
While we have enumerated various factors that federal policymakers
should consider in determining an appropriate role in the development
and implementation of SSS in the United States, state and local
transportation decision makers will also be faced with making difficult
choices regarding SSS and other freight-related projects. In the next
section, we describe an approach that state and local planners could
use to guide investment decisions.
A Sound Investment Approach Is Needed to Guide Current and Future State
and Local Public Investments in Freight Improvements:
While DOT considers the federal role in the development of SSS
activities, transportation decision makers at the state and local
levels also face the need to consider alternatives for improving
freight mobility. This is a challenge that goes far beyond SSS, because
the transportation system involves many different modes and is funded
by both the public and private sectors. Successfully addressing the
needs of the system in the face of these complex, crosscutting
challenges will require state and local decision makers to make tough
choices in setting priorities and linking resources to results to
ensure that public dollars are wisely and effectively spent. The public
investment approach that we have developed, which grows out of our past
work and our interaction with transportation experts, may be helpful in
guiding public investment decisions.
The Complexities of the Transportation System and Growing Fiscal
Constraints Present Challenges for State and Local Decision Makers:
Improving the efficiency of the nation's surface transportation system
is a particularly complex challenge because it encompasses many modes-
-water, highway, transit, and rail--on systems owned, funded, and
operated by both the public and private sectors. As primary decision
makers, state and local governments have significant and broad
responsibilities. On the front lines of transportation decision making,
state and local governments must address multiple and sometimes
competing priorities, such as maintaining the safety and condition of
the transportation system while, at the same time, improving the
efficiency of the system.
Addressing these transportation challenges in light of federal and
state budget constraints will require an understanding of existing
transportation program constructs and financing mechanisms to ensure
that limited public dollars are wisely and effectively spent.[Footnote
41] For example, the current method of dispersing federal
transportation funds to the states does not necessarily encourage
transportation decision makers to address the needs of the system in a
systematic or rational manner. Much of the public funding for system
maintenance and improvement for surface transportation projects comes
from federal programs established under Title 23 of the United States
Code, with funds from the Highway Trust Fund apportioned to the states
by formula without regard to the needs or capacity of the
recipients.[Footnote 42] Because decisions are primarily made by state
and local governments, there is little assurance that the projects
selected and funded best meet the nation's mobility needs. Improving
freight mobility in particular is hampered by the highly
compartmentalized structure and funding of federal transportation
programs. The structure and funding of these programs give state and
local transportation agencies little incentive to systematically
compare the trade-offs between investing in different transportation
alternatives to meet mobility needs because funding can be tied to
certain programs or types of projects. For example, while passenger and
freight travel occurs on all modes, federal funding and planning
requirements focus largely on highway and transit. This framework makes
it difficult for freight projects to be integrated into the
transportation system.
A Public Investment Approach Can Help Public Decision Makers Guard
against an Inefficient Use of Public Resources:
As calls for increased transportation investments come amid growing
concerns about the size of federal and state budget deficits, state and
local decision makers must guard against any waste of limited public
resources when making transportation investment decisions. At the same
time, intermodal approaches and coordinated solutions involving the
public and private sectors should be considered. Using the work of
transportation experts and our own experience in evaluating freight
mobility projects, we have developed a public investment approach to
guide public decisions about freight improvement projects.[Footnote 43]
This approach incorporates but also expands upon the points discussed
earlier in describing the actions we think DOT needs to take in
assessing potential federal involvement. As can be seen in figure 4,
this approach encourages public decision makers to consider four steps:
(1) establish a rationale for public involvement in a project, (2)
develop a systematic framework to evaluate the merits of projects, (3)
determine the level and type of public support to be provided, and (4)
evaluate projects to ensure that intended benefits have been achieved.
Figure 4: Investment Approach to Guide Public Investment Decisions:
[See PDF for image]
[End of figure]
Step One: Determining Whether Public Support in a Freight Project Is
Warranted by Establishing a Rationale for Involvement:
Public transportation decision makers attempting to advance freight
improvement projects must work within a system that is often designed
to favor projects that appear to clearly produce public benefits, such
as passenger-oriented projects. Public transportation-planning decision
makers are hesitant to give consideration to freight improvements
because many freight improvements are undertaken by and directly
benefit the private sector. Generally, freight improvements undertaken
by the private sector usually arise in response to market forces (e.g.,
profit) and, as a result, are most likely to produce efficient results.
Care should be taken not to artificially stimulate the market by
publicly subsidizing an operation inappropriately, especially if the
private sector is unwilling to undertake the project in the first
place. Otherwise, this would likely be a waste of public resources.
Although freight improvement projects may also produce public benefits,
public planners are wary of providing public support for projects that
would also yield direct private benefits. Within this focus, public-
sector attention tends to be directed to freight projects only when
there is considerable public benefit as well.
There are, however, freight improvement projects that are unattractive
to the private sector but have the potential of producing benefits to
the public; one such benefit is reducing the external costs of
transportation, such as reducing fuel emissions and roadway congestion.
Considering whether the project has the potential to reduce the
external costs of transportation provides an indication of a project's
potential for yielding a good return. For example, improving freight
mobility through the implementation of an SSS service may have the
effect of shifting some freight from truck to water and, as a result,
reduce external costs such as pollution and congestion. These benefits
can, in turn, produce indirect benefits, such as economic development
and employment, that affect the regional or local economy. Lowering
transportation costs for users and improving access to goods and
services enable new and increased economic and social activity. Over
time, indirect impacts, such as changes in land use and development,
changes in decisions to locate homes and businesses in areas where
housing and land are more desirable, and changes in warehousing and
delivery procedures for businesses in order to take advantage of
improved speed and reliability in the transportation system may occur.
These impacts can lead to increased property values, increased
productivity, employment, and economic growth. These indirect impacts,
however, may constitute transfers of economic activity from one area to
another or are a result of the direct benefits filtering through the
economy. Although these indirect benefits represent real benefits for
the jurisdiction making the transportation improvement, they represent
transfers and not real economic benefits, from a national perspective.
The SSS service sponsored by the Port Authority of New York and New
Jersey serves as an example of how public involvement in a proposed
project appears to be justified. SSS was being explored by the port
authority as a way to transport a portion of the international
containers entering the congested and capacity-constrained Port
Authority of New York and New Jersey to the less congested and capacity
constrained Port of Albany. Public officials believe that an SSS
service between these two ports has the potential of diverting
international containers from trucks to barge and by doing so, truck
emissions, fuel consumption, roadway wear and tear, and roadway
congestion (i.e., external costs) would be reduced. Public officials
also believe that the service will create new economic development
opportunities at public facilities, if successfully implemented.
Potential private benefits identified include increased efficiency for
terminal operators, reduced highway congestion for truck drivers, and
stable and reliable scheduling and defacto free warehousing of
inventory for shippers.[Footnote 44] Project sponsors also believe that
both sectors would gain service insurance and security benefits due to
the redundancy aspect of the new service and its safety advantages in
transporting hazardous materials outside of populous urban highway and
rail corridors.[Footnote 45] However, establishing a rationale for
public involvement is not enough to justify financial support for a
project. Rather, it merely supports closer public scrutiny of a
proposed project through benefit-cost and other analyses to determine
if the project is worthwhile.
Step Two: Developing a Framework to Evaluate the Merits of the Proposed
Project:
Once public interest in a project appears to be justified, investment
decisions based on a systematic benefit-cost analysis could provide a
structure for rational analysis and a factual basis for public
discussion of public decisions. Benefit-cost analysis enables decision
makers to more closely scrutinize the justification for a project by
quantitatively considering whether the proposed project is a low-cost
alternative to constructing new highway capacity and whether it is the
most cost-effective option among other modal improvements. By including
a comparison of other modal improvements, the public planner gains an
understanding of the trade-offs and relationships among alternative
solutions involving different transportation modes.
A carefully considered list of public and private benefits and costs
should be developed and the costs and expected payoffs should be
quantified. For freight improvement projects, the costs and expected
benefits largely mirror those of highway and transit projects. In
recently published work on highway and transit investments, we provided
information on the types of costs and benefits decision makers
typically consider when evaluating highway and transit
projects.[Footnote 46] We reported that these types of projects have
the potential of producing direct benefits, such as travel-time
savings, and collateral benefits, such as a reduction in the adverse
environmental impacts of transportation. These direct benefits can
produce indirect benefits, such as economic development opportunities
that affect the region or local economy. Freight improvement projects
seek to produce the same benefits. Highway and transit projects also
produce costs, including the direct costs to construct, operate, and
maintain the project as well as other potential social costs resulting
from the construction and use of the facility, such as unmitigated
environmental effects. Any freight improvement project under
consideration would include similar categories of costs.
Although public decision makers may view freight projects as being
somewhat different from highway and transit projects, state and local
decision makers can use similar categories of costs and benefits. The
SSS service operating in the Northeast illustrates this point. Project
sponsors considered the proposed SSS project as an option that had the
potential to reduce congestion in and around the Port Authority of New
York and New Jersey. The project was considered to be an
environmentally sound method for moving international containers from
the congested port, via a biweekly barge service, to a less-congested
port area. In this example, project sponsors quantified potential
project benefits such as congestion reduction, improved air quality,
and economic development opportunities for the feeder port. Costs
considered included the capital and operating costs of the barge
service.
In conducting benefit-cost analyses, accurate and relevant data are
essential to the evaluation of freight improvement proposals because
such data are needed to evaluate forecasts of transportation demand and
the effect a project would have on diverting traffic to and from other
transportation modes. However, in past reports, we have found that
state and local decision makers do not have data to sufficiently
evaluate freight projects.[Footnote 47] Without such forecasting, the
analyses will not expose the true costs and expected payoffs of a
project. The SSS service operating in the Northeast provides insights
into what might occur if sufficient data are not available to forecast
demand. While this service appeared to be a project in which public
involvement was justified, acceptance-related issues with the potential
users of the service were apparently not adequately considered to
accurately predict outcomes. For example, project sponsors did analyze
data indicating that there were sufficient cargo flows to support the
new service, but they had difficulty estimating the level of acceptance
of the new service by stakeholders within those markets. They
acknowledged, however, that shipper acceptance is perhaps the most
critical factor that has held back the project so far. After starting
the service, they realized that factors beyond market size, level of
service, and service cost must be taken into account. Consequently,
once the service began operating, service had to be cut back from twice
a week to once a week, and the federal grant being used to subsidize
the operation was expended more quickly than anticipated. Juxtaposing
this example with another illustrates the significance of this point.
The SSS service operating in the Gulf of Mexico performed a market
survey before implementation to determine that a market existed for the
service. In this case, the service was advanced by the private-sector
and not surprisingly, depends on private-sector demand.
While benefit-cost analysis ensures that decision makers closely
scrutinize proposed projects objectively, we recognize that other
factors work against using this kind of analysis. These factors may
involve the way federal programs are structured and funded, federal
requirements that place demands on analytical resources to other areas,
and the high cost of such analyses. In addition, factors other than
those considered in analyses of projects' benefits and costs can play a
greater role in shaping state and local public investment choices. Some
of the factors considered reflect local or regional priorities and
needs; others are required to be considered in the decision-making
process by federal legislation. These factors may not be easily
considered in traditional benefit-cost analysis.[Footnote 48]
Nevertheless, as we have recommended in an earlier report, the
increased use of benefit-cost analysis can provide important
information that can be used to inform discussions on transportation
investments.[Footnote 49]
Step Three: Determining the Level and Type of Public Support to Be
Provided:
If evaluation supports the merits of public involvement in a freight
project, the public decision maker must determine the level of public
support to be provided. While in most cases, public involvement is
often assumed to mean subsidization of a project, such involvement need
not necessarily imply the need for or appropriateness of subsidization.
A subsidy is any cost imposed on taxpayers as a whole to pay for
benefits that are received by users of the service. Therefore, if a
public decision maker plans a project to be entirely self-supporting
from user fees and private-sector contributions, no public subsidy is
involved. Relying on revenue from users increases the likelihood that
the most worthwhile improvements will be implemented, operated, and
maintained efficiently. Fees assessed on the mode in question should be
accurately aligned with the costs other modes or vehicles impose on the
transportation system. Otherwise, one mode may enjoy an advantage over
another in competing to transport goods. For example, according to the
Transportation Research Board, the heaviest trucks pay a smaller share
of the expenditures that highway agencies incur to serve them.[Footnote
50] From an economic standpoint, this level of taxation distorts the
competitive environment with other modes by making it appear that the
heavier trucks are a less-expensive means for shippers to transport
goods. Ultimately, an accurate alignment of fees to costs could provide
incentives for shippers to make modal choices and transportation
options based on true costs.
A rail project designed to improve freight mobility illustrates how a
project can be planned with relatively little federal subsidy. The
Alameda Corridor Project in the Los Angeles area created a 20-mile,
$2.4 billion railroad express line connecting the ports of Los Angeles
and Long Beach to the transcontinental rail network east of downtown
LA. The express line eliminated approximately 200 street-level railroad
crossings, relieving congestion and improving freight mobility for
cargo. The project was funded through a blend of public and private
sources. While the federal government contributed to the funding, its
share was about 20 percent of the total, of which 80 percent was in the
form of a loan. Revenues from user fees paid by the railroads have been
targeted to retire debts. Decision makers have planned the project so
that fees would be charged to the direct users of the system, which, in
this case, are the railroads. The railroads are paying $15 for each
loaded container, $4 for each empty container, and $8 for other types
of loaded railcars, such as tankers and coal carriers. Over a 30-year
period, fees will be increased between 1.5 percent and 3 percent per
year, depending on inflation.
The planning of this rail project contrasts with the manner in which
the SSS operation in the Northeast was planned. Project sponsors
involved with the Northeast service planned to subsidize the capital
and operating costs of the service from the outset rather than through
fees charged to the direct users of the service. Project sponsors
acknowledged that they knew the service would experience an operating
deficit during the first several years of the operation due to the need
to achieve a sufficient level of demand to be economically viable.
When public involvement does mean direct financial support for a
project, benefit-cost analysis allows a public decision maker to
determine the level of public support to be provided on the basis of
the public benefit the project is expected to accrue. Therefore, there
should not be an expectation that public dollars should automatically
fund the entire or even majority of the project. Rather, costs should
be apportioned among all relevant stakeholders. This apportionment
involves identifying the relevant stakeholders, determining the level
of benefits they are likely to derive from the project, and
apportioning costs on that basis. Beneficiaries should pay the costs of
projects commensurate with the cost of providing the service to the
users. For example, when users are the direct beneficiaries of a
project, user fees are the preferred method that should be considered
for projects that directly benefit the users. When external benefits,
such as the reduction of pollution or congestion, result from a
project, the direct users should pay the net cost of the use of the
service after deducting the public benefit. In the case of the SSS
service operating in the Northeast, the true costs of the service were
not apportioned among all of the relevant stakeholders because the
service was being completely subsidized with public funds--that is, 80
percent with CMAQ funds and 20 percent with port funds. However,
project sponsors believe that as demand for the service increases, the
service will eventually meet expectations and rise to the level
necessary for self-sustainability, which means that operating costs
will eventually be paid from the fees charged to the direct users of
the service.
Step Four: Evaluating the Performance of Ongoing and Completed
Projects:
The final component of our public investment approach involves
evaluating results and incorporating lessons learned into the decision-
making process. Evaluating the effectiveness of ongoing and completed
projects could provide public planners with valuable information for
determining whether intended benefits have been achieved and whether
the service should be modified. With thorough evaluation of projects,
the public sector can learn from experience, improve the performance of
its infrastructure investments, and hold planners accountable for their
decisions.
Comparing the actual results of a project with the project's
projections tests the economic rationale for a project, provides a self-
correcting mechanism, and holds public decision makers accountable for
decisions made. A federal transit program provides an apt example of
how a federal program can be designed to require such evaluations. The
New Starts program provides funds to transit providers for constructing
or extending certain types of transit systems and is the primary source
of funds for new transit capacity. The Federal Transit Administration
(FTA) has recently adopted a requirement for project sponsors to
complete before and after studies of New Starts projects. Project
sponsors seeking federal funding for their New Starts project must
submit to FTA a plan for the collection and analysis of information
that addresses how the project's estimated costs, scope, ridership, and
operating plans proposed during planning and project development
compared with what actually occurred. This requirement is intended to
hold transit agencies accountable for results and identify lessons
learned for future projects. In another example, federal program
requirements led to both a prospective evaluation of a proposed project
and an evaluation of the ongoing project to secure federal funds.
Project sponsors of the Northeast SSS service evaluated the ongoing
performance of the service to update estimates of future performance in
their bid for an extension of CMAQ funds. By monitoring the performance
of the service, project sponsors have been able to identify problems
and devise strategies to address those problems. For example, project
sponsors are developing strategies to reduce some of the operational
costs of the service and increase demand. Ongoing evaluations of the
service also revealed that within the first few years of operation, the
feeder port was providing a disproportionate amount of funding for the
service through the local CMAQ match, and as a result, the primary port
agreed to provide the local match for the third year of service
operation. Monitoring the performance of the service allowed project
sponsors to seek ways to improve the service, thereby guarding against
a waste of public resources.
Opportunities Exist for Encouraging the Use of a More Systematic Public
Investment Approach:
The application of a decision tool such as the one we developed could
be useful in making more fully informed decisions about transportation
projects. However, there is no federal or other mechanism that would
require its use or even ensure that it is considered in evaluating
transportation investment decisions. This is the case even for projects
that receive a substantial amount of funding from the federal
government. For example, for federally assisted highway projects,
federal requirements specify a wide range of factors (such as safety or
environmental impacts) that must be considered when selecting a project
from alternatives, but they generally do not specify what analytical
tools should be used to evaluate these factors. Federal requirements
also do not mandate that in making these decisions, cost-benefit
analysis be performed and the results of such analysis considered.
Instead, officials have the flexibility to select projects based on
their own determination of the community's priorities and needs. In
general, decisions about what transportation projects to adopt are
generally made at the local, regional, or state level. In examining how
various locations made decisions for highway projects, for example, we
found that officials used a variety of approaches and often based their
decisions on different criteria.[Footnote 51] For example, decisions
were often based on whether to proceed primarily on the project's
perceived indirect benefits, such as desirable changes in land use or
economic development, which are difficult to forecast and were
generally not quantified or systematically analyzed.
While federal policy gives transportation planning authorities
considerable latitude in deciding how to make decisions about which
projects to fund, there are mechanisms available at the federal level
for disseminating information about decision-making approaches and
encouraging the use of approaches that can make the best use of limited
public funds. DOT, for example, issues guidance and information on a
variety of matters for which it has responsibility. One such mechanism
for doing so is DOT's Transportation Planning Capacity Building
Program, which is designed to equip decision makers, transportation
officials, and staff with tools for resolving the issues they face when
addressing transportation needs in their communities. This program is a
collaborative effort of DOT agencies as well as various public and
private organizations. Among other things, it provides communities with
background information, examples of effective transportation-planning
practices from across the nation, and technical assistance. Our
approach, which represents a set of "best practices" stemming from our
previous work and our discussions with transportation officials, might
be useful as part of DOT's guidance and information.
DOT has a variety of ways to disseminate such information. One way is
through its Web site, which incorporates a variety of program
resources, including detailed information related to the Transportation
Planning Capacity Building Program. Another way is though its network
of seminars, training opportunities, and technical assistance. The
scope of training and assistance includes conferences held over the
Internet, classroom training, and Internet-based short courses. For
example, the Federal Highway Administration developed and implemented a
Web-based "Talking Freight" seminar series on many diverse topics, such
as freight data and modeling, SSS, and linking freight to economic
development.
Conclusions:
Expanding the SSS option may be a way to enhance freight mobility by
supplementing roadways and rail lines, alleviating congestion in
metropolitan areas and freight corridors, and mitigating the need for
more highways or rail corridors. However, despite the potential
importance of SSS to enhance the nation's freight mobility, its
viability as a cost-effective approach is uncertain, given the legal
and operational issues cited by proponents of this option. Also, there
is reluctance among shippers to use this option, a factor that affects
its acceptance and further development.
DOT deserves credit for thinking "outside the box" in looking for ways
to alleviate congestion in the nation's growing transportation
bottlenecks, but the direction it is taking--increasing federal
involvement in SSS--needs to be more carefully examined. DOT has made
the development and implementation of SSS a national priority for
enhancing freight mobility and has undertaken numerous activities but
has not articulated a clear rationale for what the federal role, if
any, should be. Also, the department's draft proposal for greater
involvement in maritime transportation (SEA-21) calls for financial
assistance to further the SSS option. Actions such as those in the
draft proposal are premature, in our opinion, until a broader
understanding of the federal role with respect to SSS is defined and
the potential applications and impacts of such an option on other modes
are better understood. Otherwise, DOT runs the risk of "putting the
cart before the horse" and is at greater risk for creating
inefficiencies within the transportation system and missing
opportunities to best apply and leverage federal resources.
State and local public transportation officials are the primary
decision makers for planning and financing projects, such as SSS, to
enhance freight mobility, and they will largely determine the extent of
public involvement in SSS projects and the amounts and types of public
subsidies for that purpose. Ideally, a sound investment approach--one
based on recognized economic and management principles--is needed to
make this determination. But many public transportation entities lack a
consistent and comprehensive investment approach to identify, evaluate,
and implement competing projects, including potential SSS projects.
Having a sound investment approach is critical to better ensure that
available resources are used cost effectively to address the most
pressing freight mobility needs. The approach we developed based on our
past work and extensive literature research will be helpful, we
believe, in guiding public investment decisions. DOT can play a role in
promoting this approach by interacting with public entities using
established communication channels and other mechanisms.
Recommendations for Executive Action:
We recommend that the Secretary of Transportation and the Administrator
of the Maritime Administration undertake the following two actions with
regard to further federal involvement with SSS and greater use of
systematic approaches to making public investment decisions:
1. Before expending substantial federal resources on SSS activities or
developing a formal program for federal involvement in helping to fund
this approach, establish a comprehensive understanding of key issues to
determine whether there is a genuine need for federal involvement and
what the role of the federal government should be, if any. Such a
determination could, for example, involve consideration of the
following issues.
* To determine whether the private sector would likely undertake SSS
projects on its own, policymakers could explore several areas in depth.
For example, gaining a better understanding of the conditions and
circumstances under which existing SSS started and are being sustained
and the potential impact of the regulatory, administrative, and
operational barriers to the development and implementation of SSS are
both important in determining whether federal involvement is necessary.
* To better define an appropriate federal role, if deemed necessary, a
number of areas could be explored, including (1) an assessment of the
state, local, and private resources that may be likely available for
SSS projects; (2) quantitative and qualitative analyses of nonmarket or
external factors with respect to SSS, such as reduction in the costs of
congestion, pollution, and accidents, that the private sector will
likely not be willing to fund; and (3) an evaluation of potential
financing mechanisms and incentives to best leverage federal resources,
develop an equitable cost-sharing framework among public and private
entities, and ensure that users and beneficiaries of SSS services pay
for these services commensurate with the costs of providing them.
2. To foster greater use of systematic approaches, use existing
mechanisms and communications channels to encourage public
transportation decision makers to evaluate SSS and other freight
projects using an investment decision tool--such as the one we
developed--that incorporates recognized economic and management
principles.
Agency Comments and Our Evaluation:
We provided a draft of this report to DOT and MARAD for review and
comment and met with a number of officials, including the Assistant
Secretary for Transportation Policy, the Deputy Assistant Secretary for
Transportation Policy, and MARAD's Associate Administrator for Ports,
Intermodal, and Environmental Activities. DOT and MARAD agreed with our
recommendations and assured us that efforts within the department to
gain a more detailed understanding of key issues surrounding the SSS
approach will be undertaken before requesting federals funds for it.
The department also provided clarifying comments and technical
corrections, which we incorporated, as appropriate. These officials
reiterated that while the freight demands placed on the nation's
highways and rail systems continue to grow, the marine transportation
system remains underutilized. They said there is a need to explore
innovative, potentially viable options to increase the capacity of the
nation's transportation system in order to expedite the flow of goods
and support economic growth. These officials stressed that the maritime
freight capacity option has received scant attention (with the
exception of two small demonstration projects using CMAQ funds to
support barge moves of cargo), because ISTEA, TEA-21, and the proposed
TEA-3 are essentially surface transportation bills. According to these
officials, the department is using a range of actions and discussions,
including a thorough vetting of maritime capacity options, to "press
the envelope" on freight capacity deliberations as the country
continues to experience serious and growing freight congestion issues
on key highway and rail corridors.
The DOT officials told us the department has begun to explore SSS as
one means to accommodate growth in freight shipments, given the
capacity constraints of the national transportation system and the high
cost of increasing surface transportation capacity. DOT has also been
working to raise awareness of this option among potential industry
participants and throughout the government. Further, these officials
explained that DOT is now conducting detailed and rigorous studies of
the potential for SSS and has been drafting possible policy options as
a means to stimulate discourse on the topic within the administration.
They maintain it is not premature to conduct these activities since it
is necessary to act with an understanding of the considerable lead
times involved. They assured us that any request to the Congress for
funding related to the SSS initiative will be made only after the
option and its implications are fully and rigorously explored and well
understood.
The efforts taken to date by DOT and MARAD to begin exploring the SSS
option provide a good first step to gain a better understanding of key
issues with respect to developing this approach. As DOT and MARAD
proceed, we think it is critical that they do so thoughtfully, taking
the time to thoroughly consider the implications on other modes and on
current SSS operations. Until a thorough assessment is completed in
this regard, proceeding with federal intervention such as providing
regulatory relief or financial assistance to SSS projects is premature.
We are sending copies of this report to congressional committees with
responsibilities for transportation issues; the Secretary of
Transportation; and the Administrator, Maritime Administration. We will
also make copies available to others upon request. In addition, this
report will be available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at [Hyperlink, heckerj@gao.gov] or (202) 512-2834. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made key
contributions to this report are listed in appendix II.
Signed by:
JayEtta Z. Hecker:
Director, Physical Infrastructure Issues:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
To determine why short sea shipping (SSS) is being considered as an
alternative method for transporting freight and factors that may affect
its viability as an approach, we conducted a literature review of
reports and studies related to freight transportation issues;
interviewed freight transportation stakeholders representing all levels
of government; interviewed private-sector stakeholders involved in
various aspects of the freight transportation system; and examined two
existing SSS operations. Our literature review included reports and
studies issued by public-and private-sector organizations, nonprofit
organizations, and academia; articles from relevant trade journals; and
position papers reflecting the views of freight stakeholders. To
supplement the information obtained through the literature review, we
interviewed transportation officials representing ports on the East and
West Coasts and the Gulf of Mexico; officials involved in
transportation planning at the local and state levels; and federal
officials from the Department of Homeland Security's Customs and Border
Protection agency. We also interviewed private-sector officials from
the trucking and rail industries and other private officials involved
with the movement of freight, such as third-party logistics providers.
To supplement the information obtained through our literature review
and interviews, we examined two existing operations. We selected one
publicly subsidized operation in the Northeast and one private
operation in the gulf region from information we received from our
interviews as well as information we obtained through our literature
review. The services were also selected because they were operating in
regions of the country that handle a significant portion of the
nation's freight. Because we evaluated only two existing operations,
however, lessons learned from the operations may not be transferable to
other operations. It is also important to note that because our review
focused on existing services, it provides no indication of whether
other operators may have considered a service but not followed through
because of perceived obstacles to SSS implementation.
To determine the federal role in the development of SSS, we conducted
in-person interviews with U.S. Department of Transportation (DOT)
officials, as well as officials at its operating agencies; analyzed
documents supplied by DOT and its operating agencies; reviewed GAO
reports on transportation systems and infrastructure projects; and
reviewed studies and reports issued by transportation experts. At the
department level, we interviewed officials from the Office of Freight
and Logistics, Office of Environmental Activities, and Office of the
Secretary. At the agency level, we interviewed officials from the
Maritime Administration and the Federal Highway Administration. Our
work also included an analysis of documents supplied by DOT and its
agencies, including strategic plans, budget documents, and studies and
reports on freight transportation issues.
To identify issues that should be considered when making public
investment decisions, we analyzed the results of our review of SSS and
built on the perspectives gained from our past work in transportation
systems and federal investment strategies. We also analyzed reports and
studies completed by various federal agencies and other independent
experts on public investment strategies.
We conducted our work from July 2004 through June 2005 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
JayEtta Z. Hecker, (202) 512-2834:
Staff Acknowledgments:
In addition to the individual named above, Jason Berman, Jay Cherlow,
David Hooper, Elizabeth McNally, Sara Ann Moessbauer, Alex Sarapu, Stan
Stenersen, Seyda Wentworth, Randall Williamson, and Susan Zimmerman
made key contributions to this report.
(544095):
FOOTNOTES
[1] Union Pacific Railroad Press Release (July 8, 2004).
[2] The Mid-Atlantic Rail Operations Study was a joint product of five
states (Delaware, Maryland, New Jersey, Pennsylvania, and Virginia);
the I-95 Corridor Coalition, which represents 13 states in the
Northeast; and three railroads (Amtrak, CSX, and Norfolk Southern).
[3] Estimates are from the New York Metropolitan Transportation Council
(NYMTC). NYMTC is an association of governments and transportation
providers that serves as the metropolitan planning organization for New
York City, Long Island, and the lower Hudson Valley.
[4] This estimate is not expressed in dollars of one particular year
because components of the cost were estimated in different years, but
it roughly represents the estimated cost in 2000 or 2001 dollars.
[5] The U.S. waterway system consists of approximately 25,000 miles of
inland, intracoastal, and coastal waterways and channels, of which
about 12,000 miles are capable of handling commercial traffic.
[6] Transportation Research Board, Special Report 252: Policy Options
for Intermodal Freight Transportation (Washington, D.C., 1998);
Transportation Research Board, Special Report 271: Freight Capacity for
the 21st Century (Washington, D.C., 2002); GAO, Highway and Transit
Investments: Options for Improving Information on Projects' Benefits
and Costs and Increasing Accountability for Result, GAO-05-172
(Washington, D.C.: Jan. 24, 2005); and GAO, Freight Transportation:
Strategies Needed to Address Planning and Financing Limitations, GAO-
04-165 (Washington, D.C.: Dec. 19, 2003).
[7] Data on the percentage of freight moved by short sea shipping in
Europe is only available through 1998.
[8] Several programs were expanded under title 23 of the United States
Code to allow funds to be used for nonhighway projects, including the
Surface Transportation Program (23 U.S.C. § 133) and the Congestion
Mitigation and Air Quality Improvement Program (23 U.S.C. § 149).
[9] The user taxes include excise taxes on motor fuels and truck-
related taxes on truck tires and sales of trucks and trailers. Formulas
consider a variety of factors, including vehicle miles traveled on the
interstate system and motor fuel usage by each state's highway users.
[10] Other programs have been established at the federal level to
build, maintain, and operate inland waterways and enhance and maintain
harbors.
[11] P.L. 105-178, 112 Stat. 241 (1998). Seaport projects are
ineligible for funding under the Transportation Infrastructure Finance
and Innovation Act (TIFIA).
[12] DOT, Department of Transportation Strategic Plan, 2003-2008:
Safer, Simpler, Smarter Transportation Solutions (Washington, D.C.,
September 2003).
[13] DOT has also recently developed the National Freight Action
Agenda, in conjunction with its operating agencies, in an effort to
guide DOT and its partners in making the nation's transportation system
better serve its citizens. The Action Agenda identifies six high-
priority freight initiatives, one of which is to accelerate the
development of short sea shipping.
[14] Maritime Administration, Strategic Plan for Fiscal Years 2003-2008
(Washington, D.C., September 2003).
[15] MARAD's Strategic Objective Commercial Mobility aims to address
congestion reduction by promoting the exploration of technology
development and infrastructure that will improve the use of the
maritime system.
[16] We did not determine, through our own independent analysis,
whether SSS can produce these public benefits, and we were unable to
locate studies that determined, through rigorous analysis, the
potential public benefits of SSS.
[17] 26 U.S.C. § 4461 and 19 C.F.R. § 24.24. In the case of imports,
the importer pays the tax. In all other cases, the shipper pays the
tax.
[18] Cargo entering some ports is exempt, such as those in Alaska,
Hawaii, Puerto Rico, and possessions of the United States. For domestic
shipments, the fee is levied at one port--either the port of departure
or the port of entry, but not both--and it does not normally apply to
movements along inland waterways as long as the ship moving the goods
is subject to the Inland Waterways Fuel Tax (19 C.F.R. § 24.24 (C) (5)
and 26 U.S.C. § 4042).
[19] Section 27 of the Merchant Marine Act of 1920 (46 U.S.C. App. §
883).
[20] We asked one SSS operator about whether the Jones Act requirement
to use U.S. crews was a potential obstacle to expanding SSS services
since U.S. crews may be more expensive than foreign labor. The operator
said the requirement was not a particularly important issue, but that
Coast Guard crewing requirements, which he believes mandate
unnecessarily large crews for his SSS operations, increase the costs of
SSS operations.
[21] Some of the transportation stakeholders we spoke with noted that
SSS operations may be less successful on the West Coast because of
labor issues, port density along the West Coast, and a lack of freight
movement along the north-south cargo routes (most freight in the
western United States tends to move west to east).
[22] This means that the vessel returns to its port of origin every 7
days. A shipper moving goods from Houston to Tampa, for example, could
make one shipment every 7 days on this SSS service.
[23] Logistics providers, such as third-and fourth-party logistics
providers, work with clients to arrange for the transportation of
products. One task of a logistics provider is to help clients determine
which mode of transportation to use, such as truck, rail, or SSS.
[24] According to officials at the Port of Houston, cargo normally sits
on the dock for an average of 7 days before a truck removes it.
[25] The CMAQ program was designed to assist nonattainment and
maintenance areas under the Clean Air Act in attaining the national
ambient air quality standards by funding transportation projects and
programs that will improve air quality.
[26] This is an advance on a $25 per container payment that the Port
Authority of New York and New Jersey makes to the Port of Albany to
help keep shipping rates on the Northeast service lower than trucking
rates.
[27] Officials from the Port Inland Distribution Network generated
expectations based on the volume of containers actually shipped.
[28] Empty containers must be repositioned for use when there is a lack
of two-way trade; that is, the containers must be returned to the
steamship companies after the freight has been transported to its final
destination.
[29] While these findings suggest that many of these obstacles may be
surmountable, it is important to note that because we evaluated only
two existing operations, these lessons may not be transferable to other
operations. It is also important to note that because our case-study
approach focused on existing services, it provides no indication of
whether other operators may have considered a service but not followed
through out of concern for any of these obstacles.
[30] While some stakeholders have cited potentially higher costs
associated with the Jones Act provision that requires the use of U.S.
crews, which can add to the cost of each trip, neither of the SSS
operations we visited had such concerns.
[31] The National Freight Action Agenda was developed to guide the
agency and its partners in agency efforts to make the transportation
system better serve its citizens. Within this plan, DOT has identified
the following six high-priority freight initiatives: (1) facilitate the
development and planning of major freight projects, (2) promote
intelligent transportation technologies to improve freight
transportation, (3) improve intermodal connectivity by improving
coordination of planning and financing across DOT programs, (4) enhance
DOT's Freight Capacity Building Program, (5) improve the timeliness and
quality of freight data, and (6) accelerate development of SSS.
[32] For example, less than efficient results would include solutions
driven by the private sector that may not recognize certain costs
imposed on others by users of the transportation system, such as
congestion, environmental costs, and accident costs.
[33] Remarks of Jeffrey N. Shane, Under Secretary of Transportation for
Policy, at the September 25, 2003, annual National Waterways Conference
and the May 20, 2004, National Maritime Day Luncheon held in
Washington, D.C.
[34] Other programs build, maintain, and operate the inland waterways;
provide aid to airports; maintain the air traffic control system; and
maintain harbors. The federal surface transportation program, however,
is the largest of those programs and the most important for freight.
[35] Federal law requires the creation of metropolitan planning
organizations (MPO) for any urbanized area with a population greater
than 50,000. Composed of representatives from local governments and
transportation authorities, MPOs are regional policy boards charged
with developing a comprehensive metropolitan long-range transportation
plan and transportation improvement program that considers a wide array
of interests and factors through cooperative partnerships with
stakeholders.
[36] GAO-04-165.
[37] The use of the term "equitable" in this regard refers to the
principle that beneficiaries should pay for project costs commensurate
with the benefits they receive from projects.
[38] We discuss the value of conducting benefit-cost analyses in GAO-
04-165, GAO-05-172, and GAO, Surface Transportation: Many Factors
Affect Investment Decisions, GAO-04-744 (Washington, D.C.: June 30,
2004).
[39] Transportation Research Board, Special Report 252: Policy Options
for Intermodal Freight Transportation (Washington, D.C., 1998).
[40] Transportation Research Board, Special Report 252.
[41] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).
[42] Other programs have been established at the federal level to
build, maintain, and operate inland waterways and enhance and maintain
harbors.
[43] Transportation Research Board, Special Report 252 and Special
Report 271; GAO-05-172; and GAO-04-165.
[44] According to project sponsors, the warehousing benefit is becoming
more important to shippers and ocean carriers as terminal operators, in
an effort to handle more cargo within their facilities, continue to put
pressure on the shippers and carriers to move containers off their
piers as quickly as possible.
[45] According to project sponsors, the lack of freight system
redundancy is particularly troublesome in corridors such as Interstate
95 where the loss of any individual segment could have an impact.
[46] GAO-05-172.
[47] GAO-04-165 and GAO-05-172.
[48] GAO-05-172.
[49] GAO-05-172.
[50] Transportation Research Board, Special Report 252 and Special
Report 271.
[51] GAO-05-172.
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