Freight: Are Innovative Solutions the Answer?

1. Freight: Are Innovative Solutions the Answer? Presentation to the Ohio Conference on Freight Pamela Bailey-Campbell Vice-President Public-Private Initiatives September 18, 2007 PB

2. Topics • National and global freight picture • Recent freight improvements from around the US • The challenge of financing freight projects • Solutions for Ohio PB

3. The big picture PB

4. The continuing explosion in freight demand,… AASHTO Freight Transportation Bottom Line Report, 2006 PB

5. …propelled by robust underlying trends,… • Growth in consumption patterns • Changes in logistic practices • Growth in Chinese imports • Increased in cross-border trade PB

6. …combined with current capacity shortages already apparent in our nation’s infrastructure, PB

7. …implies an enormous funding challenge for a national transportation system approaching deficit spending 4.5 trillion to “improve” $1.2 trillion gap to improve $450 billion gap to maintain 3.7 trillion to “maintain” 3.3 trillion in Resources Source: Based on Future Highway and Public Transportation Finance Study, US Chamber of Commerce (2005) PB

8. Freight interests are ascending in the federal infrastructure funding agenda. • SAFETEA-LU went further than previous federal bills in providing for freight interests explicitly • Industry groups are pushing freight issues to the forefront in the next federal transportation program • Coalition for America’s Gateways and Freight Corridors’ Freight Transportation Fund (FTF) • ARTBA’s “Critical Commerce Corridors” • AASHTO’s “Transportation Future” PB

9. But funding challenges persist for needed projects across the US. Ohio is no exception. Highway expansions to accommodate increasing truck traffic of I-70/71 Potential new rail intermodal Facilities? Cincinnati and Columbus and Toledo freight bottlenecks Improved Port and Air Cargo Landside Connections Expansions of Lake Erie Ports PB

10. Trade Global Patterns Econ Consumption Patterns Shipping Infrastructure Patterns Capacity Modal Intermodal Time/Cost Ship. Data Freight feasibility is driven by global dynamics. • Changes in maritime patterns • Panama Canal expansion • Efforts to provide additional capacity on the West Coast • Efforts to mitigate congestion at national and regional bottlenecks such as Chicago PB

11. Example of integrating global trends in developing investment strategies: The Panama Canal • Far-reaching analysis of international markets • Shifted focus from managing physical infrastructure to “right-sizing” the investment • Examined factors such as: • Rapid rate of globalization • Manufacturing shifts to low cost locations: China, Cambodia, and Vietnam • Shipper logistics requirements to meet growth in demand • Increases in ship sizes • Established financial, environmental and operational implications to drive a capital investment plan and financial model PB

12. Public policy at all levels has a pervasive impact on all freight modes. PB

13. Solutions from around the US PB

14. What are states doing to improve intermodal links? PB

15. The context for freight Public-Private-Partnerships is framed by how responsibilities are distributed. PB

16. Freight PPP Finance models Source: Based on USDOT FHWA Report Financing Freight Improvements, January 2007 PB

17. Freight Finance Cases: Alameda Corridor • Project cost $2.4 billion • Port access, highway rail-crossing elimination, rail construction • Constructed by the Alameda Corridor Transportation Authority (ACTA) • Completed 2002 PB

18. Freight Finance Cases: Chicago’s CREATE • Project cost $1.5 billion (Phases I & II) • Rail separation, highway crossing, rail rehabilitation & construction, upgrade signaling systems • Sponsored by Illinois DOT, City of Chicago, METRA, Union Pacific, Burlington Northern Santa Fe, Norfolk Southern, Canadian National, Canadian Pacific, and CSX • Project implementation has begun with limited funding PB

19. Freight Finance Cases: Heartland Corridor • Project Cost of $309 million • Vertical clearances, intermodal facilities, rail relocation • Sponsored by Norfolk Southern, Virginia DOT, Ohio Rail Development Commission • Construction starting • Connections to Rickenbacker PB

20. Freight Finance Cases: German High Speed Rail • Germany’s state-owned rail (Vorsprung durch DB) • Hartmut Mehdorn (CEO) turned chronic loss-making railway into powerful international business • Next year offer 30% of shares to public • World-class logistics company • Key: control of 90% of rail network & freight PB

21. The challenge of financing freight projects PB

22. One barrier to freight projects is sheer complexity. • Multitude of stakeholders and interests • Multi-state and multi-jurisdictional issues • Complicated planning & environmental process PB

23. Another challenge is translating public and private benefits analysis into a workable financing plan. PB

24. Understanding stakeholder interests: railroads • Will pay for improvements when they see clear business benefits • Challenged to earn cost of capital • Cautious about receiving public assistance • Have strong competitive interests PB

25. Understanding stakeholder interests: truckers • Have rate structure allowing for fuel costs but not tolls • Independent truckers have separate view from large shippers PB

26. Understanding stakeholder interests: businesses • Can be powerful supporters of freight improvements if they • Decrease congestion, • Increase economic activity, and • Lower transportation and logistics costs. • Example: Dell’s ultimatum to Austin area PB

27. Understanding stakeholder interests: public agencies • Agencies are now being challenged to effectively incorporate freight into planning process • Need to meet environmental and transportation objectives • Economic development is also an objective in some cases PB

28. Understanding stakeholder interests: shippers • Shippers are taking control of how routing decisions are made • Wal-Mart • Value for shippers can mean money for projects • Time savings • Increased service • Reliability PB

29. Freight PPP Lessons • Educate stakeholders as to each party’s interests and goals • Consider relative benefits compared to distributed costs • Understand strings on funding • Establish environmental process and issues early • Deal with expectations in general PB

30. Opportunities for Ohio PB

31. Ohio is a nexus for national freight movements PB

32. Ohio freight opportunities • Develop a model multi-modal freight system • Expand air cargo hubs • Expand ports to capture growing freight demand and international trade PB

33. Ohio freight opportunities (continued) • Truck-only toll lanes • Intermodal rail facilities being planned as part of Heartland corridor • Rail improvements to relieve growing pressure on Chicago hub • Air cargo development, possibly modeled on Alliance facility in Dallas • Increased market share for Great Lakes / St. Lawrence Seaway system ports PB