Benefit-Cost Analysis Report – Terminal 5-Seattle, WA

Executive Summary Terminal 5 (T5) Benefit Cost Analysis (BCA) evaluates the economic, mobility, safety, and

community/environmental outcomes of the commissioning of the T5 Expansion Project by the

Northwest Seaport Alliance (NWSA).

The goal of the expansion is to accommodate larger ships of 14-18,000 TEUs, similar to other major

West Coast ports. Allowing for these larger ships to call at T5 will equalize the ocean transportation

costs on the import and export side compared to competing ports, and lead to optimization of inland

cargo flows based on lower inland transportation costs. This optimization would increase market

penetration of NWSA in the Northwest and Upper Midwest states stretching from Idaho to Michigan,

Figure 1.

Market share gains are projected to most likely

occur for Asian cargo originating from/terminating in

inland areas closer to NWSA than other West Coast

ports. This market share change is expected to lead

to an annual increase of approximately 1,000,000

TEUs in NWSA’s volumes (import and export). This

change in freight flows is expected to lead to

average annual saving of 58 million miles for truck

and 34 million miles for rail transportation

associated with the movement of containers. The

mileage reduction is a function of NWSA gaining

share in Northwest and Upper Midwest markets

which are currently being serviced by more distant West Coast ports.

This reduction in truck and rail miles has significant national benefits in the Economic Outcome, Mobility

Outcome, Safety Outcome, and Community/Environment Outcome due to savings in various costs

including transportation costs, highway maintenance costs, highway and rail congestion costs, highway

and rail safety costs, noise pollution, and air emissions. This project is expected to generate net present

values (NPV) of $1,138 and $629 million with benefit to cost ratios of 4.77 and 3.34 using discount rates

of 3% and 7% respectively.

Table 1: Summary of Benefits & BC Ratio

Outcomes Present Value (2016, 7% Discount Rate)

Present Value (2016, 3% Discount Rate)2

Present Value (2016, 0% Discount Rate)

Economic 752,718,542 1,205,350,563 1,799,225,810

Mobility 47,971,235 76,817,763 114,665,813

Safety Outcome 7,190,349 11,514,119 17,187,116

Community/Environment 89,960,285 145,908,359 220,051,906

Total Benefit 897,840,410 1,439,590,803 2,151,130,645

Total Cost 269,171,902 301,608,176 329,675,922

Net Present Benefit 628,668,508 1,137,982,627 N/A

BC Ratio 3.34 4.77 N/A

Figure 1: Change in the import market share due to commissioning of T5 Project

Change in Market Share

ChangeInShare

< 5%

5% - 10%

10% - 20%

> 20%

Benefit Cost Analysis

Base Case NWSA does not commission the T5 Expansion Project.

o NWSA will maintain its market share in inland markets

o Port volumes will continue to grow organically

o Canadian and other west coast competition will continue to threaten NSWA’s market

area, particularly in the Midwest states

Figure 2: NWSA Base Case Import Market Share

Source: USATade Online, Freight Analysis Framework

Alternate Case NWSA commissions the T5 Expansion Project.

o This expansion allows T5 to accommodate larger ships of 14-18,000 TEUs, similar to

other major West Coast ports.

o These larger ships will equalize the ocean transportation costs of NWSA on the import

and export side compared to other competing ports

o This equalization of ocean costs would make it more cost effective for Northwest and

Upper Midwest areas to be served by NWSA than other competing ports since they

would be closer (in terms of truck and rail miles) to NWSA.

o This cost effectiveness would encourage cargo owners to shift their port of

entry/departure for Asian cargo from other west coast North American ports to NSWA

and lead to reduction in total rail and truck miles travelled and optimize inland cargo

flows.

This optimization would increase market penetration of NWSA in Northwest and Upper Midwest

states stretching from Idaho to Michigan, as denoted by the more pervasive darker shades of

green Figure 3’

0% - 10%

11% - 15%

16% - 25%

26% - 35%

36% - 75%

Figure 3: NWSA Alternate Case Import Market Share

Source: USATade Online, Freight Analysis Framework

Project Impact NWSA’s market study shows that the incremental demand generated based on optimization

of freight flows would be about 1,000,000 TEUs per year, served with a 14-18,000 TEU

service between Asia and North America, Figure 4.

Figure 4: TEU Forecasts for Base Case and Alternate Case

Source: Association of Port Authorities (APPA), Mercator

Future volume is expected to remain close to NWSA’s 2015 break down of 48%, 35% and

17% for loaded import, loaded export and empty containers export, respectively, Figure 5.

0% - 10%

11% - 15%

16% - 25%

26% - 35%

36% - 75%

0

1,000

2,000

3,000

4,000

5,000

6,000

2010 2015 2020 2025

TEU

s (t

hso

uan

ds)

Base Case Alternate Case

TEU volumes and projections for loaded import/export and empty containers are based off

of historic data from the American Association of Port Authorities (AAPA) and Mercator

forecast in Strategic Vision for the Puget Sound Gateway 2015-2025 (Marc 10, 2015)

Figure 5: Container Type Share of Total TEUs, 2015

Source: Association of Port Authorities (APPA), Mercator

This rerouting of freight flows is expected to lead to the following average annual savings in

truck and rail mile for US container trade (Table 2):

o Truck Miles Savings: 58,215,330

o Rail Miles Rail Mile: 34,029,341

Table 2: Yearly Reduction in Total Freight Miles

Miles Truck Rail TOTAL

Loaded Import 27,943,358 16,334,084 44,277,442

Loaded Export 20,375,366 11,910,269 32,285,635

Empty 9,896,606 5,784,988 15,681,594

TOTAL 58,215,330 34,029,341 92,244,671 Source: Oak ridge National Lab, Freight Analysis Framework, USATrage Online, Mercator, Moffatt Nichol

The impact of these reductions in truck and rail mile was evaluated for the post-completion

period for a 20 years horizon from 2020 to 2040.

The NPV for the project is estimated to be $1,137,982,627 and $628,668,508 with a Benefit-Cost

Ratio of approximately 4.77 and 3.34 for discount rates of 3% and 7%, respectively, Table 3.

Benefits of this project are generated by optimizing the inland flow of container movements

to/from NWSA and lowering costs for inland transportation, reducing the congestion on national

highway system, improving livability in the communities near the truck/rail transport network,

and reducing the environmental impact of shipping freight.

Loaded Import48%Loaded Export

35%

Empty17%

Table 3: Project's Costs and Benefits

Outcomes Present Value (2016, 7% Discount Rate)

Present Value (2016, 3% Discount Rate)2

Present Value (2016, 0% Discount Rate)

Economic 752,718,542 1,205,350,563 1,799,225,810

Mobility 47,971,235 76,817,763 114,665,813

Safety Outcome 7,190,349 11,514,119 17,187,116

Community/Environment 89,960,285 145,908,359 220,051,906

Total Benefit 897,840,410 1,439,590,803 2,151,130,645

Total Cost 269,171,902 301,608,176 329,675,922

Net Present Benefit 628,668,508 1,137,982,627 N/A

BC Ratio 3.34 4.77 N/A

Benefit Analysis Project benefits are evaluated in four merit categories of:

o Economic Outcome

o Mobility Outcome

o Safety Outcome

o Community/Environment Outcome

Inputs and Assumptions:

Truck Costs: Truck costs are derived from the report “An Analysis of the Operational Costs of Trucking: 2015 Update”i by the American Transportation Research Institute (ATRI) and are based on a per mile basis and adjusted for inflation and changes in fuel prices.

Rail Costs: Estimated based on data from USRailDesktop1 by averaging the per mile cost of shipping containers with the Burlington Northern Santa Fe (BNSF) and Union Pacific (UP) rail roads

Social Costs: Main components were taken from the “Addendum to the 1997 Federal High Cost Allocation Study Final Report”iiiii provided by the Federal Highway Administration (FHWA) and “Pricing Freight Transport to Account for External Costs”iv provided by the Congressional Budget Office (CBO) for truck and rail, respectively. For truck costs, highway travel was assumed to take place on rural-urban highways with a 70%-30% split, found by using total miles from the Bureau of Transportation Statistics2

Freight Transport: Freight flows were evaluated by combining data from USATrade Online and Freight Analysis Framework (FAF) to estimate NWSA’s market share from different inland markets.

Truck and Rail Distances: Oak Ridge National Laboratory’s County-to-County Distance Matrix3 was used to calculate the savings in truck and rail miles.

1 http://www.usraildesktop.com/ 2http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_06.html 3 http://cta.ornl.gov/transnet/SkimTree.htm

Economic Outcome

Commissioning of T5 Expansion Project will allow vessel costs from the Terminal 5 in NWSA to

match those in other major West Coast ports, make NWSA more cost competitive for inland

markets closer to it and reduce the total truck and rail miles for international cargo flows.

The reduction in rail and highway miles would lead to reduction of truck and rail transportation

cost.

o Truck costs are estimated to be $1.54/mile based on values derived from the report

provided by ATRI while rail costs are estimated to be $0.27/mile based on data from the

application US.Rail Desktop.

o To derive a conservative estimate, transportation cost savings are estimated using only

the cost of laden containers while social costs are estimated based on both laden and

empty movements.

The reduction in highway miles will lead to reduction of highway maintenance costs.

o Maintenance costs refer to the costs associated with highway pavement maintenance

and were estimated from the FHWA as previously referenced. Costs for road

maintenance are estimated to be $0.15 and $0.05 per mile for Urban and Rural

highways, respectively

For 1,000,000 TEUs per year these reduction add to annual savings of $86 million.

This benefit would total to a yearly amount of approximately $ 78,837,853 and $ 7,625,975 for

truck and rail, respectively.

Table 4: Economic Outcome

USD (2016) Truck Rail Total

Transportation and Maintenance $ 78,837,853 $ 7,625,975 $ 86,463,829

Mobility Outcome

Commissioning of the T5 Expansion Project will reduce traffic congestion through a reduction in

highway and rail miles

These costs are based off estimates from reports through the FHWA and CBO and are

approximately 0.02 cents per ton-mile for rail and $ 0.25 and $ 0.03 per mile for trucks on Urban

and Rural highways, respectively

This benefit would total to a yearly amount of approximately $ 5,417,313 and $ 93,082 for truck

and rail, respectively.

Table 5: Mobility Outcome

USD (2016) Truck Rail Total

Traffic Congestion $ 5,417,313 $ 93,082 $ 5,510,395

Safety Outcome

The expansion will reduce overall transportation traffic as a direct result of fewer miles traveled

The probability of accidents occurring on the highways and railway decreases as the total miles

traveled falls

The yearly value of this avoided cost is interpreted as a benefit to society

Cost of accidents was derived using data from the FHWA and CBO reports and are

approximately 0.16 cents per mile for rails and $ 0.02 and $0.01 per mile for Urban and Rural

highways, respectively

o Rail safety cost was estimated by applying the rail to truck safety cost proportion from

CBO report to FHWA values.

This benefit would total to a yearly amount of approximately $ 771,499 and $ 54,447 for truck

and rail, respectively.

Table 6: Safety Outcome

USD (2016) Truck Rail Total

Safety $ 771,499 $ 54,447 $ 825,946

Community and Environmental Outcome

Benefits to the community is derived by reductions in noise pollution and air pollution and are

directly associated with reductions in truck and rail miles

Similar to other benefits, the reduction in total freight miles will reduce the negative impact of

these pollutants on society

Cost estimates were developed from the FHWA Cost Allocation Study while the shares for the

listed pollutants were based on the report “On the Costs of Air Pollution from Motor Vehicles”v

in the Journal of Transport Economics and Policy

Costs for pollutants other than carbon are approximately $0.06 and $0.05 per mile for Urban

and Rural highways, respectively

Rail pollutant costs were estimated by applying the rail to truck pollution cost proportion from

the CBO to FHWA values, resulting in an estimation of 12 cents per mile

The environmental cost of increased freight movement by way of truck or rail is seen in an

increase in the level of pollutants such as C02, N0x, V0C, PM10, and S0x

Miles per gallon (MPG) for a combination truck is assumed to be approximately 5.8 MPG, as estimated by the Department of Transportation, Office of the Assistant Secretary for Research and Technology (DOT, RITA)4, and was utilized with estimates of carbon emissions per gallon of gasoline extracted from the Environmental Protection Agency (EPA)5 to produce an estimate of carbon production

The cost of carbon in this analysis was taken from the DOT BCA Resource Guide 20166 while

distribution of listed pollutants for truck freight was derived from the Journal of Transport

Economics and Policy

4

http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/

html/table_04_14.html

5 https://www.epa.gov/energy/ghg-equivalencies-calculator-calculations-and-references 6 https://www.transportation.gov/policy-initiatives/tiger/tiger-benefit-cost-analysis-bca-resource-guide

Table 7: Truck Environmental Outcome

USD (2016) Cost Reduction Estimated Reduction (tons)

C02 (2023) $ 4,918,192 98,364

N0x $ 2,500,400 790

VOC $ 389,673 127

PM10 $ 227,309 76

S0x $ 129,891 33

Total $ 8,165,465 99,390

Table 8: Rail Environmental Outcome

USD (2016) Cost Reduction

Particulates + N0x $ 403,945

C02 $ 537,809

Total $ 941,754

i http://atri-online.org/wp-content/uploads/2015/09/ATRI-Operational-Costs-of-Trucking-2015-FINAL-09-2015.pdf ii https://www.fhwa.dot.gov/policy/hcas/addendum.cfm iv https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/50049-Freight_Transport_Working_Paper-2.pdf v http://facweb.knowlton.ohio-state.edu/pviton/courses/crp394/Small_Kazimi.pdf