TRADE AND TRANSPORTATIONA Study of North American Port and Intermodal Systems

By the National Chamber Foundation of the U.S. Chamber of Commerce

March 2003

National Chamber FoundationU.S. Chamber of Commerce

1615 H Street, NWWashington, DC 20062

Phone: 202-463-5500 Fax: 202-463-3129E-mail: ncf@uschamber.com

Website: http://www.uschamber.com/ncf

Price $55.00 plus $5.00 shipping and handlingPublication # 9100

Table of Contents

iii

EXECUTIVE SUMMARY .................................................................... 1National Freight Policy ............................................................................. 3Financing Options ................................................................................... 4

ECONOMIC LANDSCAPE ................................................................. 5U.S. Prosperity: Driven by Imports and Exports ............................................ 5A Growing Demand for Containerized Cargo ............................................. 6Cargo Forecast ........................................................................................ 6What This Means for U.S. Ports ................................................................. 6Ship Size and the Impact on Ports .............................................................. 8Freight Transportation and the Economy ................................................... 10

THE NORTH AMERICAN INTERMODAL SYSTEM: INTEGRALTO GLOBAL COMPETITIVENESS .................................................. 12Domestic to Global ................................................................................ 12Value of Efficient, Fast, and Reliable Global Sourcing ................................. 14

THE SECURITY IMPERATIVE ............................................................ 15U.S. Military Intermodal.......................................................................... 15Port Security .......................................................................................... 16

THE NORTH AMERICAN INTERMODAL SYSTEM .............................. 18An Intermodal Paradox ........................................................................... 18Ports: Gateways for Global Trade and Competitiveness .............................. 18Rail Intermodal: Port Partners and Efficient Corridors For Freight Distribution . 19Intermodal Trucking: Essential Port Partners on Every Ton of Cargo .............. 21Short Sea Shipping: A Capacity-Building Option to Be Developed ............... 22

SYSTEM WEAKNESSES .................................................................. 23Fault lines in Intermodal Connectivity ........................................................ 23Fault Lines Between Information Systems ................................................... 24Fault Lines Around Labor Resources .......................................................... 24Fault Lines Around Terminal Productivity .................................................... 26Fault Lines Around Environmental Permitting .............................................. 27Fault Lines in Funding Intermodal Improvements ......................................... 28

Land-Side Congestion

The study focused on congestion in andaround the ports, and how on-site andregional congestion and mobilityconcerns can be dealt with in asystematic manner. These issues includeconnections between the street andhighway system and the port, conges-tion at key bottlenecks on the portfacility, and congestion that affects portcargo on key freight corridors throughand between urban areas.

Recommendations for Actions bythe Public and Private Sectors

The analysis, as outlined, provides abasis to substantiate actions by the publicand private sectors to ensure U.S. ports’capabilities to service national foreigntrade. This analysis was developed by aBlue Ribbon Advisory Panel of industrystakeholders for presentation to the localand federal government agencies.

Based on this analysis outlined aboveand discussions with the industry, theconsultant team formulated specificrecommendations for presentation tothe U.S. Congress in advance of thenext round of TEA-21 reauthorization.

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Future Needs

It is anticipated that future demand forcargo throughput will exceed the capac-ity in many regions of the United States.In this analysis, cargo capacity needs,approximate acreage, and inlanddistribution needs were evaluated.

Fleet Technology

The methodology for forecasting futurefleet deployment was based on thepremise that lines always attempt todeploy the most cost-effective vessels thatcan be supported by trade density andlength of route. Therefore, the consultingteam considered constraints such as thePanama Canal, U.S. land bridges, andchannel restrictions in overseas ports.These trends in vessel deployments wereanalyzed by major trade routes—Transatlantic, Transpacific, Round theWorld (RTW), Pendulum North, Pendu-lum South, Panama Express, and SuezExpress.

Intermodal Issues

The study team examined the planningdocuments of each target port andcollected pertinent information onexisting rail facilities and any commen-tary on rail needs. Working within thecontext of economic forecasts and trends,this information was synthesized acrossthe port sample to arrive at a character-ization of both projected port-railintermodal status and desired improvements.

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CONCLUSIONS ............................................................................. 30Reliable Cargo Movement: Lifeblood of the National Economy .................... 30Future Cargo Volumes: Overwhelming the Nation’s Infrastructure ................. 31National Security: An Inseparable Part of Transportation ............................ 31Integration of the Modes: The Unanswered Challenge ................................ 31Labor: Part of the Solution ....................................................................... 32Environmental Regulations: The Conflicting Mandate .................................. 32No-Action Alternative: The National Economy at Risk ................................. 33Investing in Our Future: New Funding Mechanisms .................................... 33

RECOMMENDATIONS ................................................................... 34National Freight Policy ........................................................................... 34Building Block One: A Clearly Defined Freight Program Within U.S. Department

of Transportation (USDOT) .................................................................. 34Building Block Two: A National Intermodal Planning

and Development Initiative .................................................................. 35Building Block Three: Freight Data and Information Technology (IT) .............. 36Building Block Four: A Coherent Environmental Regulatory Process .............. 37Building Block Five: Labor Integrated Into National Freight Policy................. 38Building Block Six: Funding Options ......................................................... 38

APPENDIX ................................................................................... 41METHODOLOGY ...................................................................................... 41

Data Sources ......................................................................................... 41Containerized Cargo Forecast ................................................................. 41Port Capacity ........................................................................................ 41Measure of Port Operational Effectiveness ................................................ 41Future Needs ......................................................................................... 42Fleet Technology .................................................................................... 42Intermodal Issues ................................................................................... 42Land Side Congestion ............................................................................ 42Recommendations for Actions by the Public and Private Sectors ................... 42

UNITS AND TERMINOLOGY ...................................................................... 43U.S. TOTAL IMPORTS AND EXPORTS ........................................................... 43

APPENDIX

METHODOLOGY

In preparing this study, the consultantteam cataloged 16 representative NorthAmerican ports based on a predeter-mined set of criteria that defines thecurrent and future role of each individualport in the U.S. transportation system.This catalog of data was gathered basedon existing current master plan informa-tion and operator interviews.

Data Sources

The consultant team used data currentlyavailable from the American Associa-tion of Port Authorities (AAPA), from theport operators, and from extensive portdata sources within the team itself toidentify the size, location, and charac-teristics of existing marine terminals.The port inventory was combined withcriteria fields to create a comprehen-sive database of the selected ports andtheir primary characteristics.

Containerized Cargo Forecast

Baseline volumes were developed foreach of the 16 ports and were seg-mented by trade route and direction.Econometric forecasts were applied toeach trade route by segment and

direction, allowing the consultant teamto develop macro drivers for eachregion of the country. These macrodrivers were then applied to theindividual ports by market segment andtrade route to develop a forecastedgrowth rate for each port.

Port Capacity

Where current capacity analysis wasnot available, the consultant team useda computer capacity model derivedfrom a MARAD methodology thatanalyzes a combination of componentsand default values to derive the limitingfactors within each marine terminal aswell as an estimate of the MaximumPractical Capacity (MPC) of the port.

Measure of Port OperationalEffectiveness

The consultant team evaluated a rangeof criteria, including the gross through-put per terminal acre, the ability toserve local industry, the local generatorof economic activity, and the ability toserve strategic needs of the nationaleconomy. Although these criteria areoften used as justification for portdevelopment, they are difficult toquantify. Therefore, the consultant teamdid not address the relative merits ofone individual port versus the others.

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Appendix

1

EXECUTIVE SUMMARY

The United States is the world’s largestimporter and exporter, accounting for1 billion metric tons or nearly 20% of theannual world ocean-borne trade. Allfreight moving in, out, and within theU.S. amounts to about 15 billion tonsand has a value of $9.1 trillion.Although the vast majority of freightmoves domestically, international tradeamounts to $2.0 trillion, almost half ofwhich is containerized, manufactured

Executive Summary

goods. This figure represents almost 27%of the entire Gross Domestic Product(GDP) that is totally dependent oninternational trade.

By the year 2020, even at moderaterates of economic growth, the totaldomestic tonnage of freight carried byall U.S. freight systems will increase byapproximately 67%, while internationaltrade will nearly double. In this sametime interval, every major U.S. con-tainer port is projected to at least

“The nation’s transportationsystem is the lifeblood ofour economy. Without

additional investment in ourinfrastructure, our system ofcommerce is impaired, ourmobility is restricted, oursafety is threatened, our

environment is endangered,and our way of life is

compromised.”

Thomas J. DonohuePresident and CEO,

U.S. Chamber ofCommerce and President,

National ChamberFoundation

Current Container Port Utilization and Reserve Capacity

> 3,000,000

500,000 - 1,000,000

<500,000

1,000,000 - 3,000,000

LegendTEU/Year

Vancouver

Oakland

Los AngelesLong Beach

Houston

New Orleans

Mobile

Everglades

Year 2002 Reserve Capacity

VPA

NYNJ

Halifax

Philadelphia

Charleston

Galveston

SeattleTacoma

Source: Trade and Transportation, 2003

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effective in stimulating the homemortgage market.

• Create a New Series of Bonds,Transportation Bonds (T-Bonds):These bonds, issued and underwrit-ten by the U.S. Treasury, could besold through normal commercialchannels, and made available toprivate investors and investmentportfolio managers. A portion of therevenues from the bond sales couldbe apportioned to the GNS.

• Consolidate a number of successfulfinancing concepts and packagethem as a market-based, freightenhancement program. Componentsof the program could include:

- Qualified intermodal investmenttax credits

- Industrial revenue bonds directedat freight capacity building

- Urban Development ActionGrants for freight facilities

- A waiver of certain propertytaxes on freight facilities

Only through the aggressive implemen-tation of new technologies and moreefficient allocation of existing resourcescan the intermodal system accommo-date the forecasted cargo volumes.These improvements must be imple-mented nationally, across the entireintermodal network to be totallyeffective. As yet, the United States doesnot have a comprehensive national plan

for port and intermodal developmentproposed for the future. This studyprovides a road map to reachthat goal.

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double the volume of cargo it isexpected to handle, with select EastCoast ports tripling in volume andsome West Coast ports quadrupling involume. This immense volume of cargomust pass through the Marine Transpor-tation System (MTS), including approxi-mately 35 deep-water U.S. andCanadian ports that connect the U.S.economy with the rest of the world.

Only through an aggressive programof improvement will the ports keep upwith this growing cargo demand.However, improvement of the NorthAmerican port system presents someunique challenges. Constructing majorlandfills for port expansion and imple-menting major channel deepeningprojects is a decade-long, difficult, andvery costly process, with the potentialfor significant environmental andcommunity impacts. For example, arecently completed Port of Oaklanddredging project experienced up-frontcosts for engineering, permitting, andenvironmental compliance that ex-ceeded the actual cost of the dredging.The United States is now in a situationwhere its ports and intermodal termi-nals can no longer build their way outof capacity problems; they must domore, do it faster, and do it cheaperwith fewer resources than ever before.

Not only are ports facing capacitychallenges, they are also seen as the“front line” in a war against interna-tional terrorism. The irony is that portshave always had to protect themselvesfrom intrusion, theft and sabotage, but

now they are expected to be thegatekeepers for the entire supply chain,preventing the illegal entry of terroristsand weapons of mass destruction. Theports are expected to accomplish thiswithout interruption of service andwithout additional cost to the shipper.

Ports are only one element of the U.S.intermodal distribution system. The wholesystem, which includes rail, trucking andinland freight hubs, is vulnerable to alooming capacity crisis, as well as tosabotage and disruption. Although moreand more cargo is passing through theNorth American container ports, verylittle capacity has been added to theentire intermodal freight distributionsystem. At key choke points in the freightsystem, highways, rail lines, and portsare increasingly congested becauseconcentration of freight movement hasabsorbed most of the readily availablefreight capacity. The U.S. highwaysystem has experienced nearly a dou-bling of vehicle miles traveled in the past20 years while the total highwaymileage has increased only by 1%.

Similarly, the U.S. rail network, aprivate sector industry that carriesabout 40% of intercity domestic freight,has increased the volume of freight itcarries by 50% since 1980. At thesame time, total available trackmileage has been reduced by 35%. In1999, U.S. rail cargo jumped to1.72 billion tons, a record high, butstill 45% below the projected 2020volume of 2.5 billion tons. Despitemajor restructuring and rationalization,

By 2020, every major U.S.container port is projected toat least double the volume of

cargo it is expected tohandle, with select East

Coast portstripling in volume and some

West Coast portsquadrupling in volume.

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“Our nation must notunderestimate the magnitudeof the freight capacity issues

facing our transportationsystem and our economy.

Intermodal traffic isincreasing at a rate muchgreater than our current

ability to satisfy the growth.The solution is not singular

or simple, yet I believethis study provides a

comprehensive view of theissues, as well as,

recommendations fora solution.”

Jeff Crowe, Chairman andCEO, Landstar System, Inc.and Vice Chairman, U.S.Chamber of Commerce

for current transportation programs.This could include increased priorityfor freight projects under guaranteedrevenue bonds and transportationfinancing programs. These existingfinancing tools, which are currentlymanaged by the USDOT, should bemodified to be more freight friendlywith lower eligibility thresholds.

• Redirect the Ethanol Tax: Currentlythere is a 5.3-cent subsidy pergallon on the use of ethanol thatcosts the Highway Trust Fund (HTF)$1 billion annually. The fund losesan additional billion dollars annuallyof the ethanol tax deposited to theGeneral Fund rather than to the HTF.Combined, the two actions havereduced highway account revenuesby $2 billion per year for ethanol-blended fuel. This tax could bereturned to the HTF to help fundintermodal projects.

• Repeal the Railroad Diesel Fuel Tax:Repeal and return the 4.3-centdeficit reduction tax on diesel fuelassessed against the railroads. Thiswould free up $175 million per yearthat the railroads could direct intocapital projects.

• Issue Tax Credit Bonds: The Ameri-can Association of State Highwayand Transportation Officials(AASHTO) proposes a semi-privateTransportation Finance Corporation(TFC) to issue Tax Credit Bonds.Under the TFC, $60 billion in bondswould be issued from 2004 to

2009, including $5 billion in acapital revolving fund, which couldbe applied to intermodal projects.The premise is that the TFC and thesale of the bonds would address ashortfall in the HTF.

• Redirect Customs Revenues: Cur-rently, the U.S. Treasury collectscustoms revenues as customs duties.In FY 1996, customs revenuestotaled $22.3 billion, of whichabout 70% ($15.6 billion) isattributable to cargo movingthrough seaports. All or a portionof these revenues could be directedat seaport and intermodalsystem enhancements.

• Increase the Federal Gasoline Tax:Proponents argue that a modestincrease in the federal gasoline taxwould add revenues to meet theincreasing demands on the surfacetransportation infrastructure system.An increase in the federal gasolinetax should not be considered until allcurrent HTF revenues are fullyutilized. Furthermore, many in thetrucking industry believe that a fueltax increase is not justified in theforeseeable future, particularly if theindustry continues to face barriers toincreased profitability.

• Fund a National Freight Transporta-tion Bank: A national bank could becreated to stimulate freight invest-ments. It would be modeled after theFreddie Mac or Fannie Mae, twoinstitutions that have been

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merely an aggregation of multiple,private and public modes, each ofwhich is stovepiped within its ownindividual areas of activity. That is,each mode has a vertically integratedinformation system; vertically integratedplanning, development, and manage-ment programs; and vertically inte-grated funding mechanisms withminimal “cross-talk” between modes.

Therefore, there must be a comprehen-sive, national effort with a joint public/private partnership to unify the modesinto a coherent intermodal freighttransportation system. This studyrecommends that the actions describedbelow be initiated as soon as possible.

National Freight Policy

The United States must develop aNational Freight Policy that will institu-tionalize and coordinate a separatefreight program within the U.S. Depart-ment of Transportation (USDOT) to planand promote a national intermodalsystem that relies on timely freight dataand effective information technology(IT). To accomplish this, a FederalFreight Advisory Committee must becreated to produce specific, targetedresults in areas where infrastructureshortfalls have been identified:

• A clearly defined freight programwithin the USDOT

• A national intermodal planning anddevelopment initiative

the rail industry now finds itself short ofcapacity in certain congested metro-politan areas, most predominantlyChicago, and along key mainlines.

Of total domestic freight, about 9% iscarried by the MTS on its network ofinland waterways and by coastal feederbarges. Yet funding for channel, lock,and levee improvements has, in fact,decreased over the past 20 years.

This study concludes that the U.S. portand intermodal freight transportationsystem is now being operated in manyareas at the limits of its maximumcapacity. Should any component of thesystem break down, more than one-fourth of the national economy will becrippled. Such breakdowns havepartially occurred in the past, and willmost certainly occur in the future. Theparadox is that the United States hassignificant reserve capacity in its freighttransportation system; it is simplylocated in the wrong place to relievethe most critical choke points. The U.S.lacks a national program for freighttransportation planning and develop-ment to focus critical scarce resourceson the choke points at key gatewaysand corridors.

Further, this study concludes that thereis no coordinated approach to an“intermodal system” as such. Rather,transportation planning takes place atthe Metropolitan Planning Organiza-tion (MPO) level with little regard fornational transportation priorities.Moreover, this intermodal system is

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• Brownfield Conversion: Thecurrent Brownfield programs forremediation and reuse of abandonedindustrial property should be aggres-sively enhanced where conversion forfreight use is possible. ExistingBrownfield sites should be cataloguedfor possible freight conversion, and afast-track, preapproval status shouldbe designated for those sites with highfreight potential.

• Freight Land Banking: If landsaround major freight facilities arenot preserved for freight functions,then warehousing and distributionare pushed to the suburbs or thecountryside. Adequate land mustspecifically be protected for futurefreight projects in growing urban-ized areas to prevent “freightsprawl” and the attendant problemof added emissions, added trucktraffic, and extra costs to the na-tional freight bill.

Building Block Five: LaborIntegrated Into NationalFreight Policy

The USDOT must launch an IntermodalLabor and Management ProductivityImprovement Program to refine workrules, and ensure the intelligent imple-mentation of new technologies. Now isthe time for a more creative approachfor aligning labor issues with productiv-ity issues. Representatives from themajor transportation unions must beengaged in the Cooperative FreightResearch Program to ensure that new

technologies could be implemented bythe existing work force. This participa-tion of labor would also ensure thatnew work rules could be developed toaccommodate an evolving industry.

As a part of this program, labor repre-sentatives should be included in thenewly formed Freight Advisory Commit-tee to ensure that committee recommen-dations are sensitive to labor issues. Atthe same time, labor experts must beavailable to advise the National Coop-erative Freight Research Program aboutthe potential impact of new technologyon current labor practices and to helpcraft a framework for future managementand labor agreements.

Building Block Six: Funding Options

Realization of a coherent and effectiveNational Freight Policy would be acomplex and expensive effort thatrequires the cooperation of manydisparate public and private entities.Therefore, the avenues for funding theseactivities must be incorporated into theoverall National Freight Policy program,or its implementation will ultimately fail.Several options have been proposed forfunding the National Freight Program,which should be explored further toevaluate their potential viability. With-out endorsing any specific fundingproposal, the options that were identi-fied are summarized briefly below:

• Expand Eligibility for ExistingTEA-21 Programs: Consider anumber of expanded eligibility areas

4

• A coherent environmentalregulatory process

• Freight data and IT

• Labor integrated into nationalfreight policy

Financing Options

New financing options for intermodalfreight infrastructure enhancements mustbe developed to ameliorate existing andfuture impediments to an effective inter-modal freight system. This study recog-nizes that its mission is not only toidentify one source of funding but alsodescribe the need for funding, and topresent funding options. Among theseoptions are expanded eligibility forexisting TEA-21 programs, a NationalFreight Transportation Bank, or a newseries of Transportation Bonds.

U.S industrial strength has been basedon rapid, cheap, but dependable freighttransport. However, it is an overloadedsystem, burdened by parochial planningapproaches, and outdated labor andproductivity standards that are not in stepwith the dictates of global tradingpatterns. The facts presented in this studywill demonstrate a potential scenario ofcatastrophic breakdown in the nationalcargo delivery system. Although some ofthese findings are troubling, this studydocuments economic risks to the nationthat have been overlooked far too long. Itis imperative that these risks be elimi-nated before the nation’s economicstability and its security are jeopardized.

“Transportation is thecritical link for both

international trade and ourdomestic economy. We

must proactively address thecurrent crisis in the capacityof our intermodal system.”

James H. Burnley IV,Panel Chair, Blue Ribbon

Advisory; Partner,Venable LLP, and former

Secretary ofTransportation

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quantifies cargo volumes moving throughthe intermodal system and tracks thecomplex interactions between the cargomodes. The Bureau of TransportationStatistics manages the Commodity FlowSurvey, but this effort does not providetimely origin-destination data that arecritical to the management of the U.S.intermodal freight network. Implementa-tion of this data system would serve thenation’s interest in the following ways:

• Private sector data would be madeavailable to authorized usersthrough implementation of globalaccess protocols. While it mustprotect the proprietary nature ofcommercially sensitive information, anational clearinghouse for timelycargo data is the key element of atrue intermodal freight system.

• National programs to improveintermodal throughput capacitycould be targeted on a systemwidebasis because transportation plan-ners would understand what types ofcargo move, when they move, andhow they move.

• Improvements, that are made underthe GNS program, could be evalu-ated as they are implemented and, ifnecessary, adjusted to accommodatechanging cargo flows.

• Container security should be a highpriority under this program.

• National security programs to trackthe movement of hazardous

materials would be facilitatedthrough the improvement of “in-transit visibility.”

• Particular priority should be given totechnologies that improve bothsecurity and productivity.

Building Block Four: A CoherentEnvironmental Regulatory Process

The regulatory obstacles to intermodalfreight improvements must be remedied.Federal regulations must be created thatwould crosscut conflicting state and localenvironmental constraints to the develop-ment of the national intermodal freightsystem. The permitting process to dredgechannels the process to addressBrownfield’s conversion and regulationsto protect the land around intermodalhubs and corridors for freight relateddevelopment are but three of the regula-tory processes, that must be reformedwithin the USDOT and the EnvironmentalProtection Agency (EPA) planningregulations. Among these reforms, some ofthe more immediate needs are as follows:

• Streamlined Permitting: Reformcurrent procedures that create conflictsbetween federal and state regulatorsto give project sponsors a “one-stopshop” for environmental evaluationand compliance. This one-stop shopmust include comprehensive regionaland categorical permits for routineport construction and maintenanceprojects. In addition, create realisticcosts and timeframes for permitevaluation and eliminate the currentpractice of “regulation by lawsuit.”