Economics of Improved TOFC/COFC Systems Robert H

6 basis. On a "maximum" cost basis, however, the ser high-rate service. At profitable rates, the Philadelphia vice is unprofitable at all rate levels. Cleveland and Chicago-Houston services would carry only 13 and 21 trailers a day, respectively. This dif Chicago-Houston City Pair fers from the more conventional concept of a TOFC shuttle train service, such as the "Slingshot," which The long distance between Chicago and Houston dis emphasizes low rates and high volume. It would be tinguishes this city pair from the other two. Al interesting to repeat this analysis assuming a lower though both rail and truck service tends to be fairly cost, but slower, less reliable service. It is possible good, a reliable TOFC shuttle train service is believed that such a service might prove more profitable than to offer some improvement in service over both. De the premium service hypothesized here. spite its long distance, the traffic between this pair of These models have allowed us to understand the cities is fairly heavy-roughly the same as between consequences of the multitude of individual firm deci Philadelphia and Cleveland. One might speculate that sions that will determine the market for a service. As the economies of rail line-haul operation would make such, they represent a considerable advance over other a TOFC shuttle train a profitable undertaking between methods, such as aggregate econometric models, which this pair of cities. require gross assumptions about the relationship of Figure 4 presents the comparison of revenues and transportation demand to the economy of a region. costs at various rate levels for the Chicago-Houston Better industry data, production-type demand models, TOFC shuttle train service. The almost horizontal and the development of techniques to deal with the entire revenue curve indicates an elasticity of demand near transportation network are imperative before large one, although revenues do drop off at higher rates. scale implementation can begin, Like the previous two city pairs, the service does well on a "minimum" cost basis. Profitability is achieved ACKNOWLEDGMENT on a "maximum" cost basis only at fairly high rate levels. At a rate of $915/trailer, the service yields The research described in this paper was sponsored a profit of $430 000/year. by the U.S. Department of Transportation, Office of University Research. Comment REFERENCES Perhaps the most striking thing about these results is 1. P. 0. Roberts and others. Analysis of the Incre the differences in estimated demands between city pairs mental Cost and Trade-Offs Between Energy Ef and the different responses of these demands to varia ficiency and Physical Distribution Effectiveness tions in rates. Clearly, the nature of freight trans in Intercity Freight Markets. Massachusetts In portation markets varies greatly. It is important to stitute of Technology Center for Transportation have demand forecasting methodologies for production studies, Cambridge, Rept. 76-14, Nov. 1976. use that take into consideration the characteristics of 2. R. D. Samuelson and P. 0. Roberts. A Com individual freight transportation markets. modity Attribute Data File for Use in Freight Transportation studies. Massachusetts Institute CONCLUSIONS of Technology Center for Transportation studies, Cambridge, Rept. CTS 75-20, Nov. 1975. This study has illustrated the application of equilibrium 3. Reebie Associates. National Intermodal Network analysis to a TOFC shuttle train. This same type of Feasibility study. Prepared for the Federal Rail analysis could be applied to the pricing of most any road Administraiion, Office of Policy and Program freight transportation service, or to other characteris Development, Rept. No. FRA/OPPD/76-2, May tics of the service as well. In fact, the authors have 1976. used essentially the same models presented here to 4. R. D. Samuelson and P. 0. Roberts. COFC vs. compare shuttle trains using several alternative types TOFC: A Comparison of Technologies. Massa of container-on-flatcar technology ®· chusetts Institute of Technology Center for Trans The results suggested here are somewhat counter portation studies, Cambridge, Rept. 77-10, June intuitive but reasonable considering the service that 1977. was assumed. The results suggest that profitability for this TOFC shuttle train will be achieved, if profit Publication of this paper sponsored by Committee on lntermoda/ Freight ability is possible at all, by operating a low-volume, Transport. Economics of Improved TOFC/COFC Systems Robert H. Leilich, Peat, Marwick, Mitchell and Company, Washington, D.C. The success of future rai I intermodal traffic hinges on satisfying de tives. To look at these opportunities, the Federal Railroad Adminis mand, meeting new market needs, and realizing railroad profit objec- tration has sponsored several major ongoing intermodal studies to 7 evaluate current, proposed, and needed technologies to achieve those others, has embarked on a series of research efforts to ends. This paper summarizes a portion of a preliminary study con improve the profitability and, hence, marketability of ducted by Peat, Marwick, Mitchell and Company to examine the rail intermodal service. One of these research efforts economics and markets of current, proposed, and conceptual systems. It analyzes current and proposed systems and how each ranks with was devoted to examining the economics of current, respect to one another, common motor carriers, and owner-operators. proposed, and conceptual systems. Study findings are encouraging and suggest opportunities for more The average length of haul for all intermodal traffic cost-effective systems and more market-responsive service capabili in 1976 was estimated at 1798 km/t (1013 miles/ton) ties. Contemporary costing procedures plus specially developed from the FRA One Percent Waybill sample. A sig life-cycle costing and terminal models were used. Many unit costs nificant contributor to this high average length of were developed on an engineered basis. The Bimodal Roadrailer emerged as a promising new system. The Santa Fe "Ten Pack" and haul is the large volume of traffic moving in the Paton Low-Profile system proved superior as improvements to more than 3200-km (2000-mile) block. Excluding current trailer-on-flatcar systems. The Southern Pacific Double the high concentration of intermodal traffic in this Stacked Container Car offers the greatest promise for container-on category, the average length of haul was 1404 km/t flatcar systems. (791 miles/ton). ECONOMIC ISSUES IN SYSTEMS The growth of trailer-on-flatcar and container-on-flatcar EVALUATION (TOFC/COFC) traffic reflects the ability of railroads to provide highway-competitive service. Next to The evaluation of alternative systems to reduce inter coal, it is the largest and fastest-growing railroad modal costs should focus on equipment use, equipment traffic. value, cost of capital, terminal and origin-destination In contrast to coal, most railroads do not regard costs, and line-haul costs. intermodal traffic as highly profitable. Only western roads, on long hauls of more than 2400-3200 km (1500- Equipment utilization 2000 miles) claim that intermodal traffic is an impor tant contributor to profits. Although highway compe Freight car trailer/container and other intermodal tition establishes the upper limit of pricing, it is not freight system component use has a major impact on always the regulated common carrier that establishes transportation costs in that many of the equipment that umbrella. related costs are relatively fixed in the short term Under a strongly competitive price umbrella, attrib (though all rolling stock and nonfixed equipment costs utable costs become the principal factor driving are considered to be variable in the long run) and profitability. Figure 1 depicts the approximate Rail must be distributed over the number of revenue ship Form-A-developed cost structure of TOFC service for ments that each equipment component handles. In cost each of five major rail cost territories for lengths of evaluations it is not always appropriate to use historical haul between 480 and 1600 km (300 and 1000 miles). data in distributing or assigning equipment costs to (Because we will be looking at intermodal alternatives particular traffic, especially in improved technologi on a comparative basis, Rail Form A is adequate for this cal, operational, and institutional environments. purpose even though Rail Form A has some deficiencies.) This exhibit shows the major cost factors, prepared Equipment Value from unit costs developed by the Interstate Commerce Commission. Note, particularly, the major portion of Equipment ownership costs make up a sizable portion costs that are not distance related. of rail transportation costs. Critical to evaluation of Costs of rail intermodal service are characterized intermodal freight systems is the proper recognition of by high terminal costs-as much as 70 percent of total the value (current or replacement) of the equipment variable costs at 480 km-and a relatively low-cost unit being used. rate for line haul. The opposite is true for motor carriers. Figure 2 compares rail intermodal costs to Cost of Capital the cost structure of common carriers and the owner operator or private fleet operator. In the latter case, Cost of capital is a well-recognized economic cost. In most owner-operators perceive their terminal costs as capital-intensive systems with long economic life and nearly zero; as a consequence, they tend

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