Date: Sept. 11, 1996
Contacts: Barbara J. Rice, Deputy Director
Darice Griggs, Media Relations Assistant
(202) 334-2138; Internet <>

SEPT. 11

Publication Announcement

Better Estimates of Freight Subsidies
Could Lead to Improved Policies, Practices

A longstanding public-policy question is whether shippers and carriers of surface freight should pay for the "social costs" of the transportation services they use. Some costs, such as the construction and operation of roads and ports by public agencies, are borne by government and are paid for, at least partially, by fees and taxes. Other costs, such as those associated with the health effects of air pollution and with traffic delays caused by accidents and breakdowns, are borne by the general public and reduced partially through regulation.

Eight hypothetical case studies developed by a National Research Council committee demonstrate that methods exist to gauge social costs and the extent to which shippers and carriers of surface freight pay them. The methods laid out in the committee's report give the federal government a road map for making reliable assessments of subsidies, which are key to designing tax and regulatory policies that promote better use of the nation's transportation system. The social cost of a freight transportation activity is the sum of all the costs, whether borne initially by the shipper, carrier, government, or public. The portions of these costs that are not paid for by shippers and carriers are referred to as subsidies.

Each hypothetical case study involves a single movement of a commodity by truck, rail, or barge or a combination of these over a specified route. In studying the subsidies, users' fees, and taxes for each case study, the committee found that estimates are highly sensitive to the specific circumstances of each shipment, such as the mode of transportation, route, time of day, and traffic conditions. As a result, the committee recommended that national estimates be built from many estimates for individual shipments. Although preliminary at best, the estimates developed in the case studies imply that freight carriers are not fully paying their way when all social costs are included in the calculation.

Reducing subsidies may induce beneficial changes in transportation practices, lowering the cost of freight transportation to society as a whole, the report says. Shippers and carriers would be more likely to use transportation services responsibly and efficiently if they paid the social costs of freight shipments. Without subsidies, carriers and shippers would rethink decisions concerning vehicle and equipment specifications, fuel economy, selection of transportation modes, routes and times of travel, and many other operating factors in order to reduce their costs.

To develop a reliable means of measuring subsidies of freight transport, the committee calculated the "marginal subsidy" -- the difference between the price a freight user would pay for one additional freight movement and the added social cost of the movement. If the taxes or fees paid for each shipment equal the costs the shipment imposes on others, then the shipment is paying its way. If the taxes are less than these costs, the shipment is being subsidized by the amount of the shortfall.

Many observers have assumed that policies aimed at reducing subsidies would necessarily benefit some freight modes over others. However, the committee's preliminary estimates did not reveal great differences, in most cases, among the subsidies of trucks, rails, and barges as percentages of the prices that freight shippers pay. Also, the report points out that shippers and carriers might be able to modify their operations in many ways instead of switching transport modes -- from maintaining engines better to using safer, less congested routes -- to reduce social costs they pay for.

When evaluating highway and waterway user-fee policy and transportation investment proposals, the U.S. Department of Transportation (DOT), the state transportation departments, and the U.S. Army Corps of Engineers should consider how changes in fees could affect the economic benefit the nation derives from its transportation system, the committee said. DOT periodically conducts evaluations of highway user fees, but they focus on whether taxes appear to be equitable or fair, and not on how taxes affect efficiency.

The committee added that research is needed to fill some gaps in knowledge, especially concerning the safety risks of truck traffic; effects on air quality from changes in freight volume on a road, waterway, or rail line; health effects of diesel particulates; costs from traffic delays caused by accidents and breakdowns; and highway maintenance costs.

Paying Our Way: Estimating Marginal Costs of Freight Transportation can be purchased from the Transportation Research Board; tel. (202) 334-3218. Reporters may obtain copies from the Office of News and Public Information at the letterhead address (contacts listed above).

The study was sponsored by the National Cooperative Highway Research Program, the Federal Highway Administration, the Federal Railroad Administration, the Maritime Administration, and the National Research Council's Transportation Research Board. A committee roster follows. The Research Council is the principal operating agency of the National Academy of Sciences and the National Academy of Engineering. It is a private, non-profit institution that provides science and technology advice under a congressional charter.

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[This announcement is available on the World Wide Web at <>.]

National Research Council
Transportation Research Board

Committee for the Study of Public Policy
for Surface Freight Transportation

José Gomez-Ibañez (chair)
Professor of Public Policy and Urban Planning
Graduate School of Design and Kennedy School of Government
Harvard University
Cambridge, Mass.

Robert E. Bowles
Director of Distribution
PPG Industries Inc.

Kenneth D. Boyer
Professor of Economics
Michigan State University
East Lansing

Keith Chase
Manager, Intermodal and International Sections
Gannett Flemming Engineers Inc.
Harrisburg, Pa.

Martha C. Cooper
Professor of Marketing and Logistics
Ohio State University

Albert M. Hanks
Manager of Supplier Integration and Development
Du Pont Co.
Wilmington, Del.

David Harrison Jr.
Vice President
National Economics Research Associates Inc.
Cambridge, Mass.

Thomas D. Hopkins
Arthur J. Gosnell Professor of Economics
Rochester Institute of Technology
Rochester, N.Y.

Debra L. Miller
Director, Division of Planning and Development
Kansas Department of Transportation

Herbert Mohring
Emeritus Professor of Economics
University of Minnesota

John C. Spychalski
Professor of Business Logistics and Chairman
Department of Business Logistics
Smeal College of Business Administration
Pennsylvania State University
University Park

Michael P. Walsh
Technical Consultant
Arlington, Va.

C. Michael Walton*
Ernest H. Cockrell Centennial Chair in Engineering and Chair
Department of Civil Engineering
University of Texas


Stephen R. Godwin
Director, Studies and Information Services

Joseph R. Morris
Study Director

(*) Member, National Academy of Engineering