Long-Run Diversion Effects of Changes in Truck Size and Weight (TSW) Restrictions: An Update of the 1980 Friedlaender Spady Analysis

Abstract

The purpose of this analysis is to estimate the effect that revised truck size and weight (TS&W) restrictions would have on competitive rail-truck markets in the United States. The analysis is based on a classic study of the intercity freight markets that Ann Friedlaender and Richard Spady (FS) published in the Review of Economics and Statistics in 1980.1 The FS study provided a macro-level perspective on the freight markets by focusing on transportation decisions in key industrial sectors—food, wood products, paper, chemicals, automobiles, and so on. The FS analysis and the current update of that analysis complement the short-run estimates of rail-truck competition levels that are commonly obtained using logit-based models of freight demand. For example, a logit model was a central component of the Intermodal Transportation and Inventory Cost (ITIC) Model used by the U.S. Department of Transportation (DOT) in the 2000 Comprehensive Truck Size and Weight Study. Logit models present a relatively fixed assessment of freight demand that is shipment focused and market specific with respect to both commodities and geographic pairs. The FS analysis is based on a more generalized economic framework in which shippers have the flexibility to choose a range of productive inputs that includes truck and rail freight transportation along with labor, materials and capital. The FS framework thus provides a broader and longer term perspective on the potential effect that changes in TS&W regulations would have on the freight markets. The logit estimates can be viewed as identifying the shorter term, lower bounds of the cross-price elasticities between truck and rail while the FS estimates identify long term, upper bounds. The diversion effects analyzed in the current study are based on a hypothetical ten percent decrease in truck prices. This assumption is based in turn on the TS&W cost effects projected by the DOT in its 2000 Comprehensive Truck Size and Weight Study. Though the projected reduction in truck costs is fairly conservative, the losses of rail market share are significant—on the order of 15 to 20 percent in several key competitive rail-truck markets. The impacts on highway users and on railroad shippers who remain on the rail network are also significant. The projected increase in heavy truck traffic is 3.05 billion vehicle miles per year and the projected loss in base year railroad net income is $750 million per year. Total railroad net income in the base year was just $3.2 billion.