Paying Our Way: Estimating Marginal Social Costs of Freight Transportation

TRB Special Report 246 - Paying Our Way: Estimating Marginal Social Costs of Freight Transportation is a preliminary examination of whether shippers of domestic surface freight pay the full social costs of the services that they use. This study is intended not to provide definitive answers as to whether shippers pay their full social costs but rather to determine the feasibility of making such estimates.

Freight carriers and shippers do not pay directly for all of the costs of providing freight service. Some costs are borne initially by government, such as the cost of roads and ports that are built and operated by public agencies. Other costs, called external costs, are borne by nonshippers or the general public; these include the health and other damages caused by air pollution and noise generated by trucks, towboats, and locomotives and the traffic delays and congestion that an additional truck or barge imposes on other users of roadways and waterways. Social costs are all costs of the shipment, whether borne initially by the shipper, carrier, government, or public. However, carriers and shippers also pay special taxes and fees--such as fuel taxes or vehicle registration fees--that at least partially compensate for the costs that they impose on others. It is desirable that shippers and carriers pay the full social costs of their freight operations--that is, that the special taxes and fees paid by the shipper or carrier for each shipment of freight be enough to offset the cost to the government of the shipment and the external costs that the shipment imposes on others.

One way to approach capacity is through demand management. In freight transportation, the major debate in this regard is about whether the freight modes are charged appropriately for the full costs they impose on society. Railroads and pipelines are funded almost entirely by private funds, but highway and water transportation are funded in part through user fees and taxes. These fees and taxes, however, are designed to recover infrastructure costs, not to compensate society for other social costs, such as pollution, congestion, and crashes. And when shippers and consumers are not charged the full cost of the services they use, they tend to over consume them. Moreover, to the extent that one mode is subsidized more than another, the competition between them is not on a level playing field.

In the report, the concept of marginal social costs is used to determine whether freight users are subsidized. The marginal social cost of a good being transported is defined as the increase in total social costs that results from producing one additional unit of output above the level currently being produced.

The committee conducted a small number of case studies to examine whether data were available or could be constructed for estimating the marginal social costs of bulk and general cargo shipments by truck, rail, and barge. The case studies revealed that it would be possible to develop reliable estimates. The committee recommended that USDOT fund a much larger number of case studies to develop a sufficiently large sample so that generalizations can be drawn about subsidies in U.S. surface freight transportation.