CSCMP's Supply Chain Quarterly

Quarter 1 2011

Should we tax truckers for time on the road?

Optimizing truck movements offers developed countries the best opportunity to maximize scarce infrastructure resources. To achieve that goal, governments should tax motor carriers for highway utilization on the basis of time as a way to encourage better routing of shipments.

When it comes to managing road infrastructure, economically developed countries face conflicting demands. On the one hand, in order to address traffic congestion, dwindling oil reserves, carbon dioxide emissions, and global warming, they must contain (and if possible reduce) the volume of truck movements on their highways. On the other hand, if they are to achieve economic growth, then truck shipments will almost certainly have to increase.

Despite a temporary decline in shipments due to the worldwide recession, over the long term, an increase in truck transport activity seems inevitable. Some researchers predict that the volume of goods shipped by truck will double within the next two decades. That kind of increase could have dire consequences in terms of infrastructure congestion and environmental damage. Many observers believe that we will soon reach the point where highway conditions will become unbearable in Europe and the United States.

This will be our "road freight challenge" in the coming decades: to secure the necessary supply of transport services in a congested, environmentally conscious world.

In the past, governments addressed traffic congestion by expanding road networks. But that generally is not a viable option in densely populated, already-congested areas. As a result, national and regional governments are considering an array of policies they hope will reduce road congestion and transportrelated environmental damage.

Of all the options, the most effective way to maximize scarce infrastructure resources without stifling economic growth is to optimize truck movements and route shipments more efficiently. To encourage better utilization of infrastructure, countries should consider adopting a new method of measuring and managing truck transport efficiency: taxing motor carriers for the amount of time they spend on highways. This method, which is now being considered in Germany, will spur shippers and truckers to work together on better routing of deliveries.

Rising demand for truck transport
To understand the magnitude of the road congestion and environmental issues, it is helpful to have some background about volume and projected growth in the developed regions we will consider in this paper: the United States, the European Community (EC)— the 27 European Union members plus Switzerland and Norway—in general, and Germany in particular. Trucking companies in these areas confront some similar conditions, but there are also some significant differences, such as population density. (See Figure 1.)

Trucks carry 44 metric tons of cargo per capita in the United States each year. They handle 36 tons per capita in Germany; an average of 34 tons for each of the 29 European Community countries; and about 15 tons in China. Only about five tons of that volume— food, drink, fuel, housing, and household goods—are for the physical consumption and usage by private households, delivered through retail and direct homedelivery channels. The difference between the average weight of goods physically consumed at the household level and the much larger per-capita trucking volumes can be explained by the complexity of today's systems for producing and distributing goods.

In a modern economy, every manufactured product passes through numerous value-adding stages, making its way from the "raw" or original sources through the processing of basic materials, and then through multiple tiers of manufacturing and distribution activities. The more links and logistical interfaces there are between those stages and the tiers of an economy's "web" of supply chain activities, the greater will be the difference between the transportation of final products to consumers and the cumulative, total demand for transportation services. Moreover, the more sophisticated an economy becomes in regard to specialization in its production technologies and its application of international outsourcing and offshoring to manufacturing and labor, the greater will be the demand for flexible, fast, widely available truck transportation in comparison to the other transport modes. This is clearly evident in the fully developed economies of North America and Europe, where economic activity is shifting away from basic commodities and weight-intensive industrial activity toward ever more high-tech, high-value, time-critical types of products and production, which have a high affinity to truck transportation.

For any developed economy, then, trucking represents the biggest single piece of the national logistics spending pie. In 2008, logistics spending totaled approximately US $1.3 trillion in the United States and US $1.2 trillion in Europe. Of those totals, the most visible segment of the trucking industry, intercity transport, represented US $460 billion in the United States and US $263 billion in Europe. (See Figure 2.) Significantly, those figures were tallied during a recession, when shipping volumes markedly declined. On the basis of post-recession volumes in 2010, the American Trucking Associations predicts that U.S. truck-freight tonnage in the next decade will grow by 25 percent. A long-term forecast by the research firm Cambridge Systematics, presented in 2006 as part of the U.S. National Surface Transportation Policy and Revenue Study Commission's work, assumed that in the 30-year period between 2005 and 2035 truck tonnage would grow by 110 percent, and ton-miles (one ton of freight moved one mile) would grow by 120 percent due to gradually expanding average lengths of haul.

A recent study sponsored by Shell Deutschland Oil suggests that between 2005 and 2025 transport tonnage in Germany—the single largest economy in Europe—will grow by 48 percent, which corresponds to a cumulative annual growth rate (CAGR) of 2.0 percent per year. Ton-miles are expected to grow by 74 percent, or a CAGR of 2.8 percent, reflecting the rapid expansion of long-distance transport. However, a long-term forecast commissioned by Germany's Ministry of Transport assumes that from 2005 to 2050 road-freight tonnage in Germany will grow somewhat more moderately, reflecting a declining population and workforce. Nevertheless, ton-miles in Germany are still forecast to increase over that period by 115 percent, and cross-border truck movements within Europe could rise by as much as 247 percent. All of these figures suggest that demand for truck transportation is rising faster than demand for rail and water transport.

Spending on truck transportation is lower in Europe than in the United States, even though Europe's total reported tonnage is higher. One obvious reason for these differences is that a significant share of European transport activity takes place within the narrow confines of the various countries' national boundaries. Average lengths of haul are significantly shorter, and the level of economic interchange between the EC nations is still less developed than for interstate commerce within the United States. Another factor is the more diverse cost structure for trucking operations in Europe. Many fleets have located their bases in the economies of eastern, southeastern, and southern Europe, where wages and other costs are lower than in central and northern Europe or in the United States. Still, as Europe continues to integrate its national economies, long-distance, "inter-nation" truck transportation is expected to grow at an accelerated rate while cost differentials diminish.

Consequences of growth and congestion
The economic impact of road congestion in Europe today has been estimated at 1.1 percent of the continent's gross domestic product (GDP), or more than US $150 billion annually. This cost will multiply many times if projected growth rates for trucking are realized and translate to corresponding numbers of trucks utilizing road infrastructure that cannot realistically be expanded.

This is a big concern in Europe, where the publication of the kinds of truck-growth forecasts mentioned in the previous section has led to perceptions among the media and the public that they should expect catastrophic levels of congestion on Europe's "Autobahns," highways, and around metropolitan centers, along with transportation-related environmental damage. In fact, some areas of Europe already are experiencing severe road congestion. The routes that experience the most extreme concentrations of cargo movements cluster around the population and industrial centers of the Benelux (Belgium, Netherlands, and Luxembourg) countries; Germany's Rhein-Ruhr region, with its population of 25 million; and other large European metropolitan areas.

The situation is further exacerbated by bottlenecks like the trans-Alpine routes through the Brenner Pass region of Austria and Northern Italy, where an average of more than 10,000 heavy truck movements are recorded each day. Given that volume of traffic, it's not surprising that Austria has become the first country in Europe to resort to regulations prohibiting the transport by road of certain types of cargo, among them steel products, tiles, lumber, and new automobiles. Nighttime truck operations across the Brenner Pass are also restricted. If truck moves should double within the next two decades along these routes, as has been projected, then physical gridlock would inevitably result.

Like Europe, the United States can also expect to experience severe traffic congestion due to growing demand for truck transportation. Figures 3 and 4 illustrate the dramatic increase in highly congested highway routes at peak periods that could occur if the current projections for traffic growth through 2035 should prove to be correct. This Europe-like scenario could well occur despite the more generous availability of space for highway development in most parts of the United States.

Along with increased traffic congestion, the growth of truck transport will also have an impact on dwindling supplies of non-renewable energy sources such as diesel fuel and will result in higher emissions of carbon dioxide and other poisonous exhausts. Currently, the average U.S. and European heavy-duty, intercity truck unit logs about 65,000 miles (100,000 km) per year, burns 12,000 gallons (up to 48,000 liters) of fuel, and emits about 116 metric tons of carbon dioxide. The U.S. fleet of about 2.2 million combination trucks alone is responsible for about 255.2 million tons of carbon dioxide emissions. Add in all U.S. Class 7 and Class 8 heavy-duty trucks, and this figures rises to about 350 million tons. The corresponding figure for the European fleet of about 2 million heavyduty trucks is some 200 million tons of CO2 emissions, corresponding to about 10 percent of the total energy-related carbon dioxide emissions in Europe.

Signatories to the Kyoto Protocol of 2007 and the Cancun Document of December 2010 have committed to containing carbon dioxide emissions at or below 1990 levels. This would require the global community of nations to cut today's emissions levels by at least 25 percent to 30 by 2050. Something drastic will have to be done to curb truck emissions if the world is to meet that goal.

A solution to the road freight challenge
There is no question that developed nations must take some kind of action to address burgeoning truck traffic on their highways. However, they must be careful about placing limits on freight transportation; otherwise they may end up constricting economic growth. Indeed, developed countries will have to achieve macroeconomic growth rates of 2–3 percent annually just to maintain current standards of living. Moreover, the internationalization of supply chain activities cannot be stopped without severely compromising economic prosperity.

The question then becomes: How can developed countries reduce congestion and its environmental impact without hurting business development or economic growth? The answer is not the construction of alternative or additional transport infrastructure; that would require many years to achieve, and, frankly, it may not even be possible due to geographic, legal, and political restrictions.

Realistically, there is only one way to solve the "road freight challenge." There will have to be massive improvements in the transport and logistics sectors' ability to reduce congestion, fuel use, and related emissions. The primary response must be quantum leaps in truck transport efficiency; it is the only way to accommodate developed economies' quantitatively and qualitatively growing transport demands while tightly controlling the number of vehicles, their miles traveled, their energy consumption, and their emissions.

The solution will have to be achieved by and large within the current infrastructure, and it will require leveraging known technological, organizational, logistical, and regulatory measures to reduce congestion and emissions. Beyond that, there must be a robust and objective system for measuring truck transport efficiency to allow motor carriers and their customers to set clear goals, monitor and communicate progress, and stimulate innovative practices.

Time, not distance
The U.S. and European governments recognize that improving the efficiency of their national truck transport systems is a necessary step for reducing road congestion and greenhouse gas emissions. The U.S. Department of Transportation, the European Commission, and the German Ministry of Transport, for example, have commissioned detailed reports on how to reduce truck-generated emissions and improve transport system efficiency.

In regard to transport system efficiency, several policies and strategies have attracted considerable interest in both North America and Europe. These include:

As this list shows, there are a number of policies and actions that governments and the private sector could employ to improve the efficiency of national truck transport systems. Yet some have barely been explored, and none have truly been effective. This is largely because there is no single, universally accepted metric for assessing transport system efficiency, nor is there a commonly accepted process and/or technology for reporting and monitoring progress.

Economic and statistical reports have measured cargo transportation system output almost exclusively as the product of tonnage moved and the distance of the respective move. When transportation demand is static, ton-miles (or ton-kilometers in the metric parts of the world) may be useful as a very high-level metric for following output changes over time, or for comparing the physical performance of alternative transport modes and systems. But it is entirely unsuitable for measuring the burdens that transport activities impose on a given, scarce resource like infrastructure and on the environment through its emissions.

Instead of tonnage and distance, vehicle time on the road should be the key measure for highway usage. The following two scenarios help to explain why time, rather than ton-miles, should be the critical factor in measuring highway usage (and, by extension, transport system efficiency).

Scenario 1: A truckload weighing 25 tons and traveling 400 miles would be measured as 10,000 tonmiles. Typically the loaded truck unit would burn about 70 gallons of diesel fuel, emitting about 675 kilograms of carbon dioxide and utilizing road capacity for about five hours (300 minutes). If the same truck returns empty, it would travel another 400 miles. It would burn almost another 70 gallons of fuel, producing another 675 kilograms of carbon dioxide and using road capacity for an additional 300 minutes. The vehicle's ton-mile metric would still be 10,000, even though its environmental impact and contribution to road congestion have nearly doubled.

Scenario 2: If a fleet of 10 parcel delivery vans spends an eight-hour shift picking up and delivering two tons of small parcels each, and each van travels 50 miles during that time, the total for the fleet will be recorded as 10,000 ton-miles (20 tons x 500 miles). The 10 parcel trucks together burn only 45 gallons of fuel, producing 450 kilograms of carbon dioxide. Yet the fleet used road capacity for 4,800 minutes (10 vehicles x 8 hours x 60 minutes).

As is clear from these highly simplified examples, the effect of various transport activities can be vastly different, even when they produce a seemingly comparable output measure—in this case, 10,000 ton-miles.

In short, road infrastructure congestion and the emissions generated by trucks are becoming increasingly important in measuring transport efficiency. Additionally, the mix of different transport activities is changing dynamically due to changing shipping patterns, economy-driven transformations in many industries, and the advent of on-demand logistics systems. All of these factors suggest that there is a need for a better method of measuring the utilization of scarce infrastructure resources than ton-miles. As suggested earlier, that better method is to measure the amount of time trucks actually use highway infrastructure.

The SAMs solution
Global positioning system (GPS) technology, now universally and inexpensively available, makes it possible to precisely track vehicle movements and link those movements with "ton" and "ton-mile" performance and other information. This technology thus makes it possible to measure road infrastructure utilization in "minutes of highway attendance" (Straßenanwesenheitsminuten in German, better known by its acronym, SAMs). SAMs measures road transport system efficiency as the ratio between output (ton-miles) and the critical, scarce resource (minutes of highway use), or "ton-miles/minutes of highway use."

Because Germany already has the necessary technology in place, it would be a good place to test a system for assessing infrastructure usage based on the amount of time the vehicles are on the highway. In 2005 in Germany, the government installed a nationwide, automated system for the collection of road tolls. About 700,000 heavy trucks have been equipped with an "on-board-unit (OBU)" that uses GPS technology, which makes it possible to continuously and automatically identify and monitor those trucks' position. The system can track the time of entry and exit for any stretch of road and then process that information for the purpose of assessing road tolls.

In its current state of development, the system is programmed to automatically record the use by trucks of more than 12 tons gross weight of the 12,000-km German Autobahn network. The system applies a toll charge for each kilometer logged. The tolls, which vary according to the emission class of the trucks, are invoiced monthly to the trucks' owners.

The system has many capabilities that are not currently in use. It could calculate toll charges according to a vehicle's time on the road (for example, to add peak-hour charges); it could also assess tolls by geography to discourage the use of highly congested routes. It could measure travel speeds for individual users, and it could compute averages along certain road stretches or during certain time periods. This system also has the ability to link information with the digital tachograph required for new heavy trucks in Europe since 2007. And it can link to transport orderprocessing systems to relate information about the loads carried, revenues, etc.

The SAMs measurement for heavy vehicles (which in the future could extend to all kinds of vehicles) would produce the most direct, precise, and accurate picture of the utilization of highway capacity. It can be relatively easily extracted from GPS-based devices attached to vehicles, such as the OBU used in the German system. The data on truck highway usage could be consolidated and processed for many purposes. For example, it could provide transportation policy makers with more precise recordings of distances traveled, time spent on the road, average vehicle speeds, and other measures.

By providing aggregate information across an entire road infrastructure system, SAMs would provide objective, truly relevant information about the burden truck transport imposes upon that system. In fact, according to preliminary estimates that were developed in Germany, the road-use data will show that the usual ton-mile statistics grossly overstate the growth of truck traffic on the country's highways. The SAMs data could be used not only to construct more realistic forecasts but also to obtain more objective information about highway usage in different geographies. When applied to specific geographic areas, the ability of SAMs data to analyze the frequency of truck movements and reductions in average speeds could provide precise information about infrastructure bottlenecks and their cost to highway users. One benefit would be the ability to more objectively plan and evaluate investments designed to remove such bottlenecks.

In addition, if SAMs data is differentiated by vehicle type, governments could more accurately calculate energy consumption and emissions related to cargo transport. It could also provide a more reliable basis for taxing the external cost of transport activities through dynamic road tolls, such as those already being used in Germany.

Furthermore, a costing system that objectively and fairly attributes direct internal and external costs to any transport move could stimulate new pricing practices in truck transportation. This practice would stimulate shippers—who have the most direct influence on the demand for the transport system—to consider "true" transport cost in their supply chain performance and costing calculations.

Finally, the SAMs approach will allow developed countries to realize the critically important goal of a viable, objective, and robust metric for road transport efficiency. This is because "minutes of highway attendance"— rather than tons, ton-miles, or freight revenues— more accurately reflects the usage of a scarce resource: the highway network. This will create a powerful performance indicator that the entire transport industry can use to focus its efforts on what will count most in the future: improving transport efficiency by increasing the tonnage, ton miles, or revenues for each minute a truck is on the highway.

CSCMP member Peter Klaus is a professor emeritus at Friedrich-Alexander Universität Erlangen Nürnberg in Germany. In addition to teaching, he has also headed the Fraunhofer Center for Applied Technologies to the Logistics Service Industries. The author of four books on logistics, Klaus focuses his academic studies on transportation and third-party logistics services.
Article Figures
[Figure 1] Country profiles (2008)

[Figure 2] Logistics and transport systems profiles (2008)

[Figure 3] Peak-period congestion on high-volume truck portions of the National Highway System: 2002

[Figure 4] Peak-period congestion on high-volume truck portions of the National Highway System: 2035