Trucking Industry Imposes Up to $128 Billion in Costs on Society Each Year

Cross-posted from City Observatory

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During National Infrastructure Week earlier this month, we again endured what has become a common refrain of woe about crumbling bridges, structurally deficient roads, and a lack of federal funding for infrastructure. This call for alarm was quickly followed by yet another Congressional band-aid for the nearly bankrupt highway trust fund — and this one will hold for just sixty days.

It’s clear that our transportation finance system is broken. To make up the deficit, politicians frequently call for increased user fees — through increased taxes on gasoline, vehicle miles traveled, or even bikes. All the while, one of the biggest users of the transportation network — the trucking industry — has been rolling down the highway fueled by billions in federal subsidies.

A new report from the Congressional Budget Office estimates that truck freight causes more than $58 to $129 billion annually in damages and social costs in the form of wear and tear on the roads, crashes, congestion and pollution — an amount well above and beyond what trucking companies currently pay in taxes.

CBO doesn’t report that headline number, instead computing that the external social costs of truck freight on a “cents per ton mile basis” range between 2.62 and 5.86 cents per ton mile. For the average heavy truck, they estimate that the cost works out to about 21 to 46 cents per mile travelled.

That might not sound like a lot, but the nation’s 10.6 million trucks travel generate an estimated 2.2 trillion ton miles of travel per year. When you multiply the per ton mile cost of 2.52 to 5.86 cents per mile times 2.2 trillion ton-miles, you get an annual cost of between $57 and $128 billion per year.

Unfortunately, trucking companies don’t pay these costs. They are passed along to the rest of us in the form of damaged roads, crash costs, increased congestion and air pollution. Because they don’t pay the costs of these negative externalities, the firms that send goods by truck don’t have to consider them when deciding how and where to ship goods. This translates into a huge subsidy for the trucking industry of between 21 and 46 cents per mile.

For comparison, CBO looked at the social costs associated with moving freight by rail. Railroads have much lower social costs, for two reasons: first, rail transport is much more energy efficient and less polluting per ton mile of travel; second, because railroads are built and maintained by their private owners, most of the cost of wear and tear is borne by private users, not the public. Railroad freight does produce social costs associated with pollution and crashes, but the social costs of moving freight by rail are about one-seventh that for truck movements: about 0.5 to 0.8 cents per ton mile, compared to 2.52 to 5.86 per ton mile for trucks.

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As we always point out, getting the prices right — whether for parking or road use — is critically important to creating an efficient transportation system. When particular transportation system users don’t pay their full costs, demand is too high, and supply is too low.  In this case, large federal subsidies for trucking encourages too much freight to be moved by truck, worsening congestion, pollution and road wear, while the fees and taxes paid by trucking companies aren’t enough to cover these costs. The classic solution for these currently unpriced external costs is to impose an offsetting tax on trucks that makes truck freight bear the full cost associate with road use, crashes and environmental damage. The CBO report considers a number of policies that could “internalize” these external costs associated with trucking — including higher diesel taxes, a tax on truck VMT, and even a higher tax on truck tires.

The revenues produced would be considerable: a VMT tax that internalized social costs of trucking would generate an estimated $68 billion per year. To put that number in context, consider that in 2014, total public spending — federal, state and local — on roads and highways was $165 billion. In addition, the higher tax would reduce freight moving by road — mostly by shifting cargo to rail — and lead to benefits of lower pollution, less congestion and less wear and tear on roads. We’d also save energy: net diesel fuel consumption for freight transportation would fall by 670 million gallons per year — a savings of about $2 billion annually at current prices.

There are good reasons to believe that the CBO report is conservative, and if anything, understates the social costs associated with trucking. For example, the report estimates that social costs associated with carbon emissions at somewhere between $5 and $45 per ton. Other credible estimates — from British economist Nicholas Stern — suggest that the cost today is about $32 to $103 per ton, rising to $82 to 260 per ton over the next two decades.

The external social costs of truck and rail freight, per ton mile, are estimated as follows:

Source:  Congressional Budget Office, 2015
Source:  Congressional Budget Office, 2015

Such a tax would make truck freight more expensive, but other costs — now borne by the rest of us — would go down by a comparable amount. And there would be important savings in costs for freight either moved by other modes (especially rail, which is about two-thirds cheaper), or sourced from closer locations.

There’s a clear lesson here: It may seem like we have a shortage of infrastructure, or lack the funding to pay for the transportation system, but the fact that truck freight is so heavily subsidized means that there’s a lot more demand (and congestion) on the the roads that there would be if trucks actually paid their way. On top of that, there’d be a lot more money to cover the cost of the system we already have.

So the next time someone laments the sad state of the road system, or wonders why we can’t afford more investment, you might want to point out some 18-wheelers who are now getting a one heck of a free ride, at everyone’s expense.

View the full report: “Pricing Freight Transport to Account for External Costs: Working Paper 2015-03

  • Mark Walker

    Trucking is obsolete except for local deliveries. It is ridiculously inefficient to ship freight in gigantic vehicles ripping up asphalt that needs to be constantly repaired and replaced. Maybe it made sense when fuel was cheap, and we’re enjoying a temporary breather on fuel prices, but longterm that won’t hold. We desperately need to build fuel-efficient rail, powered by renewables to the extent possible — not only a passenger rail system that goes everywhere, but a freight rail system that goes everywhere. It may take a generation or two to rebuild what we once had, but not to make the effort is just suicidal. Is our country serious about having a future?

  • davistrain

    And all is not peaches and cream for the trucking industry–I see signs on the back of big rigs with “Drive for us!” messages, indicating that they’re having trouble finding enough qualified drivers. But I agree that it’s time for the truck lines to pay their fair share of highway maintenance costs. Many years ago there was an article (possibly in the Reader’s Digest) titled “The Rape of Our Roads” detailing the damage done by heavy trucks. If the truck companies had to maintain roads like the railroads have to maintain their own tracks, we’d see a difference in our national transportation system. (full disclosure: I’m a card-carrying railway enthusiast who once worked for the Santa Fe. I own shares in Edison International, which would benefit from railway electrification in Southern California)

  • p_chazz

    Rail is only profitable for shipping large volumes of a single load going long distances–think coal, oil, wheat, etc. It’s not profitable for rail roads to ship smaller amounts shorter distances. Not only that, the railroads have been abandoning branch lines for decades. They’re not about to replace them because the cost to build and maintain them is too high. Trucks are still needed to get the freight from the point of sale to the rail head. and from the rail head to the consumer.

  • Larry Littlefield

    Railroads pay property taxes. More in New York, where there has been disinvestment, than in other states, where there has been investment.

    “Rail is only profitable for shipping large volumes of a single load going long distances–think coal, oil, wheat, etc.:

    It could be profitable for moving more freight in containers and trailers if it operated like a “subway,” moving at 60 miles per hour with stations every 250 miles and a half hour or less of dwell time. Because of money saved on labor, fuel, etc.

    Unfortunately even intermodal traffic moves at 30 mph, and freight dwell time in rail yards averages one day.

  • Andy Chow

    While trucking itself according to certain methods doesn’t cover its costs, the consumer still reap the benefits with more choices and lower prices. If somehow the transportation cost goes up significantly, food prices could go up and certain foods may not be available year round.

    Public schools certain doesn’t recover its costs but it is understood by many that public education benefits businesses.

    Railroads are doing well today because they have the ability to turn down unprofitable businesses and focus solely on profitable ones. It wasn’t that way in 1920s when railroad was expected to take all types of businesses, but at unfavorable rates. Companies want competition and trucking was set up in a way to ensure competition. Because of trucking competition, government deregulated the railroads. So railroad isn’t a true alternative for a lot of freight transportation carried on trucks today.

    Think of it this way, railroad is like cable TV and telephone companies. Trucking is like the internet.

  • Frank S.

    I see terms like “ridiculously inefficient” and “tearing up our roads” as if trucks are some kind of mean ogar-like beasts that adversely affect society. But when you go to Wally World or a home improvement store, or nearly anywhere else and spend money for goods, well, guess what: a big rig provided the cost effective transportation. Period.

    The Fed’s have now squandered BILLIONS and BILLIONS in “Highway Appropriations” over the last two decades. In the last six years alone, we have incurred another eight TRILLION in debt overall to go with the Ten TRILLION we took in. When’s the last time you saw anybody working around an old rusty bridge in your area? They’ll spend six times the regular commercial price for a street sign! Nobody ever seems to know what happened to all that money. We could’ve created an infrastructure in this country far ahead of what Eisenhour planned originally. But no, as usual, graf, waste and corruption are the objectives of the day ( want to talk about inefficient? look to your own government!) while trucking takes the blame and gets further overregulated. Oh, and by the way, the number of jobs these people think it creates: NEVER HAPPENED(S)! Fact.

  • Steven

    Freight trucks seem to me be the best way to move goods across the country, at least as our infrastructure is currently designed (not oriented to rail lines). If diesel taxes need to be raised, then so be it. However, after reading about how bad people are doing in other recent reports with regard to finances, I don’t think we can affect the price of goods currently at such a fundamental level without hurting a large number of people. Externalities are always an interesting concept to think about. To what extent are any of us paying the true cost of things with regards to damage to other parts of the world or with respect to future generations?

  • Joe R.

    Or think of something along the lines of “microcontainers” perhaps 4’x4’x10′. They could use the same railcars as standard 8’x8’x40′ containers, except you can fit 16 in the same volume. Those containers could be loaded in bulk onto regular trucks from rail terminals to a final distribution terminal in the city where they might go on small electric floats to their final destinations. Or they might go directly by rail to distribution centers in larger cities, then be loaded directly onto the electric floats to go those last few miles. The economics should work for that. And you won’t have lots of large, polluting diesel trucks in big cities. You’ll hardly have any going intercity.

    Extending the idea a bit further, why not high-speed electrified lines crisscrossing the country which serve HSR passengers during the day, and run 125 mph freight service at night, stopping at stations some tens to a few hundred miles apart to load/unload the aforementioned microcontainers? That’s similar to what you proposed. With 30 minute dwell times, perhaps an average of one stop every 100 miles, you could cover maybe 100 miles every 1.5 hours. That gets you cross country in under 48 hours. In other words, second day shipping via rail becomes feasible from anywhere to anywhere else in the continental US. Moreover, you kill two birds with one stone. The freight ultimately helps pay for high-speed passenger service. As a result, you get HSR even in places where the economics might not otherwise work.

  • p_chazz

    Because that would require building massive amounts of infrastructure costing in the hundreds of billions of dollars to replace an efficient system using planes, trucks, and trains that is already in place. The railroads aren’t about to pony up the capital cost, and I don’t see the government doing that either.

  • Joe R.

    Except for the fact much of what you call an efficient system is coming due for repair at a cost easily equal to what I propose. Since we have to spend the money either way, might as well spend it on a system which inherently is less costly to run. Besides, the fossil fuels trucks and planes run on will only get more expensive. In fact, fuel price fluctuations already play havoc with the economy. Better to replace it with something which largely can rely on clean sources of power.

  • Claude R

    what did you have for dinner last night? did you raise it in your garden or have your own chickens and cattle or did you go out fishing? Without trucks, you have nothing from your food to the clothes on your back, or do you live in a magic land that stuff just shows up in the stores? The money to fix highways is there but the government over spends and wastes money on more things than you could even imagine. How about we cut welfare programs? But no over tax the highest taxed and most regulated industry. How about this, if you don’t like the evil trucking companies don’t buy the products they deliver, guess what you would be naked, hungry and homeless.

  • Megera

    Ever heard of a train?

  • Alexander Vucelic

    if long haul trucking is so cost competive, then it should be simple for them to compete without massive taxpayer subsidies

  • AndreL

    Trains can deliver merchandise that fast at millions of store or vending places.

  • Josh Cronch

    Yep.. Let me known when you see a train at your local Walmart or grocery store.. Let me known when a train pulls up to your favorite gas station to fill their tanks for you.. Let me know when a train delivers to your local school so your children can eat lunch..

  • 798unionpipeliner

    What subsidies are trucking companies given? Because I have three trucks for hauling produce and we get no subsidies. We have to pay a fuel tax and highway use tax every year with no incentive.

  • 798unionpipeliner

    The railroad is not going to deliver to every business.

  • 798unionpipeliner

    Yes, lets see how communities accept large trains moving all over the community making delivers.

  • Alexander Vucelic

    The article is all about long haul trucking subsidizes – fuel taxes cover a fraction of highway maintence for example. If long haul trucking paid its own way, fuel taxes would be triple what they are today.

  • Sarah King

    There is a lot of concern about the many problems facing the trucking industry but little solutions to help.

    The company I work for has developed a safe, honest, and fair logistics system. We have engineered and manufactured lighter trucks that are aerodynamic and food safe as well.

    I invite you to learn about our innovative trucks and logistic systems because we are seeking to revolutionize the trucking industry. Instead of taxation we believe in solutions.

    Please read more and tell us what you think! We are eager for input from industry professional. Thank you!

    Read More here: http://bit.ly/1Fxwol0

  • Darren

    I think this article sheds a negative light on an American Industry that is constantly under attack, either from government, corporations, and even technology. More budget cuts, strict regulation, and the coming advent of driverless technology is going to create some real problems for our economy in many ways. We don’t really see it in our day-to-day lives but we need the trucking industry to grow and prosper as demands for goods increase. For more information on trucking related news check out: http://www.truckdrivingjobs.com/news/

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