Maritime Administration Report: Oil Prices and Modal Shift

Water and Rail Modes May Adjust Better to High Oil Prices

Office of Policy and Plans
Nov 12 2008

Oil prices have undergone some dramatic fluctuations over the past few months. Recently they were more than double the level they were just five years ago. Oil prices are expected to rise again because supply is not likely to keep up with demand once economic growth returns. In order to understand the impact of oil prices on transportation markets and their logistics chains, the Maritime Administration sponsored a study that reviewed U.S. and international forecasts of potential oil prices and assessed how higher fuel prices would impact different modes of transportation. The study found that:

• The more fuel-efficient rail and water modes are far less affected by fuel price increases than trucking, particularly over longer shipping distances and where Roll-On/Roll-Off vessels, which have significantly lower fixed intermodal drayage and port costs, can be used.
• Increased demand for rail/truck intermodal services is depleting available rail capacity, making existing and potential water services even more attractive.
• Analysis of five major U.S. freight corridors that serve over 95 percent of the U.S. population – Great Lakes (and St. Lawrence Seaway), Gulf Coast, Mississippi River, East Coast, and West Coast – indicates that domestic waterborne containerized traffic has the potential to increase by a factor of 2 to 3 as diesel fuel prices rise from $2 up to $7 per gallon.
• The Great Lakes, Mississippi River, and Gulf Coast freight corridors generate sufficient domestic traffic volume to initiate new water services.
• Along both the East and West Coast, a portion of the huge and growing volume of U.S. international trade now distributed inland through gateway Atlantic and Pacific seaports can be moved by new coastal feeder services.

As the economy revives and energy demand grows, oil prices should rise again. Higher fuel prices should encourage investment in waterborne transportation by providing a cost incentive for a significantly enhanced role for water in the U.S. transportation network. The full report and the executive summary are available on the Maritime Administration web site.