Trends in Highway and Rail Transit Construction Costs

Market Overview

Construction activity in the US appears to have bottomed out in 2011 and is experiencing a recovery in 2012. Construction activity in 2011 was 34 percent below the 2006 high and in 2012 has grown each quarter. Annualized 2012 Q4 activity is projected at 12 percent above the 2011 total annual activity level. If activity continues at the levels seen through October, total 2012 activity will be nine percent or more above total 2011 levels.

Despite what seem to be strong results this year, industry confidence is wavering. The Construction Financial Management Association (CFMA), which tracks construction executive sentiment, ranks industry confidence about even with levels in 2011. The lack of a full embrace of recovery in the construction sector is likely due to factors in the general economy—fear of the fiscal cliff (and the corresponding uncertainty with tax rates, including mortgage interest deductions), the European economy, and slowed growth in BRIC nations (i.e., Brazil, Russia, India, and China).

Another driving factor is the realization that, despite reasonably healthy growth, a return to the 2005-2007 activity level is unlikely in the near future. The industry is more likely to see a new normal which is substantially below boom levels, with renewed growth in activity at more sustainable levels.

Transportation represents approximately 20 percent of the total construction market in the US and has experienced somewhat different trends than the market as a whole. The transportation sector had been driven by federal stimulus funding over the past few years, and has seen a resurgence of private-sector spending. After seeing some boost in 2008 to 2010, the transportation construction sector contracted by five percent in 2011. This drop resulted from the completion of many stimulus projects. This trend continued through 2012 Q1, but growth has returned in 2012 Q2 and 2012 Q3. The transportation sector has rebounded in 2012 with total 2012 spending estimated at two percent above the 2011 level.

Highway Construction Cost Trends

Parsons Brinckerhoff’s Highway Construction Cost Index (PB HCCI) has increased approximately 3.6 index points or 2.1 percent year-to-date in 2012 (as of October).

During this period, steel mill products decreased 7.5 percent but were offset by increases in asphalt and labor prices of 7.5 percent and 7.8 percent, respectively. As seen in Box 2, the overall index is 1.0 percent higher than the October 2011 value. Prices still remain below highs seen in the summer and fall of 2008.

PB HCCI is comprised of the following six cost components: construction labor, construction equipment, steel, asphalt and asphalt binder, aggregate, and concrete. The resulting index represents average highway construction costs for the US as a whole.

Cost inflation for specific regions, capital programs, and projects will vary from this index depending on project types and work mix, as well as the regional or local construction market (including local contractor and material supplier markets) and contractor margins (which are lower during construction downturns).

Rail Transit Construction Cost Trends

Parsons Brinckerhoff’s Transit Construction Cost Index (PB TCCI) has increased approximately 2.2 index points or 1.5 percent for the year 2012 (i.e., year-to-date, as of October). During this period, steel prices decreased by 7.5 percent, concrete grew 1.6 percent, labor costs grew 2.5 percent, equipment costs grew 2.7 percent, with other component prices increasing by 2.5 percent or less. As seen in Box 3, the October 2012 PB TCCI value is only slightly (0.2 percent) higher than October 2011.

PB TCCI is comprised of the following cost components: steel mill products, ready-mixed concrete, machinery and equipment, construction labor, and other materials. Because vehicle acquisition is not a part of all transit capital projects and is not a true construction cost, costs for rolling stock have been excluded from the index. The resulting indices represent average transit construction costs for the US as a whole. Cost inflation for specific regions, capital programs, and projects will vary from this index depending on project types and work mix, as well as the regional or local construction market (including local contractor and material supplier markets) and contractor margins (which are lower during construction downturns).

Market Trends for Key Components


Most mills in the US use scrap metal to produce steel. Price volatility in the price of scrap steel is the most significant contributor to the high unpredictability in the price for finished steel products. Steel scrap is made from cans, automobiles, appliances, construction materials, and other steel products. Re-melting of scrap requires much less energy than the production of iron and steel products from iron ore.

Historically, the global demand for steel scrap and the growth of the US automobile industry has had a significant effect on domestic scrap prices, thereby increasing overall steel prices. Given the drop in global demand, especially in the BRIC countries, in 2012 steel prices declined 7.5 percent year-to-date. This decline follows greater than 12-percent growth in the two preceding years (i.e., 2010 and 2011).


Except for the 2005 to 2006 period, concrete has exhibited relatively stable prices. Prices have been stable primarily because of concrete’s cost drivers—namely, transportation costs (localized), cement costs (sourced from elsewhere in the US or Mexico), and aggregates (sourced locally)—and demand is able to be met without any supply constraints. Unless there is heavy demand, similar to that experienced in 2005 and 2006, concrete prices are expected to remain stable in the immediate future. Year-to-date, the price of concrete has increased two percent. This follows a 1.2 percent decline in 2010 and a 0.5 percent increase in 2011.

Construction Equipment

Though construction equipment prices are generally stable, prices have increased seven percent in the past two years (December 2010 to October 2012). This increase is primarily due to the implementation of new US Environmental Protection Agency (EPA) emission regulations for construction equipment, called Tier IV. These standards apply to all new equipment. The phasing in of the new equipment is likely to occur over the next five years. Implementation of Tier IV interim standards began in 2008, with a second wave in 2011 and 2012. Phasing in the final Tier IV standards began in 2012 and will be completed by 2015.

Asphalt Binder

Asphalt binder is a byproduct of petroleum refineries and is used to hold loose aggregate together in asphalt pavement. To manufacture asphalt binder, crude petroleum is separated into its various fractions through a distillation process at the oil refinery. After separation, these fractions are further refined into other products which include asphalt, paraffin, gasoline, naphtha, lubricating oil, kerosene, and diesel oil. Asphalt is essentially the heavy residual of the oil refining process.

As a result, the observed volatility in asphalt prices is highly correlated to crude oil prices, which are dependent on global markets and geopolitical events. Year-to-date, the price of asphalt has increased 7.5 percent. This follows a 32.1 percent price increase in 2011.


Being a heavy natural commodity, aggregates are mostly sourced from within 50 miles of a project. While alternatives do exist, transportation costs for materials outside of a 50-mile radius can raise the material costs by as much as two-thirds, making these options most often uneconomical. Accordingly, the price of aggregates is very much dependent on local markets conditions (e.g., local environmental regulations, availability of local quarries, etc.). At a national level, the price of aggregates has remained relatively stable. Year-to-date, the price of aggregates has increased 2.2 percent. This follows a 1.7 percent increase in 2010 and a 1.3 percent increase in 2011.



  1. Data source for Boxes 4 through 8: US Bureau of Labor Statistics


Image Header Source: Metropolitan Transportation Authority of the State of New York (Creative Commons)


Geographies: United States
Sectors: Transit & Passenger Rail
Topics: Economics