When the Wall Street Journal speaks about railroads, we listen. The article, by Daniel Machalaba, is titled, The Future of Rail. The discussion is actuallly very little about passenger rail and high-speed rail; it's mostly about freight rail.
HSR has become our obsession, mainly about whether we should be spending all that money on high-speed rail or not. What these discussions ignore is freight rail in the US. It's slow, it's Diesel, and there are 160,000 miles of track for freights to run on. There are a number of freight rail operators (called Class 1), and although private, they don't really compete. They are profitable. They own most of the existing track in the US, maintain it, and share it with Amtrak passenger rail. They haven't yet switched to electric because they don't need to, remaining profitable with their Diesels.
What needs to be said here is this: While other countries have poured billions into their high-speed rail systems, some of those countries are discovering that perhaps they made a very big mistake, and the collateral damage to the economy and the environment were unanticipated. Meanwhile, the Democrats in the US are screaming for federal expenditures on high-speed rail.
At the same time, our freight rail system is the best in the world. Indeed, I like to say that our passenger rail is grossly inefficient freight rail, and that many of the ostensible benefits attributed to passenger rail are actually appropriate only to freight rail. One example is the fuel consumption economies. We've discussed this previously in this blog with a consideration for gross, tare and net weight factors.
What's all this have to do with HSR? Note that it gets relatively little attention in these discussions, including with Joseph Szabo, the head of the FRA. There appears to be no great enthusiasm for 200 mph trains. And there is considerable anxiety about passenger rail constituting a set-back for the freights when sharing corridors. If that means building entirely new rail corridors for HSR, as we intend in most of California, the costs far outweigh the benefits. California is no longer the Wild West. All property is owned along any intended rail route and the costs will be seriously consequential, as will the abundance of lawsuits.
If you read this discussion as I have, you will discover many reasons why high-speed rail is not a good idea. This discussion is a much needed antidote for the mindless, content-free palaver from Ray LaHood as he keeps on trying to sell us on HSR as the solution to all our problems, real and imagined. The fact is, it's a train we do not need.
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MAY 23, 2011
The Future of Rail
Freight railroads have made a strong comeback in recent years. Can they stay on track?
By DANIEL MACHALABAWhat is in store for U.S. freight railroads?
Journal Report
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Once a dying industry, railroads have made a strong comeback and are poised to become busier places in the years ahead. Forecasts for freight growth are substantial, prompting railroads to plan capacity additions. At the same time, the federal government is looking to railroads to handle more and faster passenger trains and install an extensive anticollision system known as positive train control.
The Wall Street Journal recently held an email discussion about the future of rail with panelists from the private and public sides of the business. Participating were Jim McClellan, vice president of railroad consulting firm Woodside Consulting in Virginia Beach, Va.; Bill Rennicke, a consultant at Oliver Wyman Group in Boston; Francis P. Mulvey, a commissioner of the Surface Transportation Board in Washington; and Joseph C. Szabo, head of the Federal Railroad Administration in Washington. Here are edited excerpts of the conversation:
Bright Prospects
WSJ: What's ahead for railroads?
MR. MCCLELLAN: I am moderately bullish on the freight railroads. The mainline network is in great shape, as good as I have seen it in my 40-plus years in the business. Railroad finances are in good order.
Railroads showed remarkable ability to weather the great recession, and they now seem able to deal with wide swings in traffic volumes in an efficient manner, which is in marked contrast to what I saw in the '60s and '70s.
MR. RENNICKE: If the traffic-level trajectories are correct, then ton-mile [one ton of paying freight shipped one mile] growth could be in the 80% range by 2035 to 2040, and on this basis, industry prospects are bright. Rail activity could possibly even double by the midpoint of the century. North American rail-freight rates would continue to be the lowest or one of the lowest in the world, and the industry would finance most or all of its capital requirements without public support.
The possible dark cloud could be changes in a regulatory structure that has fueled industry growth and profitability.
MR. MULVEY: Many factors determine rail traffic levels and market share. Since Staggers [the 1980 law that partly deregulated railroads], the rail share of intercity ton miles has grown from just over 30% to over 43%. But much of that has been due to declining shares of barge, Great Lakes and pipeline traffic—as opposed to shifts from truck to rail.
Whether the railroads can increase their share of truck-competitive traffic will depend on railroad pricing and service policies, and on the railroads' willingness to invest in capacity. Capacity investment, in turn, will depend on perceived profitability of those investments. If new rail capacity is dedicated to higher-speed passenger operations or commuter-rail services, the railroads might not be able to handle much more freight business.
MR. SZABO: By 2050, our country's population is expected to grow by more than 100 million people. Right now, on average, the freight system must move 40 tons of freight per person, per year. So do the math: 40 tons times another 100 million people is another four billion tons of freight. Without planning and action, that's an unsustainable rate of growth.
Given rail's efficiencies—and our challenges with congestion, air quality and fuel consumption—freight rail will need to grow market share.
WSJ: What advantages do the railroads have?
MR. MCCLELLAN: The best thing railroads have going for them is their inherent efficiency, be it in land usage or energy consumption or cost of moving a ton mile of whatever needs to be moved. Railroads suffered in the past because they were, and remain, relatively less convenient than trucks.
But in an era of scarcity and pressure on costs, there has been and will be a growing focus on efficiency. That plays into railroads' strength.
The public-sector financial situation will actually be an advantage for freight rail: Highways are not being funded, and the prospects are dim in that arena unless taxes are increased [which in turn raises the cost of trucking, which also helps the rails].
WSJ: What challenges do they face?
MR. MCCLELLAN: The biggest challenge for the railroads will be to build the needed capacity in a timely fashion and at a cost that the market prices can support.
MR. RENNICKE: Future investments must also be considered in the context of the unfunded mandate for the railroads to spend billions on installing anticollision technology and potentially accept the operation of increasing numbers of passenger trains over their lines. Both have the potential to further limit the existing capacity of the network and the ability to meet future growth.
Improved transit times and consistent reliability are key to long-term rail-industry viability. Both measures have steadily improved over the last several decades but still have a way to go.
MR. MULVEY: One challenge is service issues. Some shippers fear retaliation for making service complaints, and that perception may silence railroad critics. Top railroad managements, especially the current crop of younger CEOs, all seem dedicated to good customer service, and they assure us that retaliation for service complaints won't be tolerated.
Railroading is a complicated, network business that lacks the flexibility to be as responsive to sudden changes as trucks or planes can be. That said, some railroad decisions, such as focusing on some types of traffic and ignoring or eschewing others, can make railroads appear arrogant.
WSJ: How will railroads fund capacity additions?
MR. RENNICKE: Railroads provide essentially all of the required maintenance and growth capital from the private sector. Private-sector investors provide capital at market prices based on their perception of the future earnings of the railroads.
Government investment in rail infrastructure is unlikely. In the U.S., we have an outdated air-traffic control system, crumbling highways and deteriorating locks in the river network, which are all dependent on government funding, so how can the public take on funding another mode?
Push for Passenger Rail
WSJ: Why do the French, Chinese and Germans have such wonderful high-speed passenger trains and we don't?
MR. MULVEY: Every nation must make decisions on how it will organize and invest in its transportation infrastructure. The U.S. has long had the most developed aviation and highway systems; significant public and private funds have supported and developed them.
Moreover, the U.S. has historically had much higher rates of car ownership, and we have pursued a policy of low gas prices, at least by European standards.
MR. SZABO: Step by step, we are building an innovative rail network to compete in the global environment. The French and German systems did not appear overnight. They are the result of several decades of careful, intelligent planning and targeted investments—the very steps we are taking today.
In Europe and Asia, many of these investments began with incremental upgrades to existing services. It was understood that there must be a comprehensive network. Not every train goes 200 miles an hour, nor should it. It's more prudent to have local and regional service for smaller markets that feeds the true high-speed express service. And it takes time to build out these complicated projects.
MR. MCCLELLAN: Passenger service can literally drive freight traffic off the railroad; look no further than the Northeast Corridor for an example. What was a vital and busy north-south freight line has essentially been eliminated.
The amount of money being proposed for passenger rail is far short of what is needed for a first-rate, European-type passenger network. We are trying to do high-speed rail on the cheap and run a real risk, by ducking very real capacity issues, of doing serious harm to the rail freight system.
To get the job done, the country would have to embrace higher gas taxes and higher airport fees, just as Europe and Canada have done, and a long-term investment in infrastructure many times that which has been proposed.
More Competition?
WSJ: Some shippers are complaining to the government that they pay high rail rates and suffer poor service because they are captive to a single railroad. Should regulators open the rail system to more competition?
MR. MULVEY: That is up to Congress, and there is currently legislation pending that would address these very questions.
As far as the Surface Transportation Board goes, during my tenure, the STB has responded to shipper concerns in the areas of fuel surcharges, cost of capital and the Uniform Rail Costing System [a method for calculating railroad costs for regulatory purposes].
We also have streamlined the procedures by which shippers can challenge rail rates, and we are holding a public hearing on June 22 to look at the state of competition in the rail industry.
MR. RENNICKE: Since the passing of the Staggers Act in 1980, there has been an almost continuous attempt, primarily by the subset of shippers who pay higher prices, to curb or cap some of the rail rates that are required to earn a sufficient return. There have been proposals to cap rates for "captive" shippers, and currently there is a formal proceeding at the Surface Transportation Board that would force competition at points where there is only one railroad.
The net result of these actions, if enacted, would be to increase investor risk in railroads and would likely curtail or severely limit the ability of the rail carriers to fund the massive capacity needed over the coming decades.
