Rail Freight in the U.S.Issues and Projects

Emil Frankel

PB

March 2007

Principal Characteristics

Freight is the dominant element in the U.S. rail system

– Less than 1% of gross ton-miles in U.S. is related to passenger service

– That compares with 40% of gross ton-miles that is passenger traffic in Germany, 65% in Italy, 60% in U.K., and 35% in India

– Only Russia and China compare to U.S. in the dominance of freight on their rail networks

Almost all of the U.S. rail freight network is private-owned

– Private RR companies set rates, decide where to provide service, and to begin/end it

Historical Context

A quarter-century ago, the industry was heavily regulated and declining

– Reduced market share

– 9 railroads facing bankruptcy

– Aging infrastructure

Major deregulation and reform legislation was enacted

– Staggers Rail Act of 1980

– Railroads given flexibility to reconfigure as needed

Changes after Deregulation

Railroads appropriately sized and capacity reduced to meet freight demand

– U.S. rail network mileage decreased by 19% since 1990

Significant consolidation in rail industry

Competition among railroads, and between railroads and other modes (particularly trucking)

Rail traffic density increased more than 3 times between 1980 and 2006: less infrastructure carrying more freight

Labor productivity (ton-km/employee) grew by 5 times between 1980 and 2006

Current Conditions

Major freight railroads are generally profitable

Freight infrastructure is largely modernized

Between 1987 and 1999, ton-mile traffic grew 52% and intermodal shipments grew 73%

Lower rates accompany improved service

U.S. CLASS I RAILROADS

2005 Freight Revenue US$44.5 billion

2005 Net Income US$4.9 billion

Source: Association of American Railroads

Role in U.S. Economy

More than 30% of U.S. GDP is related to trade

Increased trade = increased U.S. freight movement

Efficient operations essential to economic growth

– Gateway ports

– Freight hubs

– Freight network

Rail freight will play an increasingly important role in overall economic performance

Current Challenge

How to provide capacity and operational efficiencies to meet projected demand?

Some factors that produced financial success have become limitations

– Excess rail freight capacity fully absorbed since deregulation; reserve capacity unavailable

– In many places, traffic will exceed capacity

Freight volume projections are challenging:

– U.S. freight movement expected to double in 20 years

– U.S. rail freight tonnage expected to grow 45% by 2020

Key Issues

Investment in new capacity is costly

It competes with the need to maintain existing facilities/equipment

– Trend in capital expenditures is 15-20% for expansion, remainder for maintenance

Companies tend to prioritize capital projects that will maximize financial return

– Crowded freight corridors or bottleneck configurations may not receive full investment needed

Improved efficiencies at major hubs and at points of intermodal connection, and removing freight bottlenecks, are needed to assure economic growth

Shared Projects

Improvements at hubs and bottlenecks bring both private and public benefits, but neither sector, alone, is willing to bear full project costs

Private benefits:

– Increased operating efficiency; lower costs; better service

Public benefits:

– Energy efficiency (rail freight is 3-10 times more efficient than intercity trucking); reduced air and noise pollution; better coordination with commuter and intercity passenger rail service

“Substituting rail for long distance trucks reduces highway congestion, road maintenance costs and truck Vehicle Miles Traveled.”

- U.S. Federal Railroad Administrator Joseph Boardman, April 2006

Shared Projects – Examples

For such projects the costs should be shared, and public-private collaboration is necessary

Examples:

– The Alameda Corridor, Southern California

– Freight Action Strategy for Everett-Seattle-Tacoma Corridor (FAST Corridor), Washington State

– Chicago Region Environmental and Transportation Efficiency Program (CREATE), Chicago, Illinois

– Heartland Corridor, Virginia/West Virginia/Ohio

Alameda Corridor

Originated 1981; construction began 1997; operations began 2002

Partnership:

– Los Angeles Metropolitan Council of Governments

– Federal, state and local government agencies

– Ports of Long Beach and Los Angeles

– Private rail freight companies Implemented by special purpose

agency (Alameda Corridor Transportation Authority)

Original goal to improve highway access to Ports

Focus shifted to rail access to reduce road congestion, air pollution, and at-grade crossings

Features

Four rail lines consolidated; bridges and flyovers constructed; streets improved

32-km corridor double-tracked; 16km in trench to eliminate at-grade crossings

Improved connections: more efficiency, speed and reliability in freight movement

Project cost (US$2.4B) financed by:

– Federal, state and local grants and loans

– US$400M Federal loan

– US$1.6B in bond financing

Loans and bonds serviced/repaid from charges on loaded and empty containers going to and from Ports

Outcomes

Project regarded as a success, though congestion at ports is still a factor

Traffic on the Alameda rail corridor doubled between 2002 and 2006

Significant reduction in rail congestion and environmental pollution

Initial Federal loan repaid; other debt refinanced

However:

– Truck traffic is also increasing to serve the Ports

– It is possible that the freight congestion is simply being moved away from the Ports and immediately adjacent communities to points further East

FAST Corridor

Partnership of 26 entities:

– Local governments

– Ports

– Federal, state and regional agencies

– Private rail and trucking interests

Goals include:

– Improving freight mobility and access to Ports of Everett, Seattle and Tacoma

– Improving functionality, capacity and connectivity of regional maritime trade

– Eliminating network bottlenecks

– Providing safe at-grade crossings

Features

Individual corridor projects, some already completed:

– Road improvements, traffic separation, grade separation, etc.

Information exchange, financing and project activities coordinated to benefit program goals

Private and public funding:

– US$568M since 1998 to implement 9 strategic improvement projects and start 4 more

Improvement projects would not have progressed without public-private cooperation

CREATE

Chicago is historic center of U.S. rail network

– Connecting point for 6 of 7 Class I Railroads

– Handles 1/3 of U.S. rail freight traffic, and significant commuter and intercity passenger rail operations

Congestion and inefficiencies threaten rail freight operations in Chicago hub and on national network

– Inadequate or outmoded track, switching, signaling systems; dangerous at-grade crossings

“Chicago is in danger of becoming a bottleneck in the nation’s transportation system, and that would have serious consequences – not just for this city, but for the entire nation.”

- Mayor Richard M. Daley, Chicago

CREATE

Project originated in 1990

Partnership:

– City of Chicago

– State of Illinois

– U.S. Dept of Transportation

– Metra (commuter rail operator)

– 6 Class I private freight Railroads

– 3 rail-switching companies

Goals include:

– Eliminating rail-highway conflicts

– Improving safety

– Reducing rail-to-rail congestion

– Improving freight flows

Features

Includes scores of individual capital projects and operational improvements

– Building flyovers; improving connections; modernizing and increasing rail freight capacity

Estimated program cost US$1.5B–2B

Class I Railroads to contribute US$232M (their estimated benefit)

Federal, state and local grants of US$300M committed

However …

– Adequate financing for all necessary improvements not in place: private railroads reluctant to contribute more, and public financing subject to political pressures to divert funds to other projects

– Cooperation between public and private sectors, and between hundreds of political jurisdictions, difficult to achieve and maintain

Heartland Corridor

Norfolk Southern (NS) is 1 of 2 main railroads serving ports on East Coast

Port volume increasing; new mega terminals

– Suez Canal traffic to eastern U.S.

– Panama Canal expansion program

Intermodal traffic is NS’s fastest growing commodity group for last 10 years

– For North America rail industry, intermodal traffic now exceeds coal

NS goal:

– Improve rail freight connections to central U.S. and to rail connections in MidWest

– Expected schedule 2007 – 2010

Features

Double-stack clearances, tunnel and bridge improvements, track realignments and relocations, and expansion of intermodal terminals

Completed project will reduce mileage on existing routing, reduce transit times, improve efficiency, and allow for high-speed double-stack freight intermodal service

Project cost US$151M

– Federal funds

– Virginia and Ohio state grants

– NS investment

Summary

Private, deregulated U.S. rail industry, while financially sound, is no longer sized to meet freight traffic volume

Inadequate capacity at ports, hubs, bottlenecks

Public or private sector not ready to undertake needed investments alone—but together they can implement needed programs and realize mutual benefits

Some current programs suggest U.S. rail freight network can meet demands of expanding world trade and associated freight movement

Many similar opportunities exist that require public-private cooperation for implementation

T H A N K Y O U