U.S. Freight Railroad Infrastructure: Current and Future Issues
Craig F. Rockey
Vice President - Policy and Economics Association of American Railroads
Washington DC
March 17, 2004
The U.S. Rail Network
U.S. Freight Intercity Modal Market Share: 2001
“Other” for ton-miles is less than 0.5%. Source: Eno Transportation Foundation
RRs42%
Trucks28%
Water13%
Pipeline17%
Trucks80%
RRs10%
Ton-Miles Revenue
Water1% Other
7%
Pipeline2%
Freight Rail Provides Major Public Benefits
Fuel efficient
Less pollution
Reduced congestion
Safer0
60
120
180
240
300
360
420
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02
Railroad Fuel Efficiency(Ton-Miles Per Gallon of Fuel
Consumed)
Fuel efficient
Less pollution
Reduced congestion
Safer
The EPA estimates that for every ton-mile, trucks emit roughly
three times more nitrogen oxides and particulates than
locomotives.
Other studies suggest trucks emit 6 to 12 times more.
Freight Rail Provides Major Public Benefits, cont.
Fuel efficient
Less pollution
Reduced congestion
Safer $0
$15
$30
$45
$60
$75
'83 '85 '87 '89 '91 '93 '95 '97 '99 '01
Costs of U.S. Highway Congestion(Billions of Constant 2001 Dollars)
Source: Texas Transportation Institute
Freight Rail Provides Major Public Benefits, cont.
Fuel efficient
Less pollution
Reduced congestion
Safer
Freight Rail Provides Major Public Benefits, cont.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
'88 '90 '92 '94 '96 '98 '00 '02
Truck
Railroad
Truck vs. Railroad Hazmat Incidents
Source: AAR analysis of data from FHWA, FRA, RSPA, and STB.
Today’s Freight Rail Environment
Vast majority privately-owned.
Essentially no government funding.
Separate freight & passenger operations.
Access privately negotiated, voluntary.
Generally owner and operator.
Economic Fundamentals of Freight Railroading
Railroads are networks with virtually unlimited origin-destination pairs — what happens in one place affects many others.
High fixed and sunk costs — infrastructure can’t easily be picked up and moved.
Substantial economies of scale and scope.
Huge differences in customer demands and options.
0
2
4
6
8
10
12
14
16
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02
Freight Rail Traffic Density(Millions of Class I Ton-Miles
Per Mile of Road Owned)
Source: AAR
RRs Have Far Higher Capital Expenditures Than Other Industries
Cap. Expend. as a % of Revenuefor Various U.S. Industries:
Avg. 1997-2001
All manufacturing 3.8%
Petroleum & coal products 2.9%Transportation equipment 3.0%Food 2.7%Machinery 3.3%Wood products 3.2%Primary metal products 3.8%Chemicals 4.9%Paper 4.9%Nonmet. mineral products 5.8%
Class I Railroads 18.8%
Source: U.S. Census Bureau, AAR
Source: AAR
$0$1$2$3$4$5$6$7$8$9
$10
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Expenses Capital Expend. Total Less Depreciation
Class I RR Spending on Roadway and Structures
($ Billions)
Transport Demand: U.S. DOT says freight traffic will increase nearly 70% by 2020; international higher.
Service Quality: Reliability, speed, frequency
Price
Highway Congestion: Pressure to reduce congestion, emissions, fuel use, and enhance safety.
Passenger: Demands for freight-owned track.
Drivers of Railroad Demand
But Because Railroads Do Not Earn Their Cost of Capital…
0%2%4%6%8%
10%12%14%16%18%20%
1981 1984 1987 1990 1993 1996 1999 2002
Source: Surface Transportation Board
Cost of Capital
Return on Investment
Class I Cost of Capital vs. Return on Investment
…They Cannot Make All Desired Investments
Best used for projects whose main purpose is to meet public needs.
RRs pay for their benefits and public pays for public benefits.
Not “subsidy” to RRs
Public-Private Partnerships Can Help
“Relatively small public investments in the nation’s freight railroads can be leveraged into relatively large benefits for the nation’s highway infrastructure, highway users, and freight shippers.” --AASHTO
Railroads Providing Better Service
Alliances with other RRs, other modes, customers, suppliers, others
Technological applications
Innovations in locomotive operations, staffing, asset utilization, scheduling
Better equipment and infrastructure
New offerings
Other Challenges Facing RRs
Reregulation
Environmental
Truck Size and Weights
Economic Growth
Fuel Tax
Safety
Passenger Rail
P
SecurityStaffing
TEA-21New Technology
3
Daunting growth forecast.
Infrastructure is preeminent issue.
Don’t restrict rail earnings through reregulation
Tap public/private partnerships.
Continued focus on meeting customer needs
Summary