Infrastructure Investment Benefits Freight and Passengers

From VARP’s On Track newsletter, summer 2008

By VARP board member and president Mike Testerman

You would think that freight railroads, unlike ethanol producers, wouldn’t need government help to grow their business as the world bids farewell to cheap energy.

I’d love to see a totally objective analysis of whether the Class 1 railroads can now add enough capacity, through private-sector investment, to maintain their market share. Or are public-private partnerships necessary? This question needs to be sorted out in a hurry, before TEA-LU’s reauthorization: What is rail’s 21st-century role, and where will adequate investments come from? We need to be clear about this so we can start building the proper system soon.

The next question is “What should public investment pay for, that the private sector will never cover?” There is a growing consensus, especially among rail passengers, that substantial public investment in the rail mode is needed, but we don’t want to pay for anything that the private sector can and should cover. It’s not as simple as the public paying for passenger-only facilities, because developers and businesses sometimes build stations or terminals, or match public spending on other rail improvements to increase the value of adjacent private holdings.

And it’s not as simple as the private sector building the facilities to handle all the freight that shippers would like to move by rail. Yes, a freight train can move a ton over 400 miles on a gallon of fuel, but how many new shippers can access the rail system? How much highway freight is compatible with standard freight trains? Only 12% to 16% of gross tonnage moves by rail in North America. Subtract the coal and other bulk commodities that U.S. railroads are famous for handling, and the rest of their tonnage may be proportionally smaller than the freight moved over European railroads.

Since deregulation, the freight railroads have handled only the business they choose to haul. The notion of the common carrier railroad has almost completely disappeared in practice. Public policy said in effect, “We have the Interstate Highway System. Forget rail.”

That answer gave us the transportation problems we have now. But rail investment must be guided by more than the disappearance of cheap petroleum. Transportation policy must recognize these facts:

• True competition doesn’t exist in the U.S. rail system.
• Re-regulation, as we knew it, will not increase rail’s market share of freight.
• The Class 1s will continue protecting their existing franchises by discouraging public investment beyond that which serves their stockholders’ interests.
• Rail management will not knowingly create excess rail capacity and may well limit capacity to what is needed to serve existing franchises and leverage freight rates.
• Whatever capacity is added for the sake of public benefit will be used by the Class 1s, even as they try to minimize public involvement. They don’t want dedicated rail funding; they just want tax credits for the investments of their choosing.
• Capacity added solely (by contract) for passenger trains will end up serving freight. (The second Quantico bridge, for example, benefits freight operations all night and on weekends when Virginia Railway Express doesn’t run.) The freight railroads should admit that they will benefit from passenger rail investment and acknowledge the inevitability of a robust U.S. intercity passenger rail network.

Publicly improved rail corridors serving intercity passenger trains are compatible with mid-range, open-technology intermodal freight trains. This is where the new profits are, stockholders!

We’ll never leverage the technological capabilities of the rail mode to meet the challenges of energy, climate change, and mobility as long as the private freight railroads make most of the infrastructure investment decisions.