Cross Purposes

Cross Purposes Rhetoric heats up around rail regulation, cost of safety mandate.


By Chris Dupin

      The railroad industry and shipper groups that want to change the way it is regulated are stepping up their rhetoric, as Congress gets ready to consider legislation that was introduced and passed by the Senate Commerce, Science and Transportation Committee in December.
      The Association of American Railroads (AAR) said in a report released in February that 'rail is under attack. Congress and the administration are weighing sweeping changes to the freight rail industry that could have a direct and negative impact on Americans in the form of higher costs for goods and services.'
      In addition to the Surface Transportation Board Reauthorization Act, (S.2889), AAR expressed concerns about a rail safety bill mandating heavy expenditure on so-called 'positive train control' (PTC) systems, and legislation aimed at reducing global warming because of the effect it might have on coal usage. Coal accounts for about 45 percent of freight rail tonnage.
      But several shipper groups are pressing for passage of the STB reauthorization act as well as another bill that proposed eliminating limited antitrust protections the rail industry enjoys.
      'These proposals are not supported by what is happening in the marketplace,' AAR said in its report, Great Expectations: Railroads and the U.S. Economic Recovery.
      The battle over rail reregulation comes at a time when the industry is already getting a lot of attention from the business community and the public.
      Warren Buffett's investments in the rail industry in recent years, culminating in Berkshire Hathaway's takeover of Burlington Northern Santa Fe Railway in February, brought plenty of attention on Wall Street.
      President Obama's mention of railroads in his first State of the Union address in January 'as best we can tell is the first time a president has used the word railroad ' since Abraham Lincoln,' said Edward Hamberger, AAR president and chief executive officer. 'Certainly it is true that this administration has used the word railroad more in one year than any administration has used it in the 12 years I have been here.'
      While much of Obama's interest has been in high-speed passenger rail, Hamberger said it has brought interest in 'rail writ large.'
      'One of the things we wanted to do is make sure in that discussion, the idea of freight railroads is not lost,' he said. 'We cannot accommodate more passengers if it comes at the expense of moving the freight.'
      Some of the passenger rail projects championed by the Obama administration would help ease congestion at choke points shared by freight and passenger trains.
      Hamberger argued at a press conference in February that freight railroads would play a key role in Obama's goals of:
      ' Doubling exports in five years. Railroads are necessary to move goods ' ranging from bulk products like metallurgical coal and grain to containerized containers such as chemicals and manufactured goods ' to ports for shipment overseas.
      ' Job growth. Hamberger said $1 billion spent by railroads on infrastructure improvements creates 20,000 jobs, and that each freight rail job creates another four-and-a-half jobs elsewhere in the economy.
      ' A 'greener' America. Rail freight is more fuel efficient than trucking and can reduce road congestion. AAR said an additional 10 percent of freight moved by rail instead of truck would save 1 billion gallons of fuel and reduce carbon dioxide emissions by 12 million tons annually ' the same as taking 2 million cars off the road.
      ' Passenger rail. Outside the Northeast Corridor where Amtrak has its own tracks, 'we are the literal foundation of his vision for passenger rail,' Hamberger said. Amtrak and commuter trains operate on track owned and maintained by the freight rail companies.
      Hamberger said passenger railroad advocates need to understand there needs to be enough capacity so that, as people are taken 'out of their cars, we are not putting trucks back on the road. If we do that, we are not accomplishing the goals of clean air, using less fuel and easing congestion.'
      Hamberger quoted from the Federal Railway Administration's Preliminary National Rail Plan published last October: 'It is the inherent efficiency of rail transportation that enables freight railroads to do something that is expected of no other form of transportation: maintain their infrastructure, add capacity, host passenger operations and pay local property taxes on their real estate.'
      But he said, 'it's more than that. It's the environment in which the railroads operate that allow, encourage and incentivize these investments. Public policy can choke off these investments if we are not careful.'
      AAR contends shippers have benefited from the regulatory environment for railroads set up under the 1980 Staggers Act.
      In its report, AAR said there has been a 49 percent drop in rail rates in inflation-adjusted terms, since 1981, with average revenue per ton mile increasing only 5 percent.
      'Any increase in recent rail rates is the result of an increase in input prices, particularly fuel,' he said.
      He pointed to a report prepared for the STB by Wisconsin-based consulting firm Christensen Associates that said, 'providing significant rate relief to some shippers will likely result in rate increases for other shippers or threaten railroad financial viability.'

Bruce Carlton president, National Industrial Transportation League
'We are looking for a rebalancing of the competitive relationship between shippers and their Class I carriers. We think this bill advances that cause very nicely.'

      AAR also argued the STB reauthorization bill would 'increase regulatory uncertainty during times of tremendous uncertainty.'
      But shipper groups are lobbying hard for the STB legislation to pass.
      'Senators and the staff of the Senate Commerce Committee, on a bipartisan basis, worked 10 months to address the concerns of both freight rail companies and rail customers,' said Robert Szabo, executive director of Consumers United for Rail Equity (CURE), a coalition of freight rail customers.
      He contends the bill is a 'compromise that preserves the Staggers Rail Act while addressing the well-documented problems of captive rail customers,' and preserves 'the pricing freedoms of the railroads while ensuring rail customer access to competing freight railroads.'
      CURE was one of 13 national groups representing shippers that endorsed the bill and pledged to work to get the bill passed by Congress this year. The groups also expressed support for ending antitrust immunity for the railroads.
      National Industrial Transportation League president Bruce Carlton said it 'will inject a greater degree of competition in the rail market without being harmful to the rail carriers. No one in the league is seeking a return to the dark ages of heavy regulation of our Class I railroads, anything approaching a pre-Staggers environment is not on the table and is not on our wish list.
      'We are looking for a rebalancing of the competitive relationship between shippers and their Class 1 carriers. We think this bill advances that cause very nicely,' he said.
      The NIT League still wants further reforms to the bill, saying a section that would require carriers to give so-called 'bottleneck' shippers freight quotes needs to be beefed up. A bottleneck arises when a shipper has the ability to move cargo entirely with one railroad, but may be able to use a second railroad for a portion of the distance the cargo must travel.
      Carlton said the new bill, as written, would require the shipper to prove the rail carrier has dominance from origin to destination before they get the rate quote. 'What that really does is take away the benefit' by requiring protracted litigation before the shipper actually gets the rate.
      The NIT League's backing of the legislation may have cost its support of the railroad industry ' CSX, Norfolk Southern, BNSF and Kansas City Southern have left the group during the past year. Norfolk Southern told American Shipper the railroad had decided the benefits of NIT League membership no longer justified the costs involved. Canadian National remains a member of the NIT League. (See 'Railroads leave NIT League,' www.AmericanShipper.com/links).
      Hamberger said, however, 'the lines of communication' are open between railroads and shippers, both through their daily interactions and when the industry meets with groups such as the North American Rail    Shippers Association, which has chapters around the country.
      AAR is also seeking changes in the STB reauthorization legislation. It would like the agency to use replacement cost, not book value, to determine whether or not the industry is 'revenue adequate,' able to continue to operate on an ongoing basis to replace its assets and provide the service needed.

Ward

      AAR and individual railroads also oppose proposed changes in the legislation that Michael Ward, CEO of CSX Corp., said would 'increase the day-to-day operational involvement of the STB around service levels and those sorts of things.'

PTC. Hamberger and several railroad executives have complained in recent months about a law requiring massive industry spending on 'PTC' systems.
      Congress passed the legislation and President Bush signed it into law shortly after a 2008 collision in California between a freight train and commuter railroad killed 25 and injured more than 135 passengers.
      PTC systems are designed to automatically stop or slow trains to avoid certain accidents ' collisions between trains, derailments from excessive speed, unauthorized incursions of trains onto tracks being repaired or movement of a train through a track switch in the wrong position.

'It is the inherent efficiency of rail transportation that enables freight railroads to do something that is expected of no other form of transportation: maintain their infrastructure, add capacity, host passenger operations and pay local property taxes on their real estate.'

Federal Railway Administration's Preliminary National Rail Plan

      Railroads have until 2015 to install the systems on tracks that carry passengers or toxic-by-inhalation materials such as chlorine or anhydrous ammonia.
      AAR said it will cost $5 billion to install the systems and $700 million per year to maintain them. A FRA estimate of the net present value of the cost positive train control over the next 20 years will be $10 billion to $14 billion, while the benefit is $440 million to $674 million. (The FRA said the statistical value of a human life is $6 million.)
      'That's a lot of money being spent in a not very cost-effective way,' Hamberger said. 'It's a misallocation of resources. There is a better way to spend that money to improve safety than the broad mandate of positive train control.'
      He said PTC, had it been in place for the past decade, would only have prevented 3 percent of the accidents that occurred.
      Hamberger said that while there might be benefits to the freight industry from PTCs, some of those required technologies are not yet developed but are 'down the line.'
      Jim Young, CEO of Union Pacific, said the law is 'an example of well-intended legislation with negative unintended consequences. Union Pacific's shareholders cannot be expected to bear the financial burden of PTC. It must be passed onto our customers to the extent that market will permit, especially those chemical customers who drive the vast majority of our installation requirement.'
      He said Congress, 'if they want our industry to be able to invest in capacity and other safety technology, which we are doing on our own, without being told to do so, then we needed to be compensated for this mandate in some way' through an investment tax credit or direct payment.
      Hamberger said another major challenge to the industry is cap-and-trade legislation. Half of electricity generated in the United States comes from coal-fired plants, and 70 percent of the coal is moved from mines to the utilities. He said 23 percent of railroad revenue comes from coal and one in every five jobs is dependant on the coal sector.
      On the positive side, AAR said it supports legislation that has been introduced to Congress in recent years on the House side that would provide for investment tax credits to expand rail capacity. He said a short line investment tax credit has been a big success in expanding capacity.
      He also praised for the inclusion of several public-private partnerships for the rail industry in the TIGER (Transportation Investment Generating Economic Recovery) grant program, which includes $105 million for Norfolk Southern's Crescent Corridor and $98 million for CSX's National Gateway project. Average weekly U.S. rail carloads: all commodities    Average weekly U.S. rail intermonal traffic
      Hamberger said this was 'an important indicator of where this administration is ' they believe in railroads.'