The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
Promotion of railroads as highly efficient solutions is often considered to be the role of agencies like state departments of Transportation. So why, you might ask, does Oklahoma stand out?
After all, the pattern is that all the state plans satisfy the basic “checklist”-required things to be considered in a federally financed planning prospectus.
How would this reporter know? Here are my credentials:
— Seven years of state and urban goods movement planning with Illinois DOT.
— One year with a 12-state railroad planning group wrestling with Penn Central.
— Two years with the United States Railway Association restructuring the multistate bankrupt Northeastern railroads.
— Five years running contracted freight service for nine states over more than 2,300 miles of federally financed lines, rehabilitating more than a quarter of those routes.
Reviewing changes to state and local assistance programs via report research became part of this economist’s long career.
Based upon that business experience, here is the public policy and private rail sector “checklist” developed with my career mates along the way.
Below is a basic checklist for a well-vetted, independent valuation of state rail freight needs, capex costs and probable sound financial/commercial outcome. This checklist is intended to be open-ended.
One principle to highlight is this: A state plan should be open to innovation by competitors not yet evident in the marketplace. Said differently, preservation of the status quo should not be the strategic goal.
The list recognizes environmental review. However, it places environmental observations within the context of allowing for some changes. Otherwise, there is likely to be less economic growth. It is always going to be a trade-off.
Importantly, the checklist recommends a financial and business case analysis. If there is no net value created, why do something?
The state process is not intended to be prescriptive.
Oklahoma’s state rail plan seems to cover most of these challenges.
Let us cover Oklahoma’s highlights.
The Oklahoma State Rail Plan documentation is intended to meet the requirements established by the federal Passenger Rail Investment and Improvement Act of 2008 (PRIIA), as amended by the Fixing America’s Surface Transportation Act of 2015 (FAST Act).
The purpose is for the state to “potentially” qualify for future federal funding for rail projects.
A formal planning analysis is the essential first step.
Oklahoma sees a lot of rail freight traffic but does not have a great deal of grounded assets or human resources within the state. Here are the relevant statistics as to the physical impact within Oklahoma.
The base year Oklahoma rail system generates a modest 1,870 direct railroad jobs when passenger rail employment is included. Using a job impact multiplier, the total rail job impact amounts to a relatively small <22,000 in-state jobs and a total economic output value worth roughly $6.5 billion.
Where does rail fit into the total state freight economy?
The figure below illustrates how all modes of freight, not just rail, move in and out and across Oklahoma.
Note the prominence of through-state transit freight flows. For all three freight modes of truck, rail and water, most of the volume of goods move through the state. Outbound and inbound are respectively the smallest volume traffic patterns.
Next, what kinds of freight moves? Fewer than 10 grouped commodities dominate Oklahoma freight flows as illustrated below.
Closer look at the rail moves
Figure 4 identifies the railroad share versus competition with trucks. One pie circle covers tonnage market share split. The other is a computed “dollar value” image of the movement by mode share.
Value mode is most often defined as the shipment prices paid for the movement transaction (the bill).
Rail share is significant, but trucking is dominant.
Total rail freight in Oklahoma is expected to grow from 365 million tons in 2014 to approximately 480 million tons by 2040. That is about a one-third rail growth, or ~1.1% per year.
In context, that is about half of the expected long-term national GDP growth rate. Based upon other state and national analysis reports, this Oklahoma outlook appears reasonable.
Notably, Oklahoma’s inbound rail traffic is projected to decline by about 1.2% per year to just ~21 million tons by 2040.
Table 1 below breaks down the four geographic flow patterns by both volume projections and percentage changes.
Conclusions in this 2020 independent market review
Strategically, Oklahoma’s economy is not driving the railroad freight market dynamics. Why not?
Because 90%, or more, of Oklahoma’s rail traffic is likely to be the result of national freight growth.
It is the national traffic dynamics that will drive rail movements as a transit Oklahoma pattern.
The state’s plan and its local industry will not be the critical market demand drivers for most of Oklahoma’s rail freight growth.
Here are some market threats to this still-official Oklahoma rail forecast.
First, Oklahoma’s expected rail growth toward 2022, identified in Table 2, likely has not occurred.
Oklahoma’s total freight tonnage across directions and modes was projected to grow 4.5% by 2022. Specifically, the five-year growth was to be up from 844 million tons during 2018 to 883 million tons by 2022. The rail tonnage growth was to grow by 5.3% while trucking was to grow by only ~4%.
Why has rail growth not occurred? There are a number of reasons.
Rail intermodal growth nationally has been relatively flat since 2015.
— Coal growth is overall down more than one-third and continues to be at risk. That rapid decline from natural gas power station fuel competition was not expected to occur so rapidly.
— Frac sand rail movement is also dropping as local truckable Texas sands replace former high-grade Northern state-sourced sand.
— Plus, global crude oil sourcing and pricing changes have threatened North American shale oil — and thus some rail freight movements.
The logical conclusion if these new commodity flow and mode use trends continue is that Oklahoma will see a reduced rail share by 2040.
Importantly, Oklahoma has already adapted its planning scale to accommodate such broad rail traffic shifts.
Compared to other states, Oklahoma is not looking to back large-scale rail freight projects with billions of dollars of financial commitments.
There is no bold strategic railway infrastructure expansion plan.
Oklahoma’s approach is limited to:
— Continuing to support projects that enhanced economic development and competitiveness (of whom is not defined).
— Defining opportunities that might, for example, bolster rail network access and multimodal connectivity.
An independent review of Class 1 railway SEC reports and quarterly investment presentations confirms this perception that there is very little critical physical rail congestion within Oklahoma.
— There is no Alameda, California-type multibillion-dollar intermodal rail corridor congestion project within Oklahoma.
— There is no Interstate 95-type corridor parallel railway congestion as found between Baltimore and northern New Jersey’s megalopolis region.
Instead, Oklahoma’s rail freight capital needs are focused on selected short line railroads or at and near customer railroad siding locations. This state’s stakeholders have defined a requirement for improving the allowed freight car heavier axle loadings up to a 286,000-pound range. That is a tactical budget objective. There are federal load programs to assist in the funding of such projects if the state chooses to apply for such aid.
To this economist, the Oklahoma plan appears to be both prudent and practical.
Modification of long-term outcome is expected in any plan with such a long horizon.
One last thought from an old man. States are the level where most things get changed or renewed. The feds are often enablers because they can come up with critical mass funding where others cannot.
Oklahoma looks to have a reasoned approach toward railway change.
Do you agree or disagree? In your opinion, what has this brief review critically missed?