Freight Railroad Infrastructure Current and Future Issues

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					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
                                                 Pipeline
                                            Water 2%
                                             1%         Other
                                                              RRs
                Pipeline                                  7%
                                                              10%
                  17%
                                 RRs
           Water
                                 42%
           13%
                                                           Trucks
                   Trucks                                   80%
                    28%



                 Ton-Miles                               Revenue

“Other” for ton-miles is less than 0.5%.   Source: Eno Transportation Foundation
             Freight Rail Provides
             Major Public Benefits
                              Railroad Fuel Efficiency
                           (Ton-Miles Per Gallon of Fuel
   Fuel efficient                  Consumed)
                     420
   Less pollution   360
                     300
   Reduced          240

    congestion       180
                     120

   Safer            60
                      0
                       '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02
           Freight Rail Provides
        Major Public Benefits, cont.


   Fuel efficient   The EPA estimates that for every
                      ton-mile, trucks emit roughly
   Less pollution      three times more nitrogen
                       oxides and particulates than
   Reduced                    locomotives.
    congestion         Other studies suggest trucks
                        emit 6 to 12 times more.
   Safer
           Freight Rail Provides
        Major Public Benefits, cont.
                           Costs of U.S. Highway Congestion
                           (Billions of Constant 2001 Dollars)
   Fuel efficient   $75

                     $60
   Less pollution
                     $45

   Reduced          $30
    congestion
                     $15

   Safer            $0
                           '83   '85   '87   '89   '91   '93   '95   '97   '99   '01

                      Source: Texas Transportation Institute
           Freight Rail Provides
        Major Public Benefits, cont.

                              Truck vs. Railroad Hazmat Incidents
   Fuel efficient   16,000
                     14,000         Truck
   Less pollution   12,000         Railroad
                     10,000

   Reduced           8,000
                      6,000
    congestion        4,000
                      2,000
   Safer                 0
                              '88    '90     '92     '94     '96      '98     '00     '02
                        Source: AAR analysis of data from FHWA, FRA, RSPA, and STB.
Today’s Freight Rail Environment

     Vast majority privately-owned.
     Generally owner and operator.
     Access privately negotiated, voluntary.
     Essentially no government funding.
     Separate freight & passenger operations.
    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.
Freight Rail Traffic Density
       (Millions of Class I Ton-Miles
         Per Mile of Road Owned)
  16
  14
  12
  10
   8
   6
   4
   2
   0
    '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02

Source: AAR
   RRs Have Far Higher Capital
Expenditures Than Other Industries
Cap. Expend. as a % of Revenue
  for 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
             Class I RR Spending
          on Roadway and Structures
                          ($ Billions)
$10
 $9
 $8
 $7
 $6
 $5
 $4
 $3
 $2
 $1
 $0
      1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
       Expenses     Capital Expend.   Total Less Depreciation

      Source: AAR
    Drivers of Railroad Demand
 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.
      But Because Railroads
Do Not Earn Their Cost of Capital…
       Class I Cost of Capital vs. Return on Investment
20%
18%
16%
14%
12%
        Cost of
10%
        Capital
 8%
 6%
                                                       Return on
 4%
                                                      Investment
 2%
 0%
   1981   1984             1987        1990   1993   1996   1999   2002
Source: Surface Transportation Board
…They Cannot Make All Desired
        Investments
       Public-Private Partnerships
                Can Help
 Best used for projects   “Relatively small public
  whose main purpose       investments in the nation’s
  is to meet public        freight railroads can be
  needs.
                           leveraged into relatively
 RRs pay for their        large benefits for the
  benefits and public      nation’s highway
  pays for public          infrastructure, highway
  benefits.
                           users, and freight
 Not “subsidy” to RRs     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
                              Summary

   Daunting growth forecast.
   Infrastructure is
    preeminent issue.
   Don’t restrict rail earnings
    through reregulation
   Tap public/private
    partnerships.
   Continued focus on
    meeting customer needs

				
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