19.1.09

OPPORTUNITY COSTS. The Washington Monthly's Phillip Longman evaluates the U. S. rail network.
On routes where they still have adequate infrastructure, railroads have won back fantastic amounts of business from trucks, especially on long hauls such as Los Angeles to New York, where railroads now have a 72 percent market share in container traffic and could have more. Railroads have gone from having too much track to having not enough. Today, the nation’s rail network is just 94,942 miles, less than half of what it was in 1970, yet it is hauling 137 percent more freight, making for extreme congestion and longer shipping times.
Very little of the abandoned track represents capacity that could relieve congestion at the current choke points, which are often mountain passes and sometimes the gateway cities.
The half-conscious decision by Washington, Wall Street, and the last generation of rail management to abandon much of the rail system thus prevents railroads from getting more trucks off the road. For example, UPS desperately wants to use fast trains like the ones Erie Lackawanna once had to reduce the cost of moving parcels coast to coast in less than four days, a feat currently requiring a tag team of truck drivers at enormous cost in fuel and labor. For a brief time in 2004, UPS did persuade two railroads to run a train fast enough to handle this business. But due to insufficient track to allow slower trains to get out of its way, the UPS bullet train caused massive congestion, freezing up the Union Pacific system for months until the railroad at last canceled the service. Big trucking companies like J. B. Hunt, meanwhile, have become the railroad’s biggest intermodal customers, sending as many of their containers as they can by rail.
To some extent, Union Pacific operating practices contribute to the end of that train. At one time, the Overland Route managed to mix loose-car freight traffic with multiple City of streamliners offering the fastest service from Chicago to San Francisco and Portland. Our tax dollars bought them a third track from Geneva to Elburn, which their dispatchers promptly clogged with more freight trains.

The railroads, however, compete in capital markets with other investments.
Why don’t the railroads just build the new tracks, tunnels, switchyards, and other infrastructure they need? America’s major railroad companies are publicly traded companies answerable to often mindless, or predatory, financial Goliaths. While Wall Street was pouring the world’s savings into underwriting credit cards and sub-prime mortgages on overvalued tract houses, America’s railroads were pleading for the financing they needed to increase their capacity. And for the most part, the answer that came back from Wall Street was no, or worse. CSX, one of the nation’s largest railroads, spent much of last year trying to fight off two hedge funds intent on gaining enough control of the company to cut its spending on new track and equipment in order to maximize short-term profits.
There's no easy resolution of that problem. On the one hand, there is social waste in investing only in high-expected return, high-risk projects. On the other, there is social waste in holding wealth in cash. Now, however, those 8% projects might look more attractive than the next condo complex in Las Vegas, that is, if any of that asset-relief-liquidity is actually being deployed into, well, lending on assets.
So the industry, though gaining in market share and profitability after decades of decline, is starved for capital. While its return on investment improved to a respectable 8 percent by the beginning of this decade, its cost of capital outpaced it at around 10 percent—and that was before the credit crunch arrived. This is no small problem, since railroads are capital intensive, spending about five times more just to maintain remaining rail lines and equipment than the average U.S. manufacturing industry does on plant and equipment. Increased investment in railroad infrastructure would produce many public goods, including fewer fatalities from truck crashes, which kill some 5,000 Americans a year. But public goods do not impress Wall Street. Nor does the long-term potential for increased earnings that improved rail infrastructure would bring, except in the eyes of Warren Buffett—who is bullish on railroads—and a few other smart, patient investors.
Mr Longman sees the public purse as a source of funds for infrastructure improvements.
The alternative is for the public to help pay for rail infrastructure. Actually, it’s not much of a choice. Unlike private investors, the government must either invest in shoring up the railroads’ overwhelmed infrastructure or pay in other ways. Failing to rebuild rail infrastructure will simply further move the burden of ever-increasing shipping demands onto the highways, the expansion and maintenance of which does not come free. The American Association of State Highway and Transportation Officials (hardly a shill for the rail industry) estimates that without public investment in rail capacity 450 million tons of freight will shift to highways, costing shippers $162 billion and highway users $238 billion (in travel time, operating, and accident costs), and adding $10 billion to highway costs over the next twenty years. "Inclusion of costs for bridges, interchanges, etc., could double this estimate," their report adds.
Here, however, the policy makers might do better to see the freight railroads as partners, rather than as adversaries. (I realize this is difficult when Norfolk Southern and Union Pacific are both hostile to passenger trains.) Would it be too much to ask Union Pacific, for instance, to run three or four round-trips between Omaha and Chicago at Corn King or better timings in exchange for capital grants to upgrade the Chicago terminal or other choke points? Or to ask CSX to pay closer attention to timekeeping on the Empire Corridor in New York and the Northeast Corridor services south of Washington, D.C.?

Policy makers might also consider the potential of the diesel-electric locomotive on many of the high speed corridors, rather than burdening passenger rail projects with the additional challenges of electrification. We did have passenger diesels capable of 117 mph at one time. With modern control systems and our loading gauge, top-and-tailing successors to those on rakes of double-deck stock would give us the capacity of the European lines with fewer paths devoted to the trains.

Once kinks like these have been ironed out of the system, we can focus on the big picture—most importantly the electrification of America’s major rail lines. Today, most other industrial countries make extensive use of electric locomotives, and for good reason. They are two and a half to three times more efficient than diesels, more powerful, and cheaper to maintain. They also last longer, accelerate faster, and have much higher top speeds. Trains carrying containers at 100 miles per hour are more than possible. Powered by an overhead wire or third rail, electric locomotives don’t have to lug the weight of their own fuel around with them. Another remarkable feature is that when electric locomotives brake, they generate electricity, which is fed back into the grid and used to power other trains. An electric locomotive braking down one side of a mountain, for example, sends energy to trains struggling up the other side. With all these advantages, electric railroads are fully twenty times more fuel efficient than trucks.

Rail electrification also offers significant opportunities for zero-emission freight and passenger transportation. Heirs to the Milwaukee Road’s hydropowered line could traverse the Great Plains, powered by the region’s wind farms. In fact, there is probably no more practical use for wind than using it to power "wind trains" running across the heartland. Most wind farms are and will be concentrated near rail lines in any event, because the large size of windmills makes them difficult and expensive to move by truck. There is also no loss of energy in transmission when windmills power passing trains—a big problem in other applications. Some companies are already exploring the possibilities: BNSF Railway, which traverses many wind zones, is investigating a deal by which it would lease space for power lines along its rights-of-way to utilities in exchange for access to discounted wind power for its trains.

Everything old is new again: The Milwaukee Electric Railway and Light Company used the interurban as the gateway drug to get power lines to the smaller cities and sign up subscribers. It is no accident that the South Shore Line is adjacent to a high-tension line most of the way east of Hammond, and that the North Shore Line built its high-speed bypass along a power line. The choice of BNSF as example is ironic: that's the old Route of the (diesel) Zephyrs.

That Milwaukee electrification? Yes, it was a technical marvel in its day, but it was life-expired by the end of World War II and but for the availability of some freight motors originally ordered by the Soviet Union would have been taken down then. That some of the motors in service on the first day were on service on the last day of electric operation attests to their durability as well as to the relatively light demands on the line. Had regulatory policy handled the St. Paul gateway differently, Milwaukee might have had no reason to build to the Pacific Coast. The Nation Pays Again explains.

Sure, let's explore public-private partnerships to improve railroads, and let's consider joint ventures of railroads and power companies, but let's not let enthusiasm for state-of-the-art or improvements thereon get in the way of more cost-effective improvements.

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