When to double-track?

[Murphy Siding]

     Is there any *disincentive* for railroads to add capacity?  As long as there is more demand than supply, prices will head upward.  At some point, adding more supply will soften the selling price of an item-freight service, in this context.  Does something like this enter into the picture?

     ( I hate to even mention this, because I don't want to derail a good (and civil) discussion:  A good analogy I can think of, is the gasoline business.  Q: Since gas is so high priced, why don't you oil companies invest big dollars in new refineries, to get the gas price back down?  A: You just answered your own question.)

[Victrola1]

If I may muddy the waters, when do you lay down three, or four, tracks?

The C&NW and CB&Q Chicago commuter territories were triple tracked. The Pennsylvania over the mountains and the New York Central east of Buffalo comes to mind. There have been other areas.

Does it take a large amount of schedule sensitive traffic to justify more than two tracks?

 

[Railway Man]

It is pretty interesting how the whole decision making process is done on a corporate finance level.  If it would be left to the operations folks it would be different.  Of course the operations people no doubt shake their heads over the "beancounters."

ed

Not so.  At anything above the very lowest line officer, we're all bean-counters.  Railroading is a cost-driven business and career-death accrues to anyone who can't find ways to squeeze their budget and lower their unit costs.  We're all -- or we all should be -- experts in discounted cash flow; before a train is added, a siding is constructed, or a switch is powered up, better believe that the guy who wants it has run the numbers. 

RWM

[Railway Man]

     Is there any *disincentive* for railroads to add capacity?  As long as there is more demand than supply, prices will head upward.  At some point, adding more supply will soften the selling price of an item-freight service, in this context.  Does something like this enter into the picture?

     ( I hate to even mention this, because I don't want to derail a good (and civil) discussion:  A good analogy I can think of, is the gasoline business.  Q: Since gas is so high priced, why don't you oil companies invest big dollars in new refineries, to get the gas price back down?  A: You just answered your own question.)

Sure -- risk that the traffic will dry up.

There are many caps on pricing: materials substitution, modal substitution, and source substitution.  Price too high and you'll enter one or more of those territories.  Most of the loose-car business is priced very close to truck price, most of the bulk business is priced very close to source- or materials-substitution; and most of the intermodal business is priced very close to truck-price or a different port of entry price.  E.g., PRB coal competes in Georgia with Venezuelan and Colombian coal, and natural gas.  Containers from LA/LB compete with the ports of Norfolk and Charleston.  Lumber from the PNW competes with every trucker who can get a backhaul.

RWM

[Railway Man]

If I may muddy the waters, when do you lay down three, or four, tracks?

The C&NW and CB&Q Chicago commuter territories were triple tracked. The Pennsylvania over the mountains and the New York Central east of Buffalo comes to mind. There have been other areas.

Does it take a large amount of schedule sensitive traffic to justify more than two tracks?

As far as I've ever been told, or read, the vast majority of 3- and 4-track in the U.S. was driven by passenger traffic.  One exception that comes to mind is the B&O West End, driven by heavy coal traffic and need to get pushers back downhill.

4-track railroading was largely an effort to separate high-speed passenger from low-speed freight.  Trains moving at different speeds have horrible effects on capacity.  Either you power-up the slow trains to move them fast, or start adding track.

RWM

[SALfan]

Sorry, Joe and Gabe, but I have to partially disagree with both of you.

Joe, I don't think a RR would run into too many objections to a double-tracking project outside the big cities and their suburbs, where the enviro-*** tend to congregate.  It's really kind of ironic - the people who "love the environment" so much tend to live in cities and suburbs where restaurants, movies, malls, cell phone towers, and so forth ad nauseum are close at hand.  If they love the environment and don't want anything built, let them go live in a cave in the backwoods of Montana.  Out in the rural areas the residents tend to be more understanding.  Of course, you will always have the "professional objectors" like the Sierra Club, Greenpeace and that ilk, but at least so far industrial development tends to win.

Gabe, I think we'd have to be a lot more desperate for the good of the general population to outweigh the howls of outrage and anguish that the trail-lovers would raise.  I live near an excellent trail (the Washington and Old Dominion, in the VA suburbs of DC), use it frequently and quite selfishly would hate to see the asphalt replaced by rails.  HOWEVER, if gas suddenly went to $5+ per gallon and there was a move to use it for some kind of railborne mass transit, I wouldn't fuss too much.  I would be in a tiny minority of trail users, who would want the trail to remain undisturbed no matter what. 

Environmental constraints on new rail construction in thinly populated areas are usually more restrictive.  I think you're mistaking enforcement of the National Environmental Protection Act (NEPA) with community requests for zeroing-out impacts on communities caused by railroad traffic increases and changes.  In my experience it really doesn't matter WHO lives next to the railroad track, be it rich suburbanites, poor inner-city dwellers, hardbitten ranchers, corporate farmers, All-American apple-cheeked farmers, hobby farmers, peaceniks, or whatever:  they all want their cut.  Protests against DM&E have included the rural as well as the city as well as the small town, for example.  Singling out one group "who's not one of us" makes good copy but it doesn't reflect reality out there.

RWM

Okay, I stand corrected.  Have only been peripherally involved in something somewhat similar, in a rural area.  Everybody wanted their cut, but there wasn't the mindless, diehard, reflexive opposition that one sees so often nowadays.  This was years ago; maybe that is the difference, rather than the rural area involved.

[MP173]

 

I too stand corrected. 

Cost estimates for the expansion are no doubt fairly easy to determine.  However, what factors are used in determining the revenue side of the equation?  I realize this side of the equation may be either savings or revenue growth.  Is the revenue growth based on broad based movements of overall freight, or is it micro applied based on specific incremental traffic patterns.  For instance, it would seem fairly straightforth to determine the ROI of inserting a 3rd main on the UP Nebraska line, you plug in the revenue per train for coal, plus the GNP growth on other commodities, and any incremental increases gleaned from growth from Asia.  Factor in the savings from dead crews, car hire, equipment utilization, etc. and you have a number.

But, what kind of factors are used when assessing a not so obvious situation such as the CSX expansion on the north-south lines?

 

ed

It is pretty interesting how the whole decision making process is done on a corporate finance level.  If it would be left to the operations folks it would be different.  Of course the operations people no doubt shake their heads over the "beancounters."

ed

Not so.  At anything above the very lowest line officer, we're all bean-counters.  Railroading is a cost-driven business and career-death accrues to anyone who can't find ways to squeeze their budget and lower their unit costs.  We're all -- or we all should be -- experts in discounted cash flow; before a train is added, a siding is constructed, or a switch is powered up, better believe that the guy who wants it has run the numbers. 

RWM

[jeaton]

On the subject of "de-marketing", it is not necessarily a recent issue.  Around 1970, the IC was hauling hanging beef in reefer trailers in TOFC service from Iowa to Chicago.  A study indicated that it was a money loser mainly due to the clean out costs and the absence of back haul business.  A price increase wasn't an option due to truck competition.  I believe the shipper(s) was given notice that the railroad would no longer provide the trailers for the service, so the business went to the truck competition.

While there may be more cases like that, I suspect that just going to a shipper and telling him that service would no longer be provided was rare relative to other methods of getting rid of business.  Perhaps one of the most common acts of de-marketing was the abandonment of branch and secondary main lines. 

Of course, rate action was and is probably fairly common.  That would be either raising a rate, even if some business might be lost or refusing to meet a shipper request for a lower rate, even when told the reduction was necessary keep the business.  

[MP173]

A real life example of expansion is starting to have some tailwinds here in NW Indiana with the South Shore looking to expand out to Lowell and Valparaiso.  It has been interesting following this in the local papers as funding options are considered.

Politicians from LaPorte and St. Joseph counties (Michigan City and South Bend) just got involved wanting to eliminate the street running in MC and decreasing transit time to the South Bend airport.  Once you begin expanding, more and more want to join in, as long as it is "OPM".

Personally, I dont see the SS expansion occuring.  With all the talk of capacity constraints, the CN certainly wouldnt be receptive to allowing commuter trains on their line would they?  Unless, of course the commuter trains would be tied into the EJE merger...hmmm.

NIRPC the local transportation agency has gone on record opposing the CN takeover of the J.  What better way to gain access to a valuable ROW than to drop the opposition?

ed

 

[MP173]

Demarketing also occured on the IC in my hometown with limestone.  From spring thru fall, probably 100-150 cars would be shipped in for agricultural uses.  During the 70's the business shifted to trucks.  The limestone operator indicated IC basically said "no more."  It was probably a very short haul and very low rated traffic.

ed

[Railway Man]

Cost estimates for the expansion are no doubt fairly easy to determine.  However, what factors are used in determining the revenue side of the equation?  I realize this side of the equation may be either savings or revenue growth.  Is the revenue growth based on broad based movements of overall freight, or is it micro applied based on specific incremental traffic patterns.  For instance, it would seem fairly straightforth to determine the ROI of inserting a 3rd main on the UP Nebraska line, you plug in the revenue per train for coal, plus the GNP growth on other commodities, and any incremental increases gleaned from growth from Asia.  Factor in the savings from dead crews, car hire, equipment utilization, etc. and you have a number.

But, what kind of factors are used when assessing a not so obvious situation such as the CSX expansion on the north-south lines?

ed

That's a very good question and, ahem, as usual I don't have an answer that's guaranteed to be satisfying.  For some capital projects there is a readily calculable cost savings at hand.  Examples include welded rail, electrocode CTC, new locomotives.  For track revisions and expansions the cost savings are very difficult to calculate and must include assumptions that if in error explode the project.  I can think of a couple of major capacity expansion projects that got about 1 year of value and have been stranded ever since.

In general, there's usually two approaches to capex at a railroad:  a small allowance for each division to spend on things they see from a local level as having high priority that are granted a low "proof" threshold to headquarters, and expensive, system-level improvements which have a very high proof threshold.  The division will consider all sorts of things in its allowance such as power-crossovers where it has hand-throws, a siding here or there, revisions to a yard throat or a new running track, a missing wye track in a quadrant to eliminate runarounds, etc.  These are improvements for which the benefit is difficult to quantify (but easy to qualify).

System-level improvements include expensive projects such as double-tracking the remaining single-track portions of a major route; tunnel-clearance projects, CTC'ing a dark line.  For these projects to receive approval, extensive and expensive study is performed including conceptual design (multiple iterations) of proposed improvements, operations modeling under different growth scenarios of each conceptual design, economic projections of traffic growth, engineering studies to determine costs, market analysis to determine ripple effects, and financial projections to determine net present value under different future economic scenarios.  The investment in study is significant -- $2-5 million might be expended to determine the conceptual design alone.  Underpinning this is a continual strategic planning effort at the railroad to identify likely trends in order to focus on probable attractive growth areas before the money starts being burned on studies.

While construction costs and operating costs have several different escalation formulas to choose from, that at least have some reasonable expectation of being correct, traffic projections are fraught with peril because basic policy decisions by governments have unpredictable implementations and enormous economic effects, as do all sorts of calamities and events.  Who was willing to bet in 1960 that ten years later the government would issue the Clean Air Act of 1970 and thereby create an immense market for previously valueless Powder River Basin coal?  Who is willing to bet their fortune today on the value of coal in 2017?  But that's exactly what a railway has to do.  Given that lead time to receive the value from significant construction is 3-5 years from the day the decision is made to commit the money, that the construction can't be relocated if it later turns out to be in the wrong place, and the ratio of the cost of construction to the value of the company, railroads investing in large projects are very much going all-in on each bet they place.

RWM

[MP173]

RWM:

Typically, how much does each division have in discretionary expendatures for a FY? (for the power switches, wye connections, etc).  Is this "allowance" tied to the performance of the division in the previous period? 

Which brings up another question.  How are divisions deemed profitable?  Back in my LTL trucking days, each terminal would have a cost structure based on fixed and variable costs and would be allocated revenue on each shipment handled.  Is that same type of accounting used for the railroad industry to measure productivity and profitability of each division and terminal?

Regarding the investment decisions being made and results not known, the heavy investment in ethanol infrastructure by the ag investor is another example of that.  Stay around for 3-5 years to see if that works out.

ed

[Railway Man]

Ed:

Allowances and profitability determination:  Varies by railroad.  Allowance size varies by year.  There's no distinct pattern I can point you too.

RWM

[MP173]

Thanks...kinda thought that would be the answer...didnt know if it would be in the $1million range or a few hundred thousand.

 

ed

[jeaton]

http://www.nscorp.com/nscportal/nscorp/Investors/Executive%20Speeches/2008/dhb012308.html

This link provides an interesting summary of Norfolk Southern's capital plan for 2008.  Of the total $1.425 billion in the plan, essentially 71% goes to replacment of depreciated assets.  The balance goes to items they consider expansion.  There is a link to the slides that provided more details to the expansion activities.

I suspect that the other class 1's plans are on the same order give or take a few hundred million.  Given the risks that have been discussed here, I am glad that I am not the one making the decisions, even if the pay is good.

[MP173]

Interesting presentation.  Ms. Butler has indicated a major investment program in the Chicago East corridor from 2008 - 2011.  Anyone know what that might be?

 

There was talk here in NW Indiana of them developing a new intermodal terminal near LaPorte.  Could that be part of the project?

 

ed

[joemcspadden]

Ed--my guess would be that she would have included the LaPorte project
higher up in her speech under the heading, "Facilities and Terminals"
(she makes it clear that she is including intermodal there).

So--it is my view that the capital projects for the Chicago east lines
are something else entirely. Mysterious and interesting!!

Joe

[jeaton]

The double track CTC ex-NYC Chicago Line between Toledo and Chicago is certainly one pushing capacity limits, and the mix of train types-Intermodal, Coal, Merchandise, Amtrak- doesn't help.  On top of that, the completion of the Norfolk-Columbus "Heartland Corridor" in a couple of years might throw added business on that line at Toledo.

My guess would be some long sidings, maybe more turnouts, and if not already in place, high speed turnouts.  A third track for the distance would be nice, but I doubt that's on the current plan.

[Tulyar15]

Let's see if I can get this.  Using Michael Sol's figures from way back, on a typical 120-mile track running 35 trains/day, they average 184 moving hours and .88 x 184 = 162 siding hours.  Someone else mentioned $1000/hr for waiting in a siding.  That's $162,000/day for waiting in sidings.  Give them 300 days/year, which comes to about $48.6 million/year for each 120 miles of track - wasted crew time.

If it cost $4 million/mile for a second track, that comes to $480 million for a 120-mile added track.

Keeping it simple, I assume no siding time for double track.  Then the new track pays for itself in ten years in avoided wasted crew time.

At the higher costs, say ten times $4 million/mile, it would take 100 years to break even.

It seems to me that that would be a good investment, considering that the ROW doesn't deteriorate, once built.  I.e., the lifetime of the double track easily is 10-100 years.

This does not take into account the likelihood that the RR will get more business if it can deliver more quickly.  I.e., the new double track line may well run more than 35 trains/day.

 

One real life example of doubling I can quote from my side of the 'pond' is Chiltern Railways Project Evergreen. Chilterns Railways operates the lines from London Marylebone to Aylesbury and Banbury. The latter line was singled by British Rail in the late 1960's. But since privitization Chiltern Railways in partnership with the infrastructure owner, Network Rail, have shared the costs of re-doublindg. NR estimated the life expectancy of the new track to be 50 years so Chiltern paid half the cost. The biggest costs were not laying the second track but the signalling. On the first section to be re-doubled, Princes Risborough to Bicester, they just installed basic 2-aspect signalling with no provision for bi-directional working. But on the second section, between Bicester and Banbury they installed full bi-directional signalling which hiked up the cost. (One reason for the change was that with the nearby West Coast Main Line about to close for rebuilding, a lot of extra trains would be diverted over the Chiltern line).