Two more articles on rail incapacity = trouble for RR's

[edblysard]

QUOTE: Originally posted by futuremodal

What you're missing Tom is that both these articles are from the railroad industry's POV.

Wrong, David...
The first one was written by Tony Hatch, a Wall Street Analyst.
The second one is from an Oxford think tank.
Neither Mr. Hatch, nor the Oxford Analytica, are affiliated with a railroad in any way.

The first article is written from the authors point of view, the second from the groups final analysis.

I could find no endorsement from any railroad in either article.

Have you ever dealt in real world facts, or do you always twist things to fit your prejudices?

Ed

[Murphy Siding]

Weird analogy there- the timber industry. I wonder if the timber industry keeps all those "unprofitable assets" (land covered with trees) for the lumber?[;)]. Every year, the trees grow, producing more lumber, and more lumber. The under-performing rails lines won't produce a future cash crop by virtue of just sitting there,sucking up water and sunlight.

[MP173]

Nice rear view mirror Dave.

It is easy for everyone to admit we have a capacity issue NOW. It wasnt so 25 years ago. However, an economy which grows at 3% per year will double in size in those 25 years. Meanwhile...who would have paid for that excess capacity?

David Morgan had a great idea back in the day that the lines should be "railbanked".

Looking back, probably a good idea.

What lines, specifically would you nominate for a "redo"?

Mark Hemphill had an interesting point that traffic would gravitate to the best physical route. Think about where the massive tonnage moves today. The absolute best route between LA and Chicago is the BNSF Transcon and that is where the overwhelming tonnage is located. UP's lines are inferior.

Chicago - New York seem pretty equal between NS and CSX with both slugging it out. NS may have the more difficult route, but has the ability to run trains, while CSX hasnt figured it out yet.

There are routes that definately could be used today....OK lets throw in the MILW PCE as one, but others such as Erie Lackawana, B&O (St. Louis - Cumberland). The NYC route (Kankakee Belt) would be ideal to avoid Chicago.

Railroads are in business, as are other companies, to make money. By eliminating competing lines, they strengthened their franchise to do so.

Macro-economically speaking we will be seeing the effects of those eliminations. Micro-economically, the railroads have never been healthier.

ed

[Anonymous]

What you're missing Tom is that both these articles are from the railroad industry's POV. Why else would they also incude the fallacy of "subsidized" trucking, since we all know (even if folks like you can't admit) that trucking is the key link for getting the goods to the consumers and/or from the point of origin? Since it is this link that is most likely "subsidized" via non-user fees, and since the rail industry is completely dependent on this vital link, the rail industry itself is a beneficiary of that "subsidy", so why should they continue to obfuscate the issue ("trucks are subsidized, but we pay for our own ROW. Waaaaah.") to solicit pity from the general citizenry?

We have also pointed out the fallacy of "unprofitability" and "marginality" of underutilized trackage. The timber industry has mega-units of "unprofitable" assets right now, yet they keep these assets at a marginal cost for decades, because they know these assets will become profitable in time. Perhaps that's because the timber industry likes being in the timber industry and is willing to invest the time and cost of maintaining assets until such can be utilized more profitably, whereas the railroad industry seems to have had a distain for itself and the concept of moving bulk commodities at speed, at least for the last four decades. The contrary thing of it is, demand for transporation services is a steadily growing market segment, has been for the last four decades, yet the railroads have treated their assets like an anachronism that is no longer demanded. The point has been made ad nauseum that there has always been an implicit demand for shippers to use so-called marginal rail lines, but the methods and styles preferred by the shippers did not fit into the narrow strictures of railroad SOP. The railroads en masse seemed more willing to scrap it than to allow others to innovate profitable usage of the track.

It should strike you as profound that folks on top of the industry are finally willing to admit the mistakes incorporated in Staggers, mistakes that were obvious from day 1 to those outside the industry.

[PBenham]

The costs of having "excess" capacity are the added costs, like property taxes, which here in the NYSSR are at confiscatory levels, and have been since Nelson Rockefeller was governor. NYSSR got stung, however when all the Republic's class Is (except D&H,which waited until 1988 to bite the big one, and Chessie.) were bankrupt and were exempt from paying until they re-organized. Then the NYSSR got most of it's dough, without interest. Then, there are the people that you need to keep to maintain the underutilized trackage, dispatch it, operate it, protect it and try to find business for it.

[CSSHEGEWISCH]

The last time I really looked, hindsight is always 20/20. Looking at decision-making in retrospect can be unfair since you have the luxury of factoring in events and subsequent decisions that happened after the initial decision and whose occurrence would have been difficult or impossible to foretell. To wit, the North Shore Line was abandoned in toto on January 21, 1963, the Regional Transportation Authority came into existence in 1974. Should North Shore's management have cut back service to buy time instead of total abandonment? In retrospect, that sounds like a better decision. In the context of 1962-1963, it would be a wrong decision since the creation of the RTA or even local mass transit districts wasn't even on the political radar.

[TomDiehl]

Nothing unusual from you here. You highlight the parts you think support you position of the evil railroads and ignore the rest of the article.

Points such as:

"The Staggers Act also resulted in the liberalization of abandonment rules,
enabling railroad companies to dispose of unprofitable lines more
easily."

Note the word "unprofitable."

"carriers concentrated their shipments on high-density
lines that were easy and profitable to maintain, and shed tens of
thousands of miles of marginal track."

Note the term "marginal track."

"Government neglect: The federal highway administration estimates that
large trucks pay only about 50-80% of the infrastructure costs
attributed to them, due to huge federal road-building grants. In
contrast, railroads pay all of their infrastructure and right-of-way
costs, and are responsible for the associated risks."

Note the phrase "railroads pay all of their infrastructure and right-of-way
costs, and are responsible for the associated risks."

Unlike David, male, from the Pacific Northwest's usual opinion, there's two sides to every story.

[Anonymous]

The first is a link to a ProgressiveRailroading.com commentary by rail industry analyst Tony Hatch entitled "Unintended consequences: The impact of rails’ service woes could be widespread" -

http://www.progressiverailroading.com/commentary/article.asp?id=9010

The second article was posted on the TrainOrders site. Here's the link. Sorry it is a pain to get through the "previews" on the Forbes.com website!

http://www.forbes.com/2006/06/14/rail-profits-invest-cx_np_0615oxford.html?partner=alerts

Quote of Note: "It is almost universally acknowledged that cutting excess capacity should not have been the primary objective of rail mergers. "

Hmmmm, can't wait for the responses to that one!


Here's the text in full:

=======

Oxford Analytica
U.S. Railroad Profits Tied To New Investment
Oxford Analytica 06.15.06, 6:00 AM ET

With nearly 160,000 kilometers (km) of track, U.S. rail
infrastructure is more than double that in Russia or China. It is
also the most efficient and profitable network in the world.

However, the system suffers from increasing delays and bottlenecks.
Rail customers are up in arms. A cadre of company representatives
recently descended on Washington to lobby Congress for reforms aimed
at reducing and more fairly distributing the costs created by delays.
This capacity crunch has been caused by dramatic traffic growth,
reductions in infrastructure and industry consolidation:

Surging traffic: The main cause of the rail capacity crisis is
increased traffic. The principal sources of this growth are coal and
"inter-modal" traffic.

Longer-range deliveries: The problem is exacerbated because the
average length of each freight haul rose from 990 km in 1980 to 1,450
km today.

Consolidation: While traffic and trip lengths have increased sharply,
the capacity of the freight rail network has declined. This fall in
infrastructure was caused by the deregulation of the industry 25
years ago, and the railroads' subsequent decisions to merge their
operations and contract their networks.

In the early 1970s, the U.S. freight rail system was in disarray.
Clearly, the rail industry faced a choice between deregulation and
disaster. However, the Staggers Rail Act of 1980 allowed the industry
to recover, replacing the century-old regulatory structure with a
framework that allowed railroads to set their own shipping rates
based on expenses and traffic demand.

Following deregulation, the ICC adjusted its regulations regarding
railroad mergers. It encouraged linkups that would cut excess
capacity, as long as they did not eliminate competition. The Staggers
Act also resulted in the liberalization of abandonment rules,
enabling railroad companies to dispose of unprofitable lines more
easily.

While deregulation may have saved the industry from ruin, increased
profits and stimulated innovation, it is also responsible for some of
the current capacity problems:

-- It is almost universally acknowledged that cutting excess capacity
should not have been the primary objective of rail mergers.

-- After the spate of mergers created a small number of "mega"
companies, carriers concentrated their shipments on high-density
lines that were easy and profitable to maintain, and shed tens of
thousands of miles of marginal track.

Another disadvantage of deregulation is that while federal and state
governments have provided extensive funding for truck, barge and
airline infrastructure over the past 25 years, freight railroads
receive little assistance. Yet, underinvestment by the rail companies
themselves is also partly to blame:

Government neglect: The federal highway administration estimates that
large trucks pay only about 50-80% of the infrastructure costs
attributed to them, due to huge federal road-building grants. In
contrast, railroads pay all of their infrastructure and right-of-way
costs, and are responsible for the associated risks.

Private sector underinvestment: Nevertheless, the railroad companies
may also have underinvested in infrastructure.

Rising costs: However, infrastructure costs are rising rapidly.

As a result of deregulation, the number of Class One railroad
companies in the U.S. has declined from 73 in 1975 to seven today.
However, a push for further consolidation appears to be gathering
strength:

BNSF-CN deal: In late 1999, BNSF, the second largest U.S. railroad,
announced plans to merge with Canadian National (CN), the largest
railroad in Canada. The revelation touched off a firestorm of
opposition from federal regulators, other railroads and freight
business consumers. The primary concern was that the remaining North
American railroads would pursue their own mergers, eventually
producing a transcontinental rail duopoly.

Merger moratorium: Washington eventually slapped a 15-month
moratorium on all rail industry mergers while regulators reviewed and
strengthened the applicable rules. This moratorium killed the BNSF-CN
deal, and resulted in stricter merger regulations that required clear
demonstrations of public benefits.

Renewed consolidation drive: However, a new merger deal between CN
and BNSF, or some combination of the other major railroads, is likely
in the near future. Unless regulators handle these proposals
carefully, they could have continued deleterious effects on prices,
competition and rail infrastructure.

Many of the rail industry's current challenges were created by the
furious period of consolidation that followed deregulation in 1980.
While these mergers restored profitability, they encouraged
reductions in infrastructure and underinvestment that have
exacerbated the current capacity crunch. Although further mergers
attempts are likely, increased investment might lead to greater
improvements in performance, efficiency and profitability.

To read an extended version of this article, log on to Oxford
Analytica's Web site.

Oxford Analytica is an independent strategic-consulting firm drawing
on a network of more than 1,000 scholar experts at Oxford and other
leading universities and research institutions around the world. For
more information, please visit www.oxan.com.