Freight Rail Faces Capacity Shortage
America’s freight rail system carries 14 percent of the nation’s freight by tonnage, 29 percent of ton miles, and 5 percent of value. Freight rail provides shippers with cost-effective transportation, especially for heavy and bulky commodities. It is vital to the movement of coal which fuels a large percentage of the nation’s electric power generation. Freight rail, in partnership with the trucking industry, provides intermodal transportation connecting U.S. seaports with inland producers and consumers. Truck lines use rail to carry trailers long distances, as one solution to the shortage of truck drivers. Rail is a preferred mode for hazardous materials shipments. It is also vital to military mobilization.
In 1980, the freight rail industry was losing money and faced financial crisis. That year it was deregulated by the Federal Government. Since then the railroads have increased their productivity by cutting track mileage from 380,000 miles to 172,000 miles, cutting back on rolling stock and employees, and consolidating ownership into seven Class I Railroads, and 551 Shortlines. (Figure 8.) The seven Class I railroads provide the long-haul, interstate service throughout the United States, along with connections to Canadian and Mexican railroads for international traffic. The Class I railroads account for 70 percent of system mileage and 93 percent of freight revenue.
In 2003, AASHTO’s Freight Rail Bottom Line Report found that the rail industry today is stable, productive and competitive, earning enough profit to operate, but not enough to replenish infrastructure quickly or fund modernization. After years of downsizing, the railroads face a capacity shortage because the growth in rail freight demand has now outstripped what they can carry. This is especially true for rail intermodal freight which has been growing at 4.6 percent per year, and is forecast to grow 213 percent by 2035. This growth, of course, is contingent on the ability of the railroads to finance adequate additional track capacity. Another challenge is removing height clearance obstructions that prevent double-stack service, such as along the I-95 Corridor.
Figure 8. Rail Network Today
The 2007 “Cost to Maintain Freight Rail’s Current Market Share” is $12 billion annually, $9.25 billion in private capital and $2.75 billion in public support. AASHTO’s 2003 Freight Rail Bottom Line Report estimated that the level of investment in rail infrastructure required for freight rail to maintain its current market share and handle its “fair share” of growth was approximately $195 billion over 20 years. It anticipated that the railroads should be able to provide around 75 percent of the funding required, estimated at $142 billion, but the remainder (up to $53 billion, or $2.65 billion annually) would have to come from public sources, in the form of direct assistance, low-interest loans, tax credits, and other forms of public-sector participation. The estimate has been adjusted to 2007 dollars using the same factors as used for highways and transit.
Compared to a scenario in which no public support was provided, the base case scenario, in which $2.75 billion in annual public support was provided, would avoid seeing 450 million tons of freight shift from rail to trucks, avoid 15 billion in additional truck VMT, save shippers $162 billion, and save $10 billion in highway costs over a 20-year period.
AASHTO is in the process of updating its 2003 freight rail analysis. Preliminary results show that the freight rail system is not keeping up with demand and is having to shed some of its traffic to trucking. It is encouraging that private rail investment has been increasing. The Association of American Railroads estimated that major freight railroads will invest $8.3 billion in infrastructure improvements in 2006, nearly double the level from 10 years ago. Even so, the railroads continue to be unable to finance enough expansion from private sources to add the capacity needed.
In part, rail market share is shrinking because of structural changes in the economy. The economy is producing and shipping more value-added products and less heavy manufactured goods. Our freight shipments are lighter, less bulky, and higher in value, making them better suited to truck than rail. The other reason railroads are shedding traffic to trucking is their shortage in capacity. Our analysts have observed that some railroads are getting rid of less profitable traffic. Railroads are using pricing to turn aside lower-profit carload and short-haul freight in favor of longer distance intermodal and bulk traffic, which can be handled cost-effectively and profitably in unit trains.
The freight rail industry is operating under the same economic principals as any successful U.S. business—to maximize return on investment and grow shareholder equity. These principals unfortunately sometimes come into conflict with the public’s interest and expectation that the railroads will continue to carry their market share of freight and mitigate roadway congestion by reducing the number of trucks on the Interstates and going into our cities.
As Tennessee DOT Commissioner Gerald Nicely testified at the Commission hearing in Memphis on November 16, 2006, AASHTO has recently adopted a policy that says a new National Rail Transportation Policy must be established to increase freight rail capacity and intercity passenger rail services. Federal incentives, such as investment tax credits, should be provided to make it feasible for rail companies to invest in capacity improvements for the future. Federal funds outside the Highway Trust Fund should be provided to states who participate in “public-benefit freight rail projects. AASHTO recommends that the National Commission develop and recommend a National Rail Policy, in consultation with U.S. DOT, state DOTs, railroads, and shippers.
