Home | America’s Freight Transportation Network—Struggling to Keep Up (Continued)

America’s Freight Transportation Network—Struggling to Keep Up (Continued)

Rail—From the Golden Spike to the Global Economy

America’s first vision of a national rail policy reached its apex with the driving of the ceremonial Golden Spike on May 10, 1869, in Promontory, Utah, when the eastern and western railroads were joined. Today, the U.S. Rail system is stressed and unable to keep up with the demand of a modern global—not just transcontinental—economy.

America needs a new Transcontinental Railroad System, one which reflects the demands of the 21st Century, not the 19th.

It is estimated that railroads are the most capital intensive industry in the country. Expansion of a rail line, a terminal, or an intermodal terminal represents a permanent, high-cost investment which will be stranded if business needs change. The high cost and risk of expansion limits the railroads’ ability to “scale up” capacity to meet shifting demand. As a result, bottlenecks occur across the country, particularly in and out of ports, around cities, and near the intersections of different railroads.

The rail network today represents a consolidation of the most productive remnants of the much larger rail network of the 19th and 20th Centuries. Although the modern Class I railroads are operating at record capacity and efficiency, every region of the country is plagued by localized chokepoints or inadequate rail capacity. The railroads are left with massively complex needs to alleviate problems resulting from the 19th Century patterns of rail development. Generally, the railroads developed east–west and lack many of the modern north–south routes which are needed today. Chokepoints in Chicago, southern California, New Orleans, Texas, Cincinnati, and throughout the East Coast result in the country’s inability to fully exploit the greater efficiencies that railroads offer.

America needs a new Transcontinental Railroad System, one which reflects the demands of the 21st Century, not the 19th. As with the New Interstate Highway System, the New Transcontinental Railroad System will expand capacity and eliminate the critical bottlenecks which plague the old system today. As with the 19th Century Transcontinental Railroad System, public sector assistance will be needed. New funds, new regulatory flexibility, and new planning systems will be required.

As the old Transcontinental Railroad stretched across America’s 19th Century geographic frontiers, the New Transcontinental Railroad will stretch to the limits of America’s new economic frontiers. It will reach directly to the port docks. It will span chokepoints in Chicago, Cincinnati, Seattle, Los Angles, Texas and throughout the East Coast. It will haul cargo seamlessly from a dock in Long Beach and deliver it to Maine, if that is what customers need.

The old Transcontinental Railroad freed America from the tyranny of distance. Now, America faces challenges in the form of trade, energy, air quality, and climate change.

  • The freight-rail system carries 14 percent of the nation’s freight by tonnage, accounting for 29 percent of the total ton-miles and 5 percent of freight value. That translates into 102 million miles that trucks are not traveling on the highways;

  • Freight rail provides shippers with cost-effective transportation, especially for heavy and bulky commodities; 

  • Freight rail, in partnership with the trucking industry, provides intermodal transportation that connects United States seaports with inland producers and consumers;

  • Freight rail is fuel efficient and generates less air pollution per ton-mile compared to trucking;

  • Rail offers separated rights-of-way for most corridors, and generally is preferred for the movement of hazardous chemicals;  

  • Rail is essential for the movement of goods in national emergencies, and is especially vital to military mobilization.

The demand for freight rail services is projected to increase 69 percent based on tons and 84 percent based on ton-miles by 2035. However, rail will decline as a percentage of all shipments falling slightly from 14 to 13 percent of all freight tonnage. The rail market is shrinking in part because of structural changes in the economy. The growth of services, the need for smaller, more high-value movements, and the declining importance of commodities within the larger economy all will slightly reduce rail’s share of overall freight movements.

AASHTO’s Freight-Rail Bottom Line Report found that the rail industry is stable, productive, and competitive. It has enough revenue to operate profitably, but not enough revenue to meet all necessary capital needs.

A lack of investment capital is a critical factor influencing railroads’ inability to absorb a larger share of the growing freight market. 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. Railroads require up to 17 percent of their revenue for capital investment, compared to a national average of 3.5 percent for all industries. Railroads are profit-making companies, who have an obligation to shareholders to invest prominently for the company’s best interest. New rail lines or yards cannot be moved once built and represent substantial risk for railroads to undertake. A rail line built to accommodate one industry could become stranded should that industry close or relocate.

To increase market share, railroads are more inclined to increase volume on existing lines. The industry is purposely operating near capacity because of its capital intensity. It also is using pricing to turn away less profitable business. Railroads are forced to make decisions based on private financial return and not upon larger public concerns or desires—such as getting trucks off the highways or reducing emissions.

AASHTO’s Freight-Rail Bottom Line Report found that the rail industry is stable, productive, and competitive. It has enough revenue to operate profitably, but not enough revenue to meet all necessary capital needs. The report found that for railroads to capture a proportional share of freight growth they would need to invest between $175 and $195 billion over the next 20 years. The railroads are likely to be able to raise up to $142 billion of that but would need $53 billion more over 20 years to provide adequate growth to capture more of the growing freight market. That translates into the need for $2.65 billion in annual public sector capital assistance.

The AASHTO report notes that such investment would benefit the railroads but also would provide the public benefits in terms of less air pollution, fewer trucks on the road, increased energy efficiency and increased options for shippers. The expanded rail capacity analyzed  by AASHTO would remove 450 million tons of freight and 15 billion truck vehicle miles. That service would save shippers $162 billion and save highway users $238 billion over 20 years and avoid $10 billion in highway repair costs.

The lack of capital is forcing railroads to use operational efficiencies to increase capacity, often with negative consequences for some stakeholders. The railroads are dropping less profitable service and increasing capacity by dropping shorter hauls for longer trains and longer hauls. They also are using longer and heavier trains. This allows the railroad to operate much more efficiently, but may result in the lack of service for customers who desire smaller carload shipments.

The railroads are dropping less profitable service and increasing capacity by dropping shorter hauls for longer trains and longer hauls.

The rail industry is far-flung but highly consolidated. Out of 558 common carriers, the seven Class I railroads account for 70 percent of system mileage, 89 percent of employees, and 93 percent of freight revenue. Their commodity flows also are concentrated. Nearly three-quarters of current rail tonnage and revenue come from four market groups: coal, farm and food products, chemicals and petroleum, and the intermodal business. Forty percent of the volume is coal alone but coal provides only 20 percent of revenue. Intermodal provides another 20 percent of revenue.

Intermodal has been the great success story for the Class I railroads.

Intermodal shipments are the most rapidly growing railroad product. They are growing at 3.8 percent a year and are expected to triple in size to become the second-largest volume of rail business.

Intermodal has been the great success story for the Class I railroads. With international trade booming, this hybrid mode efficiently moves goods from the coasts and transports it quickly throughout the nation. Approximately 60 percent of the unit volume and the great majority of recent international growth involved marine containers, particularly bearing imported products from Asia.

The great majority of recent international growth involved marine containers, particularly bearing imported products from Asia.

However, growth in one area of rail increasingly squeezes service from another market segment. Rail service falls into three categories: bulk, general merchandise, and intermodal. Because long coal and intermodal trains can be operated more efficiently they may squeeze out the smaller, more specialized general merchandise shipments. Those require more handling in yards to consolidate and to disperse. That raises the price and makes them less attractive to carriers.

Unlike with highways, there is no national planning process which allows the magnitude of rail congestion to be measured. Because “what gets measured, gets managed” there is no systematic national management of the nation’s rail congestion needs. The individual railroads run their companies efficiently and make investments that meet the criteria of their business plans but, from the perspective of the performance of the national freight transportation system, there is no baseline for service, no standards for operations, no true measure of what type of system and service the country needs. As a result, various states are struggling to deal with the national problem piecemeal, at their local or regional level.

In Washington State, the state government has purchased rail cars and made other investments to preserve rail service to its eastern agricultural producers. Washington State also is participating in ways to improve north–south rail service along the I-5 corridor, and to improve rail and trucking efficiency around the ports of Seattle and Tacoma through the Freight Action Strategy for Seattle and Tacoma (FAST).

In Chicago, the massive CREATE project through an initial public–private investment of $330 million, is attempting to improve east–west connections in Chicago which have been missing since the original construction of the railroads in the 1800s.

The Heartland Corridor is a partnership between the Virginia Port Authority, the Norfolk Southern Railroad and the states of Virginia, West Virginia, and Ohio. It will create a double-stack container route from the fast-growing port of Norfolk, Virginia, to the Midwest, reducing the distance by 250 miles. The project will build new rail line where needed, raise tunnel and bridge heights to accommodate Norfolk Southern double-stack trains, and establish or expand intermodal terminals in Virginia, West Virginia, and Ohio. The total cost of the project will be $260 million dollars. SAFETEA-LU authorized $95 million for the Corridor and $33 million for Intermodal Terminals.

The $2.4 billion Alameda Corridor near Los Angeles serves as a prime example of rail investments to ease congestion into the giant ports at Los Angeles and Long Beach. It has been a tremendous success story but it stands out because it is rare. There are few similar examples of such success.

However, all these projects were either delayed, stalled for years, or are still unfunded because of a lack of needed capital, complex planning requirements and the inability to coordinate easily between modes. The glacial pace of many of these projects bodes poorly for America’s ability to ramp up for the railroad investment needed in today’s economy.

Such cases are prompting a re-examination of the federal role in the national rail policy. AASHTO has endorsed a series of measures intended to rationalize and modernize the nation’s approach to rail investment.

Water—Awash in Trade

Water provided America’s first mode of transportation and it now provides among the most modern and complex. The U.S. coastal ports are America’s link to the vast, global trade network that ships more than 1.5 billion tons worth of product into and out of the nation each year, valued at $1 trillion. Water transport handles 99 percent of the nation’s overseas trade by tonnage. Strategically critical imports such as oil and minerals are imported almost exclusively by water. Critical exports such as machinery and agricultural products also depend almost solely upon water transport.

Today, America’s ports face daunting challenges in an ever-expanding global shipping market. Trade volumes are soaring. Ships are getting larger.

For much of its history, America was nearly self-reliant. It traded overseas but foreign trade was less than 10 percent of the economy until the mid-20th Century. Today, America’s ports face daunting challenges in an ever-expanding global shipping market. Trade volumes are soaring. Ships are getting larger. Trade routes are shifting and intermodal connections are failing under the volume.

Now the country needs a new vision for a “Maritime America” that links the heartland to the new economic frontiers in China, India, Brazil, and even Russia. The prosperity of 19th Century Britain was determined by trade on the high seas. The same will be true for America throughout the 21st Century. However, the major challenges are not at sea, but at our ports, docks, railroads, and city streets which handle the massive surge of containers pouring off the new mega-freighters.

Waterborne trade reached record levels in 2004 and strong, continued growth is forecast. Through 2025, overall international waterborne tonnage is expected to grow to nearly 2.5 billion tons annually, or 1 billion tons more than in 2004. International container volumes are forecast to triple today’s levels by 2025.

The ports face several daunting challenges including:

  • Landside access to major ports from highway and rail already is inadequate in many locations, even without the higher trade volumes forecast for the future;

  • The new generation of “mega-container” ships dwarf many existing ships and will create problems at harbors that are not deep enough and at ports that do not have the “surge” capacity to unload them quickly;

  • Environmental and community constraints make port expansion difficult, if not impossible in some locations;

  • Port volumes are unevenly distributed, with some ports facing capacity shortages while others have excess capacity, just not where the shippers want it;

  • Inland rail and highway bottlenecks many miles from the port can be constraints;

  • A lack of technological innovations at the ports restrains efficiencies through increased use of automation to record and dispatch shipments;

  • Security has become a paramount consideration as the ports are expected to be a first line of defense against terrorists smuggling bombs or dangerous materials into the country.

Figure 5. Port and Terminal—Forecast Capacity/Demand (Millions of Twenty-Foot Equivalent Container Units)

Between the U.S. and international customers, water moved 1.5 billion tons worth nearly $1 trillion dollars.

The timing and degree of a waterborne freight crisis at America’s ports is debatable. Some see an imminent crisis while others predict a slow but steady erosion of service. However, no one is predicting that America’s existing port and waterway network is adequate for the wave of expected shipping. (Figure 5.)

Between the United States and international customers, water moved 1.5 billion tons worth nearly $1 trillion dollars. Although domestic water shipments are growing slowly or even declining slow, international trade is steadily increasing.

International trade grew from 50 million tons annually in 1925 to 940 million tons by 2000. Nearly half of this growth occurred after 1980. Oil and other “mineral fuels” account for nearly 25 percent of U.S. waterborne imports by value and 68 percent by tonnage. Although imports outpace exports by nearly 3–1, exports are critically important to the U.S. economy. By value, the leading U.S. waterborne exports are heavy machinery, vehicles, chemicals, fuels, plastics, cereals, and electronic machinery and grains.

The changing nature of the international economy is the driving force behind the impending water freight crisis at America’s ports. World trade origins and destinations are shifting dramatically as noted above. The Western Hemisphere dominated international trade routes for more than two centuries. Now, the giant Asian economies are growing and with them the trade routes are shifting.

The fastest growing segment of shipping clearly will be containers. Since its invention 50 years ago, the shipping container has revolutionized intermodal shipping. The simple and versatile container can be put on a truck or rail car, hoisted onto a ship, and then put back on a truck or rail car once delivered to its final destination. Between 1980 and 2005, container traffic through U.S. ports grew six-fold, at a compounded annual rate of 6.6 percent. In 2006, nearly 42 million containers were shipped. Projections show total volume could reach 110 million containers by 2020. (Figure 6.)

Figure 6. Historic and Projected U.S. Container Traffic (TEUs)

This traffic is, by its very nature, multi-modal. It depends on water, truck, and often rail to succeed. Chicago has become one of the nation’s leading centers for international containers because it is an interchange point between western and eastern railroads. The New York/New Jersey metropolitan region receives about as many international containers through its rail yards from the West Coast as it does through its water ports.

Container traffic is clustered around key ports and on principal corridors. These will increasingly grow congested. California is by far the nation’s leading gateway for container traffic, with nearly 17 million containers at its ports in 2005. California accounts for nearly 40 percent of all U.S. container moves, and it is port of entry for 64 percent of Asian container traffic. (Figure 7.) New York/New Jersey handles 5 million, while Washington State handles 4 million.

U.S. international container traffic is expected to triple in the next 20 years. With much of the increase coming from China, India, and other Asian countries the domestic freight connections will be strained. Now, freight delivered to West Coast ports typically is moved eastward across the continent by truck and rail. Some travels from the east through the Suez Canal, and some through the Panama Canal, which can no longer handle the largest ships. An expansion of the canal has been approved. When completed, it will further increase the volumes of traffic to already fast-growing southeast ports such as Savannah, Charleston, and Norfolk as well as to ports on the Gulf Coast. These changes will be accompanied by the establishment of new distribution centers increasing the pressure on the highway and rail networks serving those ports.

Figure 7. California is the port of entry for most Asian imports.

At present, planning for these changing, global freight moves is not well coordinated. The ships are owned by private, international companies. The ports are publicly owned. The railroads serving the ports are private while the local streets reaching the ports are controlled by local municipal governments. Major routes at or near the ports generally are controlled by the state. No entity gathers comprehensive data about the ports, their connections, their bottlenecks, their needs or their plans. This vast, sprawling, critical supply network is managed by a collection of entities who do not share data, plans or needs assessments as often as should be the case.

By the year 2020, even at moderate rates of economic growth, the total domestic tonnage of freight carried by all U.S. freight systems will increase by approximately 67 percent, while international trade will nearly double. In this same time interval, every major U.S. container port is projected to at least double the volume of cargo it is expected to handle, with select East Coast ports tripling in volume and some West Coast ports quadrupling in volume.

—U.S. Chamber of Commerce

 

For the inland and intracoastal waterways, the planning is little better. Relatively speaking, the inland waterway system is an underutilized freight transportation mode. Waterborne traffic on the inland and intra-coastal waterway systems in 2004 handled 1 billion tons of domestic cargo, worth more than $300 billion dollars. That equated to about 600 billion ton-miles, or about one-sixth of the nation’s domestic ton-miles. Domestic waterborne freight is not expected to grow dramatically. Currently about 40 percent of the waterborne freight is domestic. Primarily it moves ore, chemicals and agricultural products. These commodities are critically important to many industries that rely on water to provide the low-cost, high-volume shipping for their massive volumes. However, most of these movements are to mature domestic industries that are not predicted to expand rapidly.


Intermodal shipments are the most rapidly increasing form of rail traffic.

The domestic network also is plagued by a lack of capital for investment in dredging, lock expansion, channel maintenance and improved port facilities. It is not managed as a significant mode within the intermodal freight system. As a result, possibilities such as increased movements of containers on barges have not been realized.

 

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