Signs point toward a recession, not a rail traffic rebound
Some economists believe it’s the strongest signal yet that the economy could be sliding into a recession.
In terms of retail sales, the Christmas season didn’t do much to keep cash registers humming. Last month’s sales dropped 0.4 percent compared with December 2006’s total, capping off retailers’ weakest year since 2002, according to the U.S. Commerce Department.
Meanwhile, the producer price index, which measures farm, factory and refinery prices, dipped 0.1 percent in December, according to the U.S. Labor Department. And the unemployed figure last month reached 7.7 million vs. 6.8 million in December 2006, while the unemployment rate went up from 4.4 percent to 5 percent year over year.
A CNNMoney.com article, entitled “Recession near — or already here,” cited a recent poll showing three of four Americans believe the economy already is in a recession or will be sometime this year.
We’re only about three weeks into 2008 and the economic world could turn in a favorable direction before mid-year. But in the early going, expect to hear the “r” word bandied about.
If only that stood for “rebound” …
Posted by: 
Jeff Stagl | Date posted: 1/21/2008
Comments
Posted by James Swidergal on 1/25/2008 2:53:15 PM
A rail traffic rebound from what? The carriers' didn't do so bad last year,even if they were crying poor mouth comparing 07 to 06. As far as Recession goes, personally I think it a spin wizards doing on the part of the media. Hype the economy,or lack of economy while Dems and Repls primarily ascertain who's got the biggest coin purse. What a time to run for office. Too much money and you lose the working stiffs vote not enough money and ya cant get out the tv and radio spots. Anyway, signs don't actually point towards a recession just a volatile market. And, maybe it's to soon in the new year for good times to surface.
Posted by Sankar Narayanan on 2/4/2008 3:12:38 AM
Switching from Rail to road While the western world is harping on Green house effect caused by the developing and underdeveloped countries using fossil fuel, the west , particularly the USA having got used to lavish luxury with very large living area with much lower population density, want everything fast, including delivery of pizza at the door within quarter of an hour. Heavens are not going to fall if the freight takes a few more hours or days to be delivered when moved by rail. Americans have not realized that the rolling resistance of a rail vehicle is about two pounds per ton while a road vehicle requires about eight times the force. The power to move a train on rails will be about 2 hp per ton of trailing load while a road vehicle needs about 12 to 16 hp. for the same speed. The economy apart in the fuel cost, the amount of combustion products released by motor vehicles on roads for transporting people and freight is so high. This hypocrisy must be realized by every American and should resolve to use public transport for moving about. This will give some exercise also to walk to the nearest station, instead of entering the garage for driving out straight from the dining room. The rest of the world is watching USA going down in economy by SUB-PRIME lending, which in plain terms means give large loans to unworthy borrowers encouraging them to spend more. The nemesis of this most unethical way of living is visiting cruelly on the country and the economy suffers beyond immediate repair.
Posted by LHKMAN on 2/4/2008 5:11:43 PM
Sankar Narayanan makes some excellent points. But he fails to take in both the costs and benefits of a pluralistic society such as that of the United States. No commercial enterprise will do the things he advocates on its own, even though the people running the enterprise undoubtedly know that what they are doing is collectively wrong for the society and what he urges is good for the society. That, folks, is the price we pay for not having a national transportation policy, which, by the way, was the reason DOT was created more than 40 years ago - to develop a national transportation policy. Until this country has one, commercial entities will continue to optimize their individual performance while knowing that it contributes to suboptimization of the entire system.
What’ll it cost you to help resolve the nation’s transportation dilemma? A latte a week
If Congress follows recommendations unveiled today by the National Surface Transportation Policy and Revenue Study Commission — including a motor fuels tax hike to the tune of five to eight cents a gallon annually for the next five years — you’ll have to. That averages out to 41 to 66 cents a day for the average American motorist (groan).
But let’s put it into perspective: That’s less than the cost of a candy bar, and a fraction of the cost of your daily café latte, commission members said during the Jan. 15 press conference.
Historically, the public has opposed raising the gas tax, but commission members seem pretty confident the public will be more open to paying a higher fee if they know what it’s paying for. Their recommendation? Create 10 programs that would “focus on projects of national interest.” Those focuses range from bringing the existing infrastructure to a state of good repair, to providing freight capacity, to creating a “world-class” intercity passenger-rail system.
The revamped federal transportation program would appeal more to the public than the current plan, which was designed to create the interstate highway system and “has no sense of purpose or mission anymore” now that the interstate highway system has been built out, said commission Vice Chair Jack Schenendorf.
As much as we may gripe about paying even more to fuel our cars, we’ve been underinvesting in our transportation infrastructure for decades. It’s going to cost $225 billion to $340 billion annually to improve it. Bottom line: If we want to maintain (or regain?) our world-class transportation system, we’re going to have to pay for it.
Posted by: 
Angela Cotey | Date posted: 1/15/2008
Comments
Posted by Dave Smith on 1/15/2008 7:22:35 PM
There is a bit of an east vs. west mentality when it comes to determining the "completeness" of the U.S. Interstate Highway system. Many state leaders from the Intermountain West would argue that the Interstate Highway System is still incomplete since coverage is much less throughout the West compared to the East. The result is that many U.S. and state highways out West are having to fulfill the duties of handling de facto Interstate Highway-type traffic. As for a state-of-the-art U.S. high-speed rail system, it will only work if it is predicated for hauling freight. Passenger services should be secondary. Otherwise we end up having 99% of the populance subsidizing 1% of passenger rail advocates.
Posted by James Swidergal on 1/16/2008 11:29:06 AM
Let's really re-think what it'll cost if we only legalize drugs and the licensing and taxing of same. Regulate it much like alcohol and tobacco and we won't have to raise taxes on anything or start new taxes on compliant beverages. The funds that we save from all the drug deals that have gone bad by enforcement agents alone would fund any transportation dilemma, and possibly support any education initiative also.
Posted by Adron on 1/16/2008 1:47:27 PM
Better bet, just get the Feds out of it and let fees and direct incurment of costs appropriate where things will get built. Infrastructure for once, would get built where it should be. ...and on top of that freight railroads would have a large increase in pricing control since they wouldn't be incurring much larger costs for infrastructure than the competition. The intelligence of rail would pervade decisions to an even higher degree.
Posted by W. D. Green on 1/16/2008 2:30:44 PM
Wait a minute on the thinking of this article about a Latte a week solving our transportation issues. Excuse me, but at the tax rate per gallon of fuel our highways and roads of this nation already should be paved of gold. Why don't we have an accounting of where that fuel tax money is really going now that is being collected for our transportation needs? I am sorry, but I am not buying the premise of the writer in that all we need is a little more money. What we need to do is spend the tax money that is collected for transportation issues on solving those transportation problems and not send that money to the "General Fund".
Posted by Eugene Skoropowski on 1/17/2008 12:48:45 PM
Having worked outside the United States for several years, it was obvious our gas tax is the lowest in the world, its inadequacy was also eroding our ability to maintain our national infrastructure. Our balance-of-trade deficit, which has been reduced recently from more than $800 billion per year to somewhere above $700 billion per year is about 75% for imported oil. That money we ship off shore, much to countries that are likely to find ways to use that money to undermine our way of life. Europe figured this out decades ago. Our willingness to invest in ourselves and in our future is at stake here. I'll give up my daily latte if needed to give my kids and grandkids a future. Have we become so selfish that we are now unwilling to invest even in ourselves?
Posted by W. D. Green on 1/17/2008 4:52:46 PM
"Our willingness to invest in ourselves and in our future is at stake here. I'll give up my daily latte if needed to give my kids and grandkids a future. Have we become so selfish that we are now unwilling to invest even in ourselves?" Are we selfish as taxpayers that are paying untold millions and billions in fuel taxes for an accounting of where the fuel tax money meant for transportation issues is being spent? How much tax money is enough before we make ourselve non-competitive in the world markets? Taxes are an overhead expense to every United States Citizen. The higher the tax, the more each person has to earn in order to maintain the living they want or need. Do you think that Chinese railroad employee is paying anywhere near the taxes of his counterpart in the United States? Why do we do this to ourselves thinking that government can solve all of our problems with just a little more tax money? It is a silly notion that we can have a better country for our children if it just costs us the equal of a Latte a day. If anything for the sake of our children we should lower government spending and work on lowering the National debt so our children will not be paying for the problems we can solve ourselves, without government.
Posted by Stan on 1/18/2008 10:51:00 AM
One of the problems with this bill is the language. As usual, Congress has left it vague "10 projects of special interest" (like an Alaskan bridge???). Until the bill contains more specific language, it is an opportunity for pork-barrel, fiscally unsound projects that will be used for political payback (what else is new). People would have less of a problem paying increased fuel taxes if the dollars went into the commmon good, and less into the pocket of the hot politiocal project of the minute.
Posted by LHKMAN on 1/18/2008 11:24:07 AM
National transportation policy? We have none. The DOT was created more than 40 years ago to develop a national transportation policy. The first few secretaries tried, but were stopped by the OMB, which feared angering important constituencies, among other things. More recent SecDOTS have not even tried, particularly the current one, Ms. Peters. In her diatribe against the tax proposals she focused only on the GWB "no new taxes" mantra and never commented on the substance of the Commission report. Last time I checked, she was a member of the commission, although it is my understanding she seldom participated in its activities -- easier to be hypercritical, I guess. If this country had a real national transportation policy, perhaps some vehicle traffic crowding highways would be driven to railroads, which being privately owned and financed can build their way out of congestion. Sadly, we won't ever know because Ms. Peters is more interested in selling the Bush "message" than in solving transportation issues.
Posted by Dr. David Morris on 1/22/2008 10:02:08 AM
Rather than more and more taxes, why not have NO TAXES ON CORPORATions nor Corporation provided health care only taxes on INDIVIDUAL earnings and a government sponsored universal health care system. It works well in Scandinavia and they have a vastly higher standard of living and no poverty.
Posted by Richard Hanford on 1/22/2008 1:41:02 PM
Dr. Morris makes a good point. Eliminating corporate taxes would be a stimulus for business but would put a lot of accountants out of work, who's primary objective is to find a way to avoid paying taxes. We are a nation of spoiled children, who do not want to take responsibility for our infrastructure and services, and we don't want to pay for what we do have. How often have you heard "I don't have kids, why should I pay for school taxes?" Or "I don't ride the train, why should I pay for freight?" Until we have leadership in this country that can reverse the mantra that taxes are evil, never mind the principal source of income for the government, we will continue to be mired with a crumbling infrastructure.
Posted by LHKMAN on 1/23/2008 10:32:25 AM
The last time I checked, this was a blog appearing on the Progressive Railroading daily news digest website. Therefore, silly me, I assumed the discussion(s) would be about railroading. I was wrong. Now we get screeds about the morality or immorality of corporate taxation and health care. I'm sure there must be websites and blogs out there for learned discussion of taxation and healthcare. This isn't one of them. Can we get back to the issue of whether people will spend the equivalent of the cost of a latte a week for transportation infrastructure?
Posted by Dr. David Morris on 1/23/2008 12:23:46 PM
LHKMAN's observations on the 17th and 22nd fail to recognized that tax policy makes the modernization of railroading feasible. Railroading was born out of tax policies, stagnated out of neglect and can again reach new levels of achievement through innovative tax policies. I would rather read constructive suggestions on railroading than simplistic diatribes.
Posted by James Swidergal on 1/23/2008 2:18:52 PM
Everything stated I agree with. Can we add that when and if this occurs,that we actually re-build our infrastructure,we can get guarantees from those doing the actual re-building that we will get structures,and bridges,and roadbeds,and highways,and etc. that will perhaps outlast a generation or two,and if it doesn't that builder will replace it free of charge to the taxpayer,please!
Posted by LHKMAN on 1/24/2008 12:50:41 PM
I apologize in advance for continuing this threat of back-and-forth commentary. Dr. Morris, I do not need instruction from you about public policy, taxation, or transportation infrastructure issues, having spent most of my professional life dealing with these. If the federal and state governments had treated the various modes equitably, many of the problems that now are crises would not have existed in the first place. Railroads, as private owners and operators of their infrastructure, are quite capable of building their way out of congestion. So far, all the railroads have asked from the government is an investment tax credit, which might give them some parity with motor carriers and water carriers that continue to underpay their aloquot share of the national infrastructure with which they have been provided. As for the fundamental change in taxation that you seem to be seeking, in the vernacular, the response is: fugedaboudit. Our federal government, legislative and executive, is so dysfunctional that nothing of the sort you recommend is going to happen, whether what you recommend might be good policy or not.
Posted by Dave Smith on 1/24/2008 7:31:11 PM
LHKMAN states "If the federal and state governments had treated the various modes equitably, many of the problems that now are crises would not have existed in the first place." Herein lies the problem - railroads want to have their cake and eat it too. They want to be treated "equitably" along with other modes, but they won't adopt the open access philosophy of the other modes in order to facilitate that equitable treatment. They can't have it both ways - either keep the closed access philosophy and lose their logical share of public funding, or adopt open access and allow the flood gates of public funding to be opened all the way.
Posted by LHKMAN on 1/25/2008 1:15:15 PM
Mr. Smith - and others: The argument that railroads should open their networkd to competitors if they want equitable treatment just doesn't work. Let's start with the fact that motor carriers use a public right of way, so they really should play nicely and share. When they build their own rights of way, they can restrict use of their private property -- just as other busineses and railroads do. Would you allow a competing chemical company to come into your plant and use your facilities to produce a product that competes with yours? That's not all. The competitor would pay only the direct cost of using your facilities, but none of the overhead, mortgage or other system fixed costs. That just might give your competitor a cost advantage over you. I bet you wouldn't like that, but it's exactly what you seek for railroads when you advocate competitive access. Bah, humbug.
Posted by LHKMAN on 1/25/2008 1:19:43 PM
By the way, Mr. Smith, railroads do not seek public funding in any way, shape or form. They do want investment tax credits that would work as a stimulus for more capital spending to grow capacity to handle the anticipated volume of traffic that a growing economy will generate. Your beloved trucks do not pay their aloquot share of the PUBLIC's right of way that they use. So equitable treatment of modes has nothing to do with government funding for railroads or their infrastructure. As I said in a previous post, when the truckers pay for their infrastructure on the same basis as the railroads, then we can shift the debate.
Posted by JASwidergal on 1/25/2008 2:42:51 PM
All good points everyone. But what is the dilemma of our nation's transportation. All has been said is about trucks and trains,what about that big ol' sponge the airlines? Those aiborne suck holes get everything for free from Uncle Sam, new airports,new control systems,bailouts,etc. Why can't we spread some of that cashola around and satisfy all the transportation woes?
Posted by LHKMAN on 1/25/2008 4:04:19 PM
JASwidergal: It's not as simple as you posit. Major city airports bring in enough from airline landing fees, concourse concessions and parking to support themselves with little or no taxpayer support. Smaller communities do not, but they also don't have big "suck holes" of airports, as you call them. We could discuss aviation and its contributions or lack thereof, but this still is a Progressive Railroading website and the blog still deals with rail issues.
Escalating rates might motivate more rail shippers to switch modes
Conducted in November, the survey showed 67 percent of the respondents were “actively” seeking to divert traffic compared with 44 percent in the second-quarter survey.
A majority of the polltakers said railroads’ service had improved modestly, so performance isn’t the motivating factor. Pricing is. A majority of the respondents anticipated rail rate increases exceeding 4.6 percent in the next six to 12 months.
“We believe pulling too hard on the pricing lever runs the risk of gradually eroding primary demand over the intermediate to longer run,” according to the Bank of America Securities survey summary.
Anonymous comments reveal shippers’ irritation with escalating rates: “Railroad's focus is short term in nature to achieve quarterly dividends for the investment community … not on the customer’s long-term needs.” And: “Railroads have enjoyed increased pricing power but are now trashing the opportunity of retaining that business at attractive pricing levels because they're trying to get even more price increases in the context of a marketplace that absolutely cannot support it.”
Shippers have spoken. Now, it’s up to railroads to listen. Raise rates? Sure. Some shippers have had “sweet deals” for years, railroads say. And, for the most part, railroads are providing a good service that commands a good rate of return. But rate hikes well above 4 percent might be too much for shippers to bear. If they want to continue eating away at trucks’ market share, railroads can’t afford to alienate the customers they already have.
As one shipper put it: “Railroads need to pay attention to what’s going on out there. They are losing significant volumes to other modes.”
Posted by: Jeff Stagl | Date posted: 1/8/2008
Comments
Posted by LHKMAN on 1/8/2008 10:31:05 AM
It's easy for shippers to lambaste railroads when their comments are presented anonymously. It is quite possible, perhaps even probably, that railroads are not "abusing" their customers on price, but are consciously using price to help ration constrained capacity. To believe otherwise, one would have to believe that railroad executives do not know how to manage their own businesses. Net-net, railroads continue to raise rates and even though volume is down they are generating greater revenue and net income. Those who would re-regulate the railroads will be among the first and loudest complainants when limited capacity causes their rates to climb even faster.
Posted by Roy Srp on 1/8/2008 10:35:19 AM
I think this is right on. I have worked at several class ones for a total of 38 years and have watched this happen first hand in predictable cycles. Take heed.
Posted by rrfin on 1/9/2008 10:59:58 AM
Back when the industry was regulated, railroads were compelled to provide service to shippers with undesirable traffic, like short car load hauls of low-rated commodities, at unprofitable rates. Their only options to survive financially were to obtain higher-than-needed rates for hauling more valuable commodities to offset money losing traffic and chase away undesirable traffic by providing poor service. The deregulated environment now allows railroads to finally demand rates from "low rated" commodity shippers that provide a sufficient profit or not haul the traffic. Once those shippers switch to truck or barge (or go out of business) they'll never ship by railroad again. Hopefully, the day never comes that the railroads want that tonnage back.
Posted by Madeira on 1/9/2008 11:36:09 AM
A symptom of abusive market concentration is when shippers need anonymity to describe their feelings. Shippers complaining about bad services, but captive due to low prices is another. Modal transfer is a matter of fact and cannot be simulated. And since bottlenecks occur in restricted sections of the railroad system, it would be wise for them to reduce freight rates in flows that are not critical, instead of widespread rate increases, which would be another symptom of monopoly. Again, the sad part of lack of true competition is that managers think they are doing the best for their railroad, even though they are destroying their market. Re-regulation? The name is tricky and absurd, if one thinks in open access. Sure an open-access environment will better address the investments to increase capacity, and at same time, reduce the need for regulation, as monopoly will be reduced to line ownership and management, excluding all other assets, to be supplied in a much more competitive way by a bunch of competitors, big or small — or, the shippers will tell, better or worse — prepared to do a great service.
Posted by Dave Smith on 1/9/2008 7:19:22 PM
Are the "re-regulation" bills as hyped by the industry actual attempts at pre-Staggers regulation, or are they in reality a move toward further deregulation? If you look at both pieces of legislation being debated, one is a de facto anti-trust exemption removal, while the other also has elements of eliminating the railroads' anti-trust exemption. In my book, the Staggers Act was really only partial deregulation, so an implementation of anti-trust enforcement is not "re-regulation", it is rather a move toward fuller deregulation. The problem is, it is the type of deregulation that happens to favor shippers, so the railroads are attempting to obfuscate the debate in the minds of legislators. So what's wrong with partial deregulation? Anyone remember the California partial energy deregulation debacle?
Posted by TCEklund on 1/11/2008 12:22:23 PM
Customers from time immemorial have always arbitraged truck against rail for that portion of their business that lies in the margin between the two modes. Long-term, the trucking industry will face its own set of issues that will begin to lock-in higher rates for their services. Over the next 20-30 years, the railroads have the ability to win the day, if they handle their new-found pricing power responsibly...balancing the need to generate profits to invest in long-term capacity improvements with the need to maintain volumes and growing market share to justify those improvements and expansions. It will be the market-savvy and customer-focused Class I that successfully negotiates this balancing act.
Posted by LHKMAN on 1/14/2008 10:38:03 AM
One respondent to this subject refers to shippers having to resort to anonymity in expressing their views as a sign of the depth of the problem. It could equally be so that the shippers don't need to resort to anonymity, that the carriers are not behaving abusively, and that the shippers are hiding behind anonymity to level charges that do not stand up to examination. And, for the individual who questions whether the measures being proposed are re-regulation or really further deregulation — what sophistry! Any system that allows trains of one railroad to operate over facilities of another without the owning railroad having anything to say about it, that effectively imposes a cap on rates that can be charged can be called by only one name: regulation.
Posted by Dave Smith on 1/14/2008 6:54:55 PM
In response to LHKMAN, does it really do justice to the very real problem of rail rate disparity by pretending the problem doesn't exist? Usually, internally ignoring monopolistic behavior eventually creates bigger problems for the industries engaged in such behavior. Point of fact: We are a society that deems it in the best interests of a free market economy to utilize the power of regulation for the purpose of ensuring free market optimization. In theory, the seeming oxymoron of free market regulation occurs in situations of monopolistic behavior, as currently being exhibited by the U.S. rail oligarchy. However, to fine tune this description of "regulation" vs "deregulation", it is a well-established concept that anti-trust authority is in line with the idea of reduced regulation, since it eliminates the monopolistic behavior and thus eliminates the need for more comprehensive regulation, e.g. the pre-Staggers environment.
Posted by LHKMAN on 1/18/2008 11:18:26 AM
Mr. Smith: To what problem are you referring that I am allegedly trying to ignore? Is it the concept of differential pricing? Prior to Staggers, all rail tariffs -- all rail traffic, carried the same relative contribution to system fixed costs, which are higher for capital intensive railroads than for any other industry, including electric utilities. Staggers specifically allows differential pricing. Chemical companies, utilities, and some grain dealers knew what would happen before Staggers was passed and opposed the law's passage. As captives, they have greater need for the rail system than do other customers that are not captive. Therefore, the captives should pay rates that include a larger contribution to fixed costs than the rates paid by shippers that can leave the railroads altogether. You never hear from CURE the fact that a majority of rate disputes taken to the STB are resolved by agreement between the shipper and the railroad or in favor of the shipper. Monopoly behavior? Failure of the regulatory safety net? Hardly.
Posted by Dave Smith on 1/18/2008 8:31:45 PM
Quothe LHKMAN: "As captives, they have greater need for the rail system than do other customers that are not captive. Therefore, the captives should pay rates that include a larger contribution to fixed costs than the rates paid by shippers that can leave the railroads altogether." Could you explain the rationale for this statement? Why would a shipper with one rail connection inherently need rail service more than the shipper with two rail connections? All other things being equal, the former and the latter have equal need for rail service, but the latter is afforded market-based competitive rates whereas the former is not. THAT is the problem you seem to ignore.
Posted by LHKMAN on 1/21/2008 12:11:37 PM
Mr. Smith: You have asked the wrong question, but I'll try to give you a response anyway. Whether a shipper has one railroad or more than one railroad available determines captivity. By the way, you can count on the fingers of one hand and have a digit or two left over the number of customers who EVER were served by more than on carrier. The point is that with industry consolidation, shippers no longer can "discipline" carriers that displease them by short-hauling the miscreant carrier. The closure of gateways makes that time-honored technique unusable today. A captive shipper who does not move a commodity that can go by barge or truck (captivity, or market dominance, as the STB uses the term, considers more than just rail-to-rail competition) obviously have a greater need for rail service than does an intermodal shipper, for example. The IM shipper always has the option of leaving his/her freight on the highway. Thus, the utility receving coal should pay for its greater need and use of the system fixed costs. Otherwise, we would have a replay of the 1970s, when 25% of U.S. rail mileage was in bankruptcy proceedings. I was in the industry then and it was no fun. Were you?
