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September 2008

Rail News: Rail Industry Trends

National Rail Program, Capacity Expansion Funding Must be Addressed in Next Transportation Bill, BNSF’s Rose Tells AASHTO Crowd


By Angela Cotey, Associate Editor

National transportation policy has been a hot topic this year with the federal transportation bill nearly due for reauthorization. And that’s precisely what drove the presentations at this year’s American Association of State Highway and Transportation Officials (AASHTO) Standing Committee on Rail Transportation meeting, held Aug. 17-20 in Milwaukee.

A record crowd of 140 state transportation, railroad, consulting firm, advocacy group and rail industry association officials packed a Hilton Milwaukee City Center ballroom to hear the latest on policy and legislative proposals and issues railroads are facing in the coming year.

Fitting with the conference theme, “Developing a 21st Century Rail System,” BNSF Railway Co. Chairman, President and Chief Executive Officer Matt Rose discussed the work of the National Surface Transportation Policy and Revenue Study Commission, a 12-member, Congress-created commission he sat on that evaluated the country’s transportation system and developed recommendations to improve it.

The commission’s findings and recommendations released in January have been widely reported, but Rose gave additional insight, and for good measure, offered up his own opinions on the future of rail transportation.

“I don’t think we’re in a transportation crisis today, but there’s all the evidence one is brewing,” he said. “All of our infrastructure is filling up and when you think about population growth from 300 million to 338 million by 2020, that’ll be the tipping point.”

Big-picture view

The commission analyzed the national railroad system as a whole — the first time it’s ever been viewed as a holistic network, said Rose — to determine the capacity issues facing the freight-rail industry. Computer simulations showed that 88 percent of freight-rail corridors currently are operating below capacity, 12 percent are near capacity and 1 percent are above capacity.

“That 1 percent are bottlenecks that are three miles, five miles, 10 miles long — we’re talking about very selective areas,” said Rose.

When the commission reviewed a 2035 simulation, it found that 30 percent of the rail network would be operating above capacity. And making the necessary infrastructure upgrades to handle additional traffic carried a $135 billion price tag.

Under current business models, railroads are expected to spend about $100 billion on capacity improvements through 2035, leaving a shortfall of about $35 billion, said Rose. To cover it, the industry has proposed an investment tax credit for capacity expansion projects.

“We don’t believe in earmarks or trust funds — we’ve been down that path and don’t think there are efficiencies in those models,” he said. “Forcing railroads to make very hard decisions on where projects will justify a return is the most efficient way to get capital into the industry.”

Commission members also have heard quite a bit about rail regulatory policy during the past year, Rose said.

“Right now, the average railroad is earning about 10 percent return on invested capital,” he said. “I would argue those are not excess returns. If you want more capacity and capital to come in, then we ought to have a regulatory policy that allows for a free flow of profits as long as railroads are reinvesting in their physical plants.”

The transit component

On the passenger-rail side, commission members chose not to endorse a national rail policy, but instead focus on a series of regional passenger-rail corridors, said Rose, adding that any additional transit-rail service must not impact freight-rail capacity.

As for high-speed rail?

“Figure on $2 trillion,” he said. “A hybrid is to fit some passenger-rail networks onto the freight-rail network, but that’s tricky and has limited success.”

All in all, commission members estimated that $225 billion in federal, state, local and private funds will need to be spent annually for the next 50 years to make the necessary transportation infrastructure upgrades.

So, as Congress debates the next transportation reauthorization bill, Rose and other commission members will be looking for some big changes — both in funding (“Anything that starts with the number two isn’t going to cut it,” he said) and policy.

“If we want to change transportation policy, this is going to be an overhaul,” said Rose. “This is not a reauthorization of TEA-LU, it’s really a new transportation bill.”


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