No. 114 - Executive Summary (html): Solving the Freight Rail Transportation Bottleneck
This Heartland Policy Study by transportation expert Wendell Cox describes how to prevent a freight rail bottleneck in the U.S. Benefits from expanding rail’s share of total freight shipping include higher productivity growth, lower prices for shippers and consumers, and less highway congestion. A market approach to reform would enable freight rail to maintain its current market share, while a public approach would expand rail’s share of the freight market. Cox reviews 11 reform techniques and approves six of them.
1. Freight rail is an important part of the U.S. transportation system.
Railroads are often thought of as a transport of the past, yet freight rail systems in the U.S. carry more volume (measured in ton miles) than any other freight mode, and more than ever before. (See Figure 1.) Freight rail has several advantages over trucks and other competing modes of moving freight:
- Freight rail typically costs one-third as much as trucks to move the same commodities.
- Freight rail is three times as energy efficient as trucks per ton mile and emits one-third as much nitrogen oxide.
- Increasing rail’s share of the freight market would reduce congestion on highways, which improves productivity and shortens commuting time.
2. The freight capacity of railroads and highways needs to be increased.
Freight rail ton miles are expected to increase 47 percent from 2000 to 2020. However, it will be challenging for the railroad industry to finance the expansion necessary to accommodate this growth. The capacity situation is even more dire for the trucking industry.
- Freight train average operating speeds dropped from 24 miles per hour in 1990 to 21 miles per hour in 2000, suggesting the system is nearing capacity.
- Trucks already are impeded by serious traffic congestion problems in many urban areas and intense congestion at freight bottlenecks on the roadway system.
- From 1983 to 2005, average peak-hour delays in the largest urban areas increased 285 percent while freeway lane miles increased 50 percent, less than one-fifth as rapidly. (See Figure 2.)
- Texas Transportation Institute data indicate annual congestion costs rose from $6 billion in 1982 to $60 billion in 2003 (in 2003 dollars).
3. Expanding freight rail’s market share would produce large social benefits.
With sufficient funding, the railroad industry could add the capacity it needs to handle much larger freight volumes. This would reduce congestion and bottlenecks on highways by reducing the need to use trucks on longer routes. Commuters would benefit from shorter drive times, and there could even be environmental and other benefits.
- According to the American Association of State Highway and Transportation Officials, $30 billion in additional investment would save $839 billion in costs to highway users and shippers and in highway investment costs, a benefit-to-cost ratio of more than 25 to 1. Another $30 billion in investment would yield a further $653 billion in benefits, for a benefit-to-cost ratio of 22 to 1.
- The Texas Governor’s Business Council estimated the economic benefits from reducing congestion over the next 25 years in Texas urban areas would be eight times the cost of roadway expansion.
4. Current public policies discourage investment in freight rail.
According to the Association of American Railroads, railroads are investing $2 billion a year less in capital than is required to maintain their current market share. This is due in part to public policies:
- Federal laws require freight railroads to grant Amtrak passenger trains priority over freight trains throughout their systems. As a result, along most of the mileage used by Amtrak, freight trains must routinely be stopped on sidings to allow passenger trains to pass, making freight rail service less reliable, and therefore less competitive with trucking.
- Federal law also prevents railroads from charging Amtrak the fully allocated costs for its use of the rail infrastructure. Thus, freight rail is forced to subsidize passenger trains.
- The way transportation infrastructure is financed gives a major advantage to trucks over trains. Railroads bear the entire cost of building and maintaining tracks, whereas the cost of building and maintaining the roads used by trucks is shared with the owners and drivers of cars and buses via motor fuel taxes. Also, highways are financed on a “pay as you go basis,” with no interest payments for debt.
5. Four principles should guide freight transportation policy reform.
To avoid a freight rail reform plan becoming just another failed attempt at central planning or unearned subsidies for special interest groups, reform efforts ought to adhere to four principles:
- Principle 1: Rely on market forces. The most fundamental principle is that railroads must be allowed to operate as private businesses, with no more regulatory control than is required by the public purpose.
- Principle 2: Reduce existing barriers to new investment. Before approving any new laws or taxes, policymakers should first remove existing government policies and programs that interfere with market processes that would otherwise bring market and public objectives into balance.
- Principle 3: Limit political interference. Freight railroads are unlikely to contribute substantially more to freight reliability if public strategies are subject to interference by politics in Washington. Mechanisms, such as independent audits, can be used to limit the influence of politics.
- Principle 4: Be consistent with both objectives. Acceptable reforms should be consistent with the twin objectives of ensuring that the railroad industry can make sufficient infrastructure investments to maintain its present market share, and then to go beyond that level to make infrastructure investments that produce social benefits associated with reduced congestion on roads.
6. Reform proposals scored by their consistency with the principles.
Eleven techniques are most often proposed to improve the ability of freight railroads to handle additional traffic. Table 1 scores them according to whether they are generally consistent with the four principles set forth earlier.
Evaluation of Reform Techniques
Relies Principally on Markets
Reduces Barriers to Investment
Limits Political Interference
Consistent with Objectives
|1. Enhance commercial revenues||Yes||Yes||Yes||Yes|
|2. Investment tax credits||Yes||Yes||Yes||Yes|
|3. Accelerated depreciation allowances||Yes||Yes||Yes||Yes|
|4. Tax-exempt bonds||Yes||Yes||Yes||Yes|
|5. Public-private partnerships||Yes||Yes||Yes||Yes|
|6. Government loan guarantees||Yes||Yes||No||Yes|
|7. Railroad Trust Fund||No||No||No||No|
|8. Government capital grants||No||No||No||No|
|9. Operating and capital subsidies||No||No||No||No|
|10. Passenger and freight assistance||No||No||No||No|
|11. Government ownership of infrastructure||No||No||No||No|
The five techniques that generally comply with our reform principles are increasing commercial revenues, investment tax credits, accelerated depreciation allowances, tax-exempt bonds, and expanding public-private partnerships. Government loan guarantees should be considered only if a way is found to prevent political interference.
7. Recommended reforms
Freight transportation reform should take two approaches: a market approach to ensure conditions in which the railroad industry can make sufficient infrastructure investments to maintain its present market share, and a public approach to increase freight rail’s market share beyond what market forces alone might bring about. The market approach should consist of the following reforms:
- Remove the requirement that Amtrak trains be given priority over freight trains;
- Allow railroads to charge Amtrak the fully allocated costs for its use of rail infrastructure;
- Allow any expansion of rail passenger service on freight rail infrastructure only upon an administrative law finding that the additional passenger trains will have no detrimental impact on the competitiveness of the freight railroad system or the corridor involved; and
- Grant railroads investment tax credits and accelerated depreciation allowances for their choice of infrastructure improvements.
The public approach should consist of the following reforms:
- Create an independent Strategic Rail Enhancement Plan (SREP) Design Commission to identify cost-effective opportunities for increasing railroad capacity and removing intermodal bottlenecks;
- Federally charter a Strategic Rail Enhancement Corporation (SREC) to seek competitive bids on the highest-priority projects from potential project sponsors; and
- Use tax incentives, tax-exempt bonds, more robust public-private partnerships, and government loans to the winning bidders.
Unless action is taken soon, freight rail bottlenecks will cause shippers and consumers to pay higher prices, causing business productivity to fall and more congestion on the nation’s highway system to impose billions of dollars of losses on commuters and consumers.
The capacity and reliability of the nation’s freight system can be improved by changing public policies to direct more capital to expanding freight rail infrastructure at key bottleneck sites around the country. This report shows how the nation’s freight rail bottleneck can be solved without unfairly or unduly burdening taxpayers.
Based on Wendell Cox, “Solving the Freight Rail Transportation Bottleneck,” Heartland Policy Study #114 (Chicago, IL: The Heartland Institute, November 2007). Copies of the 38-page study are available for $10 each. Permission is granted to reprint or quote from this Executive Summary, provided appropriate credit is given.
© 2007 The Heartland Institute. Nothing in this Heartland Executive Summary should be construed as reflecting the views of The Heartland Institute, nor as an attempt to aid or hinder the passage of legislation. Questions? Contact The Heartland Institute, 19 South LaSalle Street #903, Chicago, IL 60603; phone 312/377-4000; fax 312/377-5000; email firstname.lastname@example.org; Web http://www.heartland.org.