By William C. Vantuono, Editor
One of the best ways to compare the performance of the railroads against the economy is to examine some of the data that economists—those people that practice “the dismal science”—crunch for a living.
The Association of American Railroads Policy & Economics Department now makes much of this information readily available monthly on its website (www.aar.org) through Rail Time Indicators, described as “a non-technical summary of many of the key economic indicators potentially of interest to U.S. freight railroads.”
One indicator is of particular significance, and we offer examples in the charts at right. This is the Purchasing Managers Index (PMI), released by the Institute for Supply Management (ISM, formerly the National Association of Purchasing Managers).
The PMI, says AAR, “is a compilation of data on new orders, inventory, production, supplier deliveries, and employment, based on a survey of several hundred supply managers at manufacturers throughout the U.S. It is considered a key indicator both of actual ‘on-the-ground’ conditions as well as sentiment for what the near- to medium-term will hold.”
A PMI greater than 50 indicates that overall manufacturing is expanding. AAR points out that the PMI in July 2009 was up to 48.9 from 44.8 in June—the seventh straight monthly increase and the highest since August 2008. The “new orders” component of the PMI rose to 55.3 in July 2009 from 49.2 in June 2009. That’s the highest it has been since August 2007.
“Of all the economic indicators tracked in this report, right now the PMI might be the most optimistic,” AAR notes. “It’s now about at the level it was for much of 2007 and 2008. As such, it might be accurately foretelling a brisk upcoming turnaround—or it might be an unreliable outlier signifying nothing.”
(Of course, we all know it’s the former—right?)
Quoting ISM: “The . . . more leading components of the PMI—the New Orders and Production Indexes—rose significantly above 50%, thus setting an expectation for future growth in the sector. . . . Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue.”
What’s the PMI’s correlation to freight rail traffic? Says AAR: “Since January 2005, the PMI has corresponded reasonably closely with the following month’s rail carloads, excluding coal and grain. (Due to seasonality issues such as harvests, the role of exports, and other factors, carloads of coal and grain are more volatile and less closely tied to manufacturing than other commodity categories. And since the PMI focuses on manufacturing, it makes sense to exclude coal and grain when comparing rail traffic to it.) This close relationship has not always held in the past and may not hold in future. If it does continue to hold, rail carloads should swing more strongly upward to match the big recent increases in the PMI.”
Not too dismal, eh?
Russia. China. Japan. France. Britain. Belgium. Germany. Spain. Italy. Taiwan. South Korea. The first two countries are the newest additions to the high speed rail club, which many in the U.S. have been wanting to join. Yes, we’ve got our own version of a high speed train, Amtrak’s Acela Express. But compared to the 200-mph-plus trains that rocket across other corners of the globe, our present service is, well, a beginning.
“The United States is a developing country in terms of rail,” Siemens Transportation Systems senior official Ansgar Brockmeyer told The New York Times last month, while riding Russia’s first true high speed train, the Sapsan. Developing country? Us, the United States of America, the nation that went, in the space of about a decade, from catapulting one astronaut into a 15-minute suborbital flight on top of a modified ballistic missile to landing 12 of them on the moon using purpose-built spacecraft during six missions and returning them safely to the earth?
I well remember the days, in the 1990s, when the major suppliers of high speed technology—Siemens, Alstom, Bombardier, and a few other companies that have since been absorbed by the “Big Three”—began declaring that high speed rail was dead here. With the exception of Acela, there was nothing to show for their time, efforts, and money except a trail of canceled projects, political opposition (or worse, apathy), and broken dreams. Opportunity lay elsewhere, they said, and they were right (see first paragraph).
But opportunity knocks once again in our third-world-of-passenger-rail nation. (Remember, we have the world’s finest freight rail system.) I’m sure the Big Three, and a few other potential players, haven’t forgotten the good old days of high hopes and nothing else, but I get the impression that this time, it’s serious business. The President of the United States is dangling an $8 billion high speed carrot, and while it won’t buy much more than a handful of upgraded freight rail corridors handling passenger trains not much faster than 110 mph, it’s a start.
High speed rail in the U.S.? I used to say, with a touch of sarcasm, “Not in my lifetime.” Perhaps I was wrong. I’d love to be wrong.
By William C. Vantuono, Editor
The Federal Railroad Administration is now evaluating a tall stack of applications for high speed passenger rail projects—roughly $100 billion worth for an $8 billion ARRA (American Recovery and Reinvestment Act of 2009) grant program. Federal Railroad Administrator Joseph Szabo, based on his staff’s recommendations, will be the one to sign off on which projects are funded, and for how much. Given that demand far exceeds supply, he’s going to have to make some tough choices.
The selection process, says FRA, is “merit-based,” an approach Administrator Szabo reiterated during his luncheon address at Railway Age’s “Passenger Trains on Freight Railroads” conference last month. It’s in official documents, as well. From the Federal Register: “The evaluation and selection criteria are intended to prioritize projects that deliver transportation, economic recovery, and other public benefits, including energy independence, environmental quality, and livable communities; ensure project success through effective project management, financial planning, and stakeholder commitments; and emphasize a balanced approach to project types, locations, innovation, and timing.”
The selection process, as published in the FRA’s High Speed Rail Strategic Plan and in the Federal Register, spells out the requirements. A given project either meets the criteria, or it doesn’t. So it follows that the selection process is fairly cut and dried.
Or is it?
Let’s assume two things. First, Administrator Szabo has every intention of sticking to the letter of the law, and to the intent of the program, by awarding project grants based on merit. Second, any program involving government dollars is going to involve politics. That’s just the way it is. Anyone who doesn’t believe this needs a serious reality check.
In the case of HSR—actually, “HrSR” (“higher speed” rail, incremental improvements to existing freight rail corridors to enable 90-125 mph passenger trains)—the political game-playing will mostly come from the states. Case in point: A project in one Midwest state, we’re told, does not meet all the FRA’s criteria, in terms of project management, environmental and ridership studies, financial plan, technical score, etc. The state agency in charge of submitting the grant application asked the FRA for guidance. The FRA basically said, “You don’t meet the criteria; don’t submit the application.” We’re told, however, that this state’s Republican governor ordered the agency to submit the application anyway. Why? Because if it’s rejected, the governor can go to his constituents and claim that the Democrats running Washington won’t give his state the funds for a project that will create jobs.
Partisan politics as usual? Of course. Did you expect anything different?
Another disturbing thought: Will states that are worse off economically (i.e., high unemployment level) have their projects approved over those from other, less-beleaguered states, even if their applications don’t fully meet the FRA’s criteria? Put another way, will there be pressure from the White House to make exceptions for political reasons, thereby funneling money away from projects that are more deserving?
We’re not saying that one project may be better than another, and we have no firm evidence to suggest that the process will be tainted by political considerations. But there are examples of this happening with projects of national interest or significance.
Recall that, following President John F. Kennedy’s bold directive in 1961 that the United States land a man on the moon and return him safely to the earth by 1969, NASA built its massive Mission Control facility outside of Houston, Tex.—900 miles away from Cape Canaveral, Fla., where the Apollo spacecraft were assembled and launched. Why? Because Vice President Lyndon Johnson, whom Kennedy placed in charge of the space program, wanted the facility in his home state. Talk about bringing home the bacon!
President Obama has said the $8 billion grant program is a “down payment” on HSR. Let’s hope the down payment isn’t on a sub-prime railroad.
Comments? Email me at firstname.lastname@example.org.
So, it looks like we’re going to have at least some form of high speed rail in this country, after all these years. Some of my European and Canadian supplier colleagues—you know, the people who build those really fast passenger trains, and who have been banging their heads against the wall for a very long time—are still pinching themselves. No, you don’t have to wake up. You’re not dreaming.
In October, when introducing the keynote speaker at Railway Age’s 16th “Passenger Trains on Freight Railroads” Conference in Washington, D.C., I looked out over a sea of about 180 people—nearly 50% more than what our conference usually draws. What recession? There’s opportunity to be grasped!
But how much? Are the freight railroads on board? After all, it’s their tracks these “higher speed” passenger trains will be using, with significant improvements, of course.
BNSF chief executive Matt Rose (left), our keynoter, and one of the driving forces behind the industry’s OneRail Coalition, effectively spoke for the freight rail industry when he said that BNSF does indeed support higher speed passenger services. BNSF, he said, “is proud of its relationship” with the passenger services it either hosts or operates, and believes that new and expanded passenger rail, including high speed, is essential for economic, mobility, safety, and environmental reasons.
Great. So, how far will $8 billion go?
No amount of money will go very far if it’s not spent wisely, Rose said. Carefully targeted investments in our national freight rail infrastructure will be absolutely needed if higher speed passenger rail services are to be realized.
“It all comes down to the money,” Rose stressed. “If it’s not spent effectively, there is more risk of doing damage than the opportunity to help. We must invest at levels that will make rail better than the best alternative.”
In particular, Rose referred to Positive Train Control, which at present represents a $10 billion price tag for the federally mandated implementation, by 2015, of PTC on shared-use and hazmat-traffic rights-of-way. He said that the requirement, essentially an unfunded mandate, could siphon capital funding away from other capital investments in the railroads’ infrastructure.
The real foundation of railroad safety, Rose said, is “good ties, track, and ballast,” investment in which has typically produced a good return. The ROIC (return on invested capital) for PTC remains to be seen, but it’s generally believed to be about $600 million, based on a $10 billion investment.
That’s not a very favorable return.
Should the feds shoulder much of the cost of PTC on freight lines hosting passenger trains? Yes, if it means that hard-earned capital dollars are going to be siphoned away from track, ties, ballast, new locomotives, new freight cars—all those things our railroads need to stay viable and keep growing, and which private investment dollars pay for.
Make no mistake: The industry, as Rose stated, will meet the PTC mandate by 2015. (Well, it is the law.) But there is good reason to be concerned. Let’s hope that those making the decisions and doling out the dollars on Capitol Hill have enough foresight to realize that our freight rail system must remain healthy and strong. If it doesn’t, you may as well forget about those fast passenger trains.
Let me make this perfectly clear: Warren Buffett is not Snehal Amin. (Remember him? He’s the hedge fund honcho who tried, and failed, to hijack CSX.) Warren Buffett understands railroads. Warren Buffett likes railroads.
If Warren Buffett can be compared to any railroad tycoon from yesteryear, it would be James J. Hill, the Empire Builder (bottom). Hill built what is today much of the northernmost portion of BNSF’s 27,000-mile system. He is said to have been ambitious but not ruthless, an idealist blessed with an incredible business savvy. He also is said to have possessed a great sense of purpose, a desire to create something with great social as well as economic value. Oh sure, Hill made a bundle pushing the Great Northern westward, bringing the Northern Pacific and Spokane, Portland & Seattle into his railroad portfolio, but who would have denied him his riches?
The modest Mr. Buffett, on those rare occasions when he grants an interview, is refreshingly down to Earth, and knowledgeable about what he chooses to invest in. If anybody actually deserves to own a railroad lock, stock, and barrel, it’s Buffett. If anybody actually deserves to be fabulously rich, it’s Buffett.
Buffett spoke at length about BNSF and the railroad industry with PBS’s Charlie Rose (no relation to Matt), who does not practice MTV-style journalism or scream in your face. Read on:
• “I felt it was an opportunity to buy a business that is going to be around for 100 or 200 years, that’s interwoven with the American economy in a way that if the American economy prospers, the business will prosper. It is the most efficient way of moving goods in the country. It is the most environmentally friendly way of moving goods, and both those things are going to be very important. But the biggest thing is [that] the United States is going to do well. I mean, we can’t move the railroad to China or India.”
• “You spend money in this business regularly every day. You’re spending a lot of money to repair track, add rolling stock, whatever it may be. So . . . it will continue to be capital-intensive and regulated. . . . [I]f we get a reasonable return on the added capital investment—because it will take added capital investment—we’ll do OK. A reasonable return is good. . . . We’re building things that are essential to society, and people need our services. . . . And we should get a decent return on that—enough to encourage us to keep putting money into the business, but we’re not entitled to spectacular returns.”
• “We will wean ourselves off coal over time, [but] we can’t change the 40% of electricity generation that comes from coal next week or next month or next year. There will be more grain to move, and there will be more [freight] of all kinds . . . whatever it may be. There will be more things moving around this country 10 or 20 or 30 years from now.”
This isn’t Wall Street talking. Contributing Editor Larry Kaufman has a lot more to say about that in our cover story.
What may Buffett be thinking about, long-term? Think electric power generation—wind farms—transmission line rights-of-way—railroad rights of way—inexpensive electrification—electric locomotives—improved railroad efficiency and lower costs. Maybe even high speed trains.
Get the picture? It’s not too far-fetched.
By the way, in case you’re wondering why Buffett sold all his shares in Union Pacific and Norfolk Southern: “I’ve done that just to facilitate the [BNSF] transaction. I think they’re good investments, and I would have held them if [the BNSF transaction] hadn’t happened.” And oh yes, he does have a model railway in his attic: “I hope they don’t make me sell it for antitrust reasons.”
Happy Holidays. Prosperity, good health, and an excellent safety record in 2010.
At 50, Matt Rose, Railway Age’s 2010 Railroader of the Year, is among the youngest of our industry’s top echelon.
Rose (left, with me in his Fort Worth, Tex., office) has two advantages. First, he joined our industry at a critical point in its history, around the time the Staggers Rail Act was passed. He had a chance early on to work under the experienced guidance of several highly regarded veterans, and learn from them. Second, he’s young enough to have many years to go—and a chance to help determine our industry’s direction, to nurture its growth, to provide guidance, to influence public opinion. Thanks to the dedication of Matt Rose and others, there’s a growing recognition that this old “smokestack industry” of ours truly represents the future of transportation, and is key to America’s economic stability and growth.
Just ask Warren Buffett.
Rose has great respect for his predecessors, as he told me for our cover story: Upon his elevation to chief executive, “The first thing I did was spend time going around and seeing some of the former executives of the Burlington Northern and the Santa Fe, because they were a fairly large group. I commissioned Larry Kaufman to go out and do video interviews, which resulted in a book that he wrote about the past leadership of BNSF. (Leaders Count: The Story of the BNSF Railway, by Lawrence H Kaufman. Texas A&M University Press, 2005.) I got a glimpse into people like Dick Bressler and Bob Downey. I met Ben Biaggini, and of course I had worked under Rob Krebs. And so I had a lot of different glimpses into the leadership of railroads past.”
To paraphrase John F. Kennedy, let the word go forth from this time and place, to friend and foe alike, that the torch has been passed to a new generation of railroaders—hired post-Staggers, tempered by mergers and cost cutting, disciplined by a committment to safety, proud of their heritage—and unwilling to witness or permit the undoing of their ability to invest growth capital, to which this industry has always been committed.
An eight-year high: Railway Age’s annual survey of the passenger railcar market (p. 48) shows that 1,141 new cars valued at nearly $2 billion were delivered to passenger train operators in the U.S. and Canada in 2009, the highest number since 2001’s 1,332. On Dec. 31, 2009, builders had a backlog of 2,580 new cars on order and undelivered. The operating agencies told us that they plan to place orders in 2010 for an additional 1,382 cars. New railcar deliveries last year were nearly double the 596 cars delivered in 2008. In addition to new cars, manufacturers and company shops delivered 677 rebuilt cars in 2009.
Examine our tables, and you get a picture of a vibrant, growing passenger rail industry. There’s been a dramatic turnaround, and it’s picking up steam. We began our annual survey many years ago, after the production of passenger railcars reached such a low point that the American Railway Car Institute stopped counting them. Today, the monetary value of the passenger railcar market is approaching that of the freight car market—and may well surpass it next year.
While Florida and California’s high speed rail projects are getting the most attention in the media (probably because 200-mph passenger trains are considered a whole lot more exciting than those that operate at “only” 90 or 110 mph), they’re actually receiving less than half of the $8 billion under President Obama’s HSR iniative.
Yes, $3.5 billion is $3.5 billlion more than we’ve ever had for “true” high speed, but it represents a fraction of the cost of a full buildout for either project.
Who’s going to benefit from the remaining $4.5 billion (and probably a substantial portion of whatever additional funding may be available for high speed)?
Yes, you heard me right—Amtrak. The $4.5 billion has been awarded to state projects, most notably in the Chicago hub, and it supports incremental improvements to current or planned Amtrak services—creation of HrSR (higher speed rail, an acronym we should get comfortable using). The Northeast Corridor and its feeder routes benefit as well, with $500 million awarded for state-led improvements.
As expected, the grumbling has already started. As Managing Editor Doug Bowen points out, “Not content with his own state’s triumph, Florida Rep. John Mica took time to publicly disparage FRA funds of $1.1 billion bestowed to upgrade Chicago-St. Louis service to 110 mph. But other observers found the route, part of an eight-state plan advanced for the Chicago Hub, a good fit for HrSR opportunity, potentially reducing travel times between the two Midwest cities by up to two hours, compared with current schedules of 5½ hours or more. Less noticeably, the Chicago Hub also received $244 million to upgrade Amtrak’s Detroit-Chicago service.”
Add to all this Amtrak’s Cascades Corridor, which scored $598 million because Washington State’s DOT presented a strong case for incremental improvements linking Portland, Ore., with Vancouver, B.C., via Seattle; Wisconsin, $822 million, to improve service between Chicago and Milwaukee and extend it to Madison; North Carolina, $520 million, to upgrade the Piedmont route to 90 mph operation; and Ohio, $400 million, for the Cleveland-Columbus-Cincinnati (3C) Corridor.
True (“very”) high speed rail is long overdue. But as far what will be up and running first, I’m putting my money on HrSR, and Amtrak.
Plug and play locomotive: Norfolk Southern’s prototype battery-powered switcher locomotive, developed by the railroad’s Research & Test group, has been getting high marks. Vice President Operations and Planning Support Gerhard Thelen described No. 999 (pictured) as “very quiet and responsive,” with power “available immediately” and “evidence of better adhesion than a GP38.” Equipped with 1,080 12-volt AGM (absorbent glass mat) batteries, 999 can operate three shifts in a 24-hour period before needing recharging, which only takes two hours before she’s fully juiced and ready to roll again.
What’s next? A road version of this zero-emissions unit that will use regenerative dynamic braking to recharge the batteries, coupled to a conventional booster road unit that will supply extra power for starting a train. Impressive!
By William C. Vantuono,
Michael Ward’s reputation as
a highly effective railroad manager is eminently well deserved as the cover
story of our March 2010 illustrates. “As a company, we’ve done a great job at
responding to this downturn, and we’re going to be ready when the economy
comes back,” he told me in late January. “We’ve got the resources, and we can
deploy them relatively rapidly.”
There are many ways to
measure a railroad’s progress. The stock price is one of them. One year after
U.S. Class I stocks reached their lowest point, we took a look at how they have been doing. The
Big Four had more than doubled in value. CSX was leading the way—up 135%.
Union Pacific grew 104%; BNSF and Norfolk Southern, 100%. Quite an
One thing that the best
managers cannot control is legislation that could drastically affect their
company’s future value to shareholders. I became acutely aware of this while
attending the railroad industry’s annual march on Washington, Railroad Day on
the Hill. The organization and planning that go into this event is
monumental, and I’m sure that it has some sort of impact.
Just how much impact—on a
government mired in partisan gridlock and filled with politicians more
interested in payback than progress—remains to be seen.
“Congress is a reactive body,
not a proactive one. It talks in sound bytes. Most Congressmen and Senators
are more concerned with how they spin an issue, rather than how they plan to
deal with it.” Who said that? A railroader? No. A journalist? No. Then who?
A special assistant to Sen.
Charles Grassley (R-Iowa). Need I say more?
How about this exchange: Sen.
James Inhofe (R-Okla.) was the only Senator who actually was present at one
of five meetings in which I participated. We explained the issues of concern
to the railroads. He listened politely, but overall seemed rather bored. As
we were taking our leave, I jokingly remarked, “Well, Senator, it looks like
we’re going to get a whole lot more snow in the Northeast than you get in
Inhofe promptly woke up, and
climbed on his imaginary soapbox: “After seven years, I’ve won my battle with
Al Gore! He’s been proven wrong! Global warming caused by greenhouse gas
emissions is the greatest hoax ever perpetrated on the American people! THERE
WILL BE NO CARBON CAP AND TRADE LEGISLATION! I GUARANTEE IT!”
Thank you for sharing that,
Senator. Excuse me, but I need to find the men’s room (I didn’t actually say
To be fair, Sen. Frank
Lautenberg (D-N.J.), who usually makes it a point to be present at Railroad
Day on the Hill meetings (especially for a delegation from New Jersey), was undergoing chemotherapy that day. His Senior Policy Advisor,
David Garten, was very supportive, and said what I thought was the most
encouraging statement I heard: “We will not support any legislation that
hurts the railroad industry.”
Sen. Rockefeller, are you
listening to your Commerce, Science, and Transportation Committee colleague (and
As the AAR’s Ed Hamberger
has observed, the industry now needs to go back to Congress and keep pounding
away at the issues. Railway Age will do its part. Next month, we’ll have a
special feature on the AAR’s “Great Expectations: Railroads and U.S. Economic
Recovery” report. Our working title is a similar take on Charles Dickens: “Great Expectations; Hard Times.”
Gas taxes aren’t the only way
to fund public transportation programs, but it’s the route the State of New
Jersey has taken, and up until now it’s worked pretty well. The state’s
gas-tax-supported Transportation Trust Fund (TTF) is largely responsible for
some of the most ambitious transit programs undertaken anywhere. Without it,
where would New Jersey be?
The state is about to find
out. As of 2011, the TTF will be bankrupt, with all revenue going toward debt
service. Former Governor Jon Corzine temporarly averted a crisis a few years
ago by restructuring the debt. Now, however, it may be time to face the
music, and it’s not a pretty tune.
Despite the fact that New
Jersey has the nation’s third-lowest gas tax-—a tax that hasn’t been raised
since 1988 (which may be attributable in large part to the state’s heavy
investment in public transportation)—the new administration of Governor Chris
Christie is adopting that familiar old political refrain: “Tax-and-spend
isn’t the way to go.”
What? Does this really make
any sense in a state that has
been successfully taxing gasoline to pay for its transportation system?
New Jersey is faced with
other problems, like a $300 million operating shortfall at New Jersey
Transit. Like many North American transit agencies, NJT says it can handle
that with service reductions and fare increases. But NJT is also considering,
as Executive Director Jim Weinstein told me, delaying other important capital
programs. Fortunately, one of them isn’t the new Trans-Hudson Express Tunnel
(p. 38), a joint venture of NJT and the Port of Authority of New York & New Jersey.
What about other critical
capital programs? NJDOT Commissioner Jim Simpson (FTA Administrator under
George W. Bush) told me that a gas tax increase is a “non-starter, off the
table.” He also told me that “the state has a spending problem first when it
comes to transportation infrastructure,” “there’s too much politics involved
in infrastructure spending,” “if we doubled the gas tax we’d still have the
same problem,” “we have to re-examine the entire capital program,” which the
prior administration “bonded the heck out of,” and “we have to rein in
I’m sure that’s exactly what
the people of New Jersey want to hear.
Sorry fellas, but it probably
ain’t gonna work. How many times can you refinance debt? How are you supposed
to maintain and expand your rail network, or fix your crumbling highways and
bridges? Who’s supposed to pay for this? The federal government?
Yes—partially, at least.
Simpson said SAFETEA-LU reauthorization should include “a new-starts
megafund” and “more ability to flex highway funds over to transit.” A
Republican appointee, he praised the Obama Administration for loosening some
of the guidelines on federal funding, and the ability for states to flex
money. He recommended public-private partnerships and
design-build-operate-maintain projects—both good ideas—as a way to finance
capital projects. NJT already has two very successful DBOMs, Hudson-Bergen
Light Rail and the RiverLINE diesel interurban. He also said there are “too
many federal programs. There should be just two categories, transit and
Based on his experience at
FTA, Simpson said the FRA and FTA, to eliminate duplication, should be merged
into a single agency called the Federal Railroad and Transit Administration
(FRATA—sounds like a Starbucks drink). This agency would handle safety
regulations and grant programs.
These are all good ideas, but
the ones dealing with state transportation funding problems seem like a way
to avoid the obvious, simplest solution: Raise the gas tax to where it needs
to be. People may scream and yell that they shouldn’t be taxed for something
they don’t use (“I don’t take the train. Why should I pay for it? I don’t
have kids in public school. Why should I pay school taxes?”).
You may lose the next
election, but at least you’ve done what’s neccesary for the greater good of
your constituents. Isn’t that what being a public servant is all about?
Am I being disingenuous?
Most people hate the word
“tax.” It’s un-American, dammit! It’s one reason why we threw all that tea
into Boston Harbor and sent King George III packing. Perhaps “gas tax” is a
poor choice of words. Maybe it should be called a “transportation investment contribution.”
In any case, how much money
are we talking about? Ten cents a gallon extra? I’m already paying close to
$3.00 a gallon for premium. What’s another 10 cents—about $1.50 every time I
fill up? What will I have to give up? Half a Grandé FRATA at Starbucks?
So, you drive to work? Why
should you pay for my commuter train, you say? Here’s why: I’m not forced to
drive, thereby freeing up valuable highway space that your car could be
using. Yes, by you forking over that extra 10 cents a gallon, I won’t be
staring into your rearview mirror in bumper-to-bumper traffic.
China is well ahead of the United States in high speed rail, with
plans to invest nearly half a trillion (that’s trillion with a “t”)
dollars through 2012 on a national network of rail lines, most of which
would be dedicated (“true” or “very”) high speed lines with passenger
trains operating at speeds up to 220 mph. Some 1,200 miles of HSR will
open this year alone, at a cost of $50 billion. The country’s
longer-term plans call for high speed routes expanding beyond China’s
borders, linking Shanghai to Singapore and New Delhi and connecting
Beijing and Shanghai to Moscow, Tehran, Prague, and Berlin. The Beijing
to Shanghai system will be finished by early 2012, cutting travel time
to four hours from 10 (pictured, a Chinese high speed train on the
Zhengzhou-Xi’an line). By comparison, traveling by Amtrak from New York
to Chicago on the Lake Shore Limited, a similar distance (about
1,000 miles), takes about 20 hours.
Now, following the Obama Administration’s $8
billion in starter funds for U.S. HSR systems, the Chinese want to leap
across the Pacific and export and license their HSR expertise to the
U.S., supplying technology, rolling stock, engineers—and financing.
They’re attempting a jumpstart in California, where in the 19th
century the Union Pacific hired thousands of Chinese laborers to build
westward the nation’s first transcontinental railroad. The Golden Spike
ceremony of 1869 at Promontory Summit, Utah, is a long time and distance
away from San Francisco and Los Angeles, but those two cities,
separated by 465 miles, represent an initial, $43 billion HSR link in a
statewide system envisioned by the California Rail Authority. The
Authority,which received $2.25 billion in federal HSR grant funds, needs
up to $12 billion in private financing for this project, and the
Chinese Ministry of Railways has taken a first step, signing cooperation
agreements with the State of California and General Electric.
The MOR’s deal with GE is described as a framework agreement to license
MOR technology. GE says the agreement stipulates that 80% of the content
of locomotives and related control systems would have to be sourced
from U.S. suppliers, with final assembly occurring in the U.S. The MOR
would license its technology and supply engineers as well as up to 20%
of the components. This agreement is similar to those that rolling stock
suppliers to the domestic rail transit market like Siemens, Alstom,
Bombardier, Kawasaki, and Hyundai-Rotem have with U.S. transit agencies.
Described by a World Bank transportation specialist as “engineering
driven— they know how to build fast, build cheaply, and do a good job,”
the Chinese Ministry of Railways says it is “the most advanced in many
fields ... willing to share with the United States.” In an extensive
interview with The New York Times, Chinese MOR HSR program chief Zheng
Jian said his agency “can provide whatever services are needed. ... HSR
requires a lot of high technology—we would send many high-end engineers
and high-end technicians.”
The State of California seems highly interested in China’s plans, but at
the same time the HSR Authority is looking at other proposals from the
railways and suppliers of Japan, Germany, South Korea, Spain, France,
and Italy. In these cases, the railways are closely aligned with
suppliers—for example, SNCF/Alstom/SYSTRA; Deutsche Bahn/Siemens; or
But besides domestic content requirements, any effort the Chinese
attempt to make in U.S. HSR will be filled with requirements and
obstacles they don’t have to deal with in China: elected politicians,
labor unions, U.S. Immigration,
EPA, OSHA, ADA, etc., etc. Aside from exporting goods on container
ships, the Chinese have virtually no experience dealing with U.S.
regulatory and political bodies. By contrast, railway suppliers like
Bombardier, Siemens, Alstom, Talgo, and Ansaldo already have years of
U.S. experience behind them. According to The Times, “Zheng said
repeatedly that any Chinese bid would comply with all American laws and
Easier said than done.
Then there is the issue of intellectual property. Zehn indicated that
all of the HSR technology would be Chinese, but according to The Times,
“State-owned Chinese equipment manufacturers initially licensed many of
their designs over the last decade from Japan, Germany, and France.
While Chinese companies have gone on to make many changes and
innovations, Japanese executives in particular have grumbled that
Chinese technology resembles theirs, raising the possibility of legal
challenges if any patents have been violated.” There is some precedent,
as this is similar to a scenario the U.S. freight rail supply community
has dealt with in the past. For example, several domestic suppliers have
grumbled to Railway Age that, after licensing agreements
expired, Chinese suppliers continued manufacturing patented,
U.S.-design, AAR-approved freight car components without permission.
China is well-stocked with capital and appears ready to bring it to the
U.S. HSR table. According to The Times, “China’s mostlystate-controlled
banks had few losses during the global financial crisis andare awash
with cash now because of tight regulation and a fast-growing economy.The
Chinese government is also becoming disenchanted with bonds and looking
to diversify its $2.4 trillion in foreign reserves by investing in
areas like natural resources and overseas rail projects. [The MOR] has
already begun building HSR in Turkey, Venezuela, and Saudi Arabia, and
is looking for opportunities in seven other countries, notably a route
sought by the Brazilian government between São Paulo and Rio de
Interestingly, an automobile assembly plant that until late last week
turned out Japanese and American cars—the General Motors/Toyota NUMMI
(New United Motor Manufacturing Inc.) joint venture in Fremont, Calif.,
which produced the Toyota Matrix/Pontiac Vibe sport-compacts plus other
Toyota models—is shutting down after 25 years, eliminating nearly 5,000
jobs. One idea under consideration is converting the factory to the
assembly of HSR equipment, according to California HSR Authority Board
Member David Crane, who is also a member of the state’s Economic
Development Commission. Instead of Japanese auto parts, Chinese-sourced
rail equipment components would arrive through thenearby Port of
Regardless of how the Chinese interest in U.S. HSR pans out, swapping
automobiles for high speed trains is something the State of California
and the Obama Administration would love to see happen.