With Railway Age since 1992, Bill Vantuono has broadened and deepened the magazine's coverage of the technological revolution that is so swiftly changing the industry. He has also strengthened Railway Age's leadership position in industry affairs with the conferences he conducts on operating passenger trains on freight railroads and communications-based train control.
By Jerry Vest
Almost 20 years ago, federal surface transportation policy changed for the better. Enactment of the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) meant the days of Congress simply passing a “highway bill” were over. Since then, Congress has expanded the multimodal focus of surface transportation public policy. An integrated approach allows for better policy decisions through the reauthorization process, with each mode recognized for its own strengths and role in ground transportation.With the most recent surface transportation bill, SAFETEA-LU, up for renewal, discussions include the national limits on truck sizes and weights. This issue could have a dramatic and possibly unintended impact on the future health of ground transportation in the U.S. A handful of trucking companies and freight shippers are seeking to include in reauthorization higher federal highway truck weight and size limits. Their arguments are simply not good public policy.First, proponents of heavier and larger trucks suggest that by allowing such trucks, fewer trucks will be on the roadways, producing less highway congestion, less pollution, and fewer accidents. These claims are not based on the properties of bigger trucks themselves, but on the idea that fewer total trucks will be required to move freight.But as demonstrated by diversion studies done in 2007 by Carl Martland of the Massachusetts Institute of Technology and in 2009 by TTX Co., a tremendous diversion of freight from rail to truck would occur with increased federal weight and size limits. According to the Martland study, allowing a 97,000-pound national weight limit would divert 44% of all merchandise traffic handled by short line and regional railroads to trucks. The TTX study found that larger trucks would divert almost 25% of all carload and intermodal rail traffic (excluding coal and ores), resulting in 330 billion new truck ton-miles every year. “Bigger but fewer” trucks also fails from a historical perspective: Following every national truck weight limit increase in modern history, more, not fewer, trucks have appeared on our highways.Second, advocates of heavier and larger trucks imply highways will see very little impact. One proposal calls for a third rear trailer axle for tractor-trailers carrying 97,000 pounds, claiming this will result in less pavement damage than a similar 80,000-pound truck with a standard rear tandem trailer. Pavement experts appear to be divided on this, but one can ask: If another trailer axle reduces pavement wear, why don’t trucking companies promoting this view simply add another axle to their 80,000-pound trailers immediately? But there is no doubt that heavier trucks will exacerbate deterioration of roadway bridges, problematic for states facing significant inventories of roadway bridges rated as “substandard.” Heavier trucks will simply make this problem worse.Third, many highway safety experts strongly disagree with the idea that bigger trucks are as safe as current trucks. Both the International Brotherhood of Teamsters and the Owner-Operator Independent Drivers Association have issued warnings of the safety hazards presented by heavier trucks. Law enforcement agencies across the country, including the National Troopers Coalition and the National Sheriffs’ Association, have formally declared their opposition to bigger trucks. And when higher federal CAFE standards result in smaller and lighter passenger vehicles, heavier trucks sharing public highways ignores the laws of physics, placing all of us driving on the national highway network at a higher level of risk of harm in a truck-auto accident.Finally, federal officials should not overlook the negative impact bigger trucks would have on our multimodal system. The Martland and TTX diversion studies make clear that a substantial reduction in freight rail shipments would occur. This has been confirmed at the state level, when increases in weight allowances on state roads created an almost immediate loss of rail traffic for some short line railroads. The Government Accountability Office understands this, quoting USDOT statistics in stating, “[L]arger trucks weighing over 100,000 pounds pay only 40% of their costs. From an economic standpoint, this relationship between revenue and cost distorts the competitive environment by making it appear that heavier trucks are a less expensive shipping method than they actually are and puts other modes, such as rail and maritime, at a disadvantage.”This is not simply a “railroader vs. trucker” fight. Most people appreciate the role trucking plays in our national economy. But favoring a handful of shippers and trucking companies with cheaper rates or lower costs is not good public policy. Continuing, without change, the current national weight and size limits on all federal highways is the right policy decision, one that all of us need to support.Jerry Vest is Vice President, Government and Industry Affairs for Genesee & Wyoming Inc., which owns and operates short line and regional railroads in the U.S., Canada, Australia, and the Netherlands.
By Tony Kruglinski, Financial Editor
As readers of this column already know, the rail industry has enjoyed more than 30 years of seemingly limitless financing of its equipment needs by banks, insurance companies, and operating lessors. The result? Of the nearly 1.6 million railcars in North America, more than 60% of them are owned by non-railroads and leased to railroads and other industry participants under a variety of financing structures. The costs inherent in these financings have also been regularly subsidized by Uncle Sam as the owners have made use of the depreciation deductions that come with ownership of the equipment and passed a portion of the benefits on to the lessees in the form of lower rents—all in all, a win/win situation for all involved.
However, the financial crisis we have just weathered and a series of pending regulatory changes are likely to severely impact the amount and/or cost of this kind of financing available to the industry in the coming years.
The 25th Anniversary Edition of Railroad Financial Corporation’s Rail Equipment Finance Conference, set for March 6 -9, 2011 in Palm Springs, Calif., is set to tackle this thorny issue of financial capacity for the next generation of rail equipment finance, along with regular agenda items profiling the status of the North American railcar and locomotive fleets.
Since many of our readers won’t be journeying to Palm Springs to be with us, we thought we would use this month’s Financial Edge to at least point out the issues involved in this financial conundrum so that you can track its development in your own situation.
Shrinkage of the operating lessor pool: Perhaps the most easy to observe evidence of a change in the circumstances facing rail equipment operators who do not wish to own their rolling stock is the reduction in the number of operating lessors willing to make substantial purchases of railcars and locomotives for lease to third parties. While the absolute number of rail equipment lessors has only shrunk slightly, the number of players willing to write a big check to take over a large order for an end-user seeking operating lease financing is down materially.
Why? The financial crisis has rocked several of them back on their heels to the point that they are still in the market but seeming reluctant to write big checks. The impact of this situation is somewhat muted at this time by the slow market in new building for railcars and locomotives. The issue, we believe, will become more apparent when the market for new building comes back in the next couple of years and the number and appetite of the operating lessors willing to make big equipment bets has shrunk.
Will this create a huge problem for the industry? Will rents rise materially to compensate for these changes and to lure new players into the market? Will end-users end up purchasing equipment for cash or with debt financing? These are all questions that we intend to examine in March.
Regulatory changes due to impact finance leasing: Over the past months and years, we’ve used this column to highlight pending regulatory changes likely to impact banks and other financial institutions that have been big players in the financing leasing market, which has supported billions of dollars in finance leasing for the rail industry. (With a finance lease, the lessee usually controls the future of the equipment at lease end. Not so with operating leasing, where the lessor recovers the equipment for release.)
For instance, we have warned that capital requirements inherent in the capital adequacy rules generally referred to as Basel II would have a significant impact on long-term leveraged financing leasing (the cheapest type of finance lease available to lessees due to its inherent low-cost debt component).
What’s happened during the past year or two? Virtually all leveraged leasing to the rail industry has been replaced by single-investor leasing (more expensive due to the absence of a low-cost debt component). You can still get your deal financed, but it just costs you more.
We are also awaiting the impact of as-yet-to-be-finalized changes to the account rules relating to just who records what assets and liabilities on its books relative to the kinds of finance transactions that have been the mainstay of rail equipment finance in North America.
The impact of these rule changes will likely be massive. What will these changes likely be when the rules are finalized? How will lessors and lessees react and tailor their transactions as a result? Most important, will the economics of finance leasing change for the worse? These are all questions that, as yet, have no answers, but we are sure to shed further light on them at Rail Equipment Finance 2011. We invite you to join us for this discussion and others that can shape the way you will be doing business in 2011 and beyond. See www.railequipmentfinance.com for information on the conference.
By Mike Ogborn
The Surface Transportation Board is about to embark on a series of hearings that could result in major changes in the railroad industry, including the way railroads compete, price their service, and make capital investment decisions.
The first hearing will be held in February and will review the long-standing exemptions for boxcars, commodities, and TOFC/COFC rate and commodity exemptions. The second hearing will be held in May and will “explore the current state of competitiveness in the railroad industry and possible policy alternatives to facilitate more competition,” including competitive access, bottleneck rates, terminal access, and reciprocal switching.
This announcement comes on the heels of an unsuccessful attempt by the Senate Commerce Committee to draft compromise legislation on these subjects in the 2010 Congress. While we do not know what the end product of these hearings will be, we do know that they will be wide-ranging and deal with issues that go to the heart of the railroad industry’s ability to compete for business and to adequately invest in its infrastructure.
The short line railroad industry will be full participants in these hearings. We have put together an internal process for developing and presenting our position on each issue so as to do everything we can to protect the interests of all short line railroads.
Most important, we will make a substantial effort explaining to the STB how short line ratemaking and service practices work, and how those things are weaved into the fabric of our relationship with the Class I’s.
These are very complex subjects, but a number of simple principles will guide our response to these hearings.
If we are not the problem, do not make us part of the solution. Short line railroad pricing and service practices are not the reason this debate is taking place. Applying blanket solutions to short line railroads will have virtually no impact on the outcome, but will have significant impact on the financial viability of our small businesses.
Short line railroads contribute to competition. The vast majority of short lines were created to preserve or enhance rail service where it otherwise was going to be abandoned or severely restricted. More than 300 of the nation’s 545 short lines connect to two or more Class I carriers, and this provides a significant competitive advantage to short line-served shippers. Enacting regulations that reduce our revenues will severely restrict our ability to maintain and rehabilitate these competitive alternatives.
Short line railroad transactions were predicated on established economics. Short line buyers purchased a given amount of traffic and a presumed rate. The goal is always to earn enough to improve and grow that service, and virtually all of today’s short lines have done so. Many of the ideas being discussed in the debate could destroy the economics of our transactions.
For instance, mandated terminal access would allow another carrier to service our best customers for a trackage rights fee. A typical trackage rights fee is no more than the direct cost associated with maintaining a particular segment of track. That is not what the short line owner paid for in the first instance, and allowing that to occur will turn these transactions upside down to the detriment of all the remaining shippers on the line.
A reduction in Class I investment and service will hit short lines hard. To the extent regulatory changes result in reduced Class I investment and service, those reductions will occur first on those line segments with the least traffic—where most short lines operate. This will reduce our traffic and our revenues, and we will in turn be forced to reduce investment and curtail service.
It is no secret that the impetus for these hearings is the unsuccessful effort of Sen. Jay Rockefeller (D-W.Va.) to craft a compromise piece of legislation during the 2010 Congress. While the short line railroad industry had serious concerns with portions of that legislation, it needs to be noted that Sen. Rockefeller was attentive to those concerns.
Sen. Rockefeller and the Commerce Committee devoted substantial time listening to and understanding short line positions. In many instances portions, of the proposed legislation were altered to address those concerns. In every instance, they did their very best to understand the intricate financial and operating relationships between the big and small railroads.
We sincerely appreciate that effort and we hope the STB will give us that same consideration.
Mike Ogborn is Managing Director of OmniTRAX, Inc., a transportation management company that provides management services to 17 short line railroads and other transportation companies in Canada and the United States.
Woody Allen once said, “I took a speed-reading course and read War and Peace in twenty minutes. It involves Russia.” Speed is compelling. From restaurant service to medical treatment, we use speed to define quality. Transportation is no exception. But as Allen illustrates, by focusing solely on speed you can miss other essential elements. U.S. passenger rail is a case in point.
Headlines often blare about the speed of European or Asian high speed trains. But those vaunted speeds are rarely sustained in practice, due to operating costs, logistic constraints, and maintenance requirements. The unspoken story is overall performance—efficient, reliable, and comfortable ways of getting passengers to their destinations, using rail as one well-integrated component of an overall journey. But performance can be hard to define and even harder to quantify. Speed becomes the defining principle by default. Unfortunately, U.S. passenger rail cannot afford to live by that definition. To advance passenger rail here, advocates should focus on high-performance rail (HPR).
Things are different on this continent, and headlong implementation of European or Asian-style HSR may not be the best strategic choice for us. Different transportation corridors have unique needs and constraints. Choosing appropriate rail solutions by corridor is the key to our successful implementation of passenger rail. Appropriate phasing is critical to deliver early, visible gains and long-term potential. Credit the Obama Administration and the FRA for embracing that principle. Modifying the original High Speed Rail Strategic Plan, the FRA now recognizes three corridor categories: Core Express, 125 mph or faster; Regional, 90–125 mph;, and Emerging, below 90 mph.
This refocus is practical. Passenger rail is not a one-size-fits-all business. From political realities to legislative and budget constraints to market-capture issues, unique corridor conditions prevail throughout the U.S. Recognizing these complexities, the FRA has endorsed HPR for passenger rail. What exactly is HPR?
HPR is an approach that delivers an appropriate rail system for each market, and measures that system in terms of ride quality, frequency, reliability, safety, ontime performance, amenities, station environments, local transit and airport connectivity, and yes, speed. Using these criteria collectively puts rail in a new light. Rather than being a foreign, elitist, or extravagant expense, it becomes an attractive, effective, and affordable transportation alternative. Passenger rail can thus be transformed from an abstract indulgence to an urgent local priority.
HPR optimizes solutions by addressing the needs and constraints of individual corridors. In one corridor, 90–110 mph on a shared freight asset may be best. In the Northeast Corridor (where the existing system already operates at capacity), a separate, dedicated HSR system is preferable. In other corridors, new commuter service on existing freight assets might be the optimal solution (and HSR could develop later, once ridership is established).
HPR is also cost-effective—an important consideration since infrastructure funding is limited and the competition for funds is intense. Money is especially tight for major capital projects like HSR, for obvious reasons. For most Americans, HSR is a distant, theoretical construct. At full build-out, it would only capture a small share of the overall travel market. Taxpayers are reluctant to fund a system they perceive as “fast trains for businesspeople and tourists.”
Such perceptions have unfairly damaged the case for HSR; that small overall share is a critical, large share in key corridors, and HSR would free up capacity in other elements of the larger multimodal transportation network. HPR mitigates the perception problem by focusing on performance, efficiency, and corridor-appropriate solutions that benefit everyone. We need passenger rail travel to become a reality again for many taxpayers. And once the country accepts HPR, the step up to HSR will be easier.
Speed is compelling. But it is not always the best criterion. In truth, most transportation modes actually “sell” performance. Airlines never talk about how fast their planes fly, but they are expert at selling performance—legroom, in-flight movies, airport lounges, and so forth. We must bring that perspective to passenger rail by promoting HPR. By taking a holistic approach to rail, by shrewdly and fairly apportioning limited funds, the FRA is, in effect, advocating high-performance rail.
Chris Taylor is the New York–based deputy director for high speed rail at AECOM.
By William C. Vantuono, Editor
Dire and unintended consequences could ensue if this legislation becomes law. Every stakeholder in the industry, freight and passenger, will suffer—shippers included.
This special edition of Railway Age is designed to reacquaint Congress and other opinion leaders with why the Staggers Act of 1980 was passed in the first place, and what it has accomplished—particularly, the capital investments that have enabled growth, productivity, and reliable, high-quality service. The reality is that most of the legislators who were present for the signing of Staggers are no longer around. And, almost no one in Congress remembers the dark days of the 1960s and 1970s, when America’s railroads were on the brink of collapse, and nationalization was seriously considered.
Railway Age is not new to this fight. More than a half-century ago—Oct. 7, 1957, to be exact—we published our landmark “Outrage” edition, which spelled out how the combined effects of government regulation and government-funded competition had seriously weakened the railroads.
Masterminded by Executive Editor Joe W. Kizzia, “Outrage” went into more than one million reprints and is widely credited with jump-starting the movement within the industry and on Capitol Hill that resulted in Staggers 23 years later. The similarity between our two magazine covers is intentional, only this time, we’re trying to stop history from repeating itself.
“By stripping away needless and costly regulation in favor of marketplace forces wherever possible, this act will help assure a strong and healthy future for our nation’s railroads and the men and women who work for them,” President Jimmy Carter said when he signed Staggers in one of his last acts as chief executive. “It will benefit shippers throughout the country by encouraging railroads to improve their equipment and better tailor their service to shipper needs. America’s consumers will benefit, for rather than face the prospect of continuing deterioration of rail freight service, consumers can be assured of improved railroads delivering their goods with dispatch.”
Staggers, as we well know, did exactly that.
There is no sensible reason to turn back the clock—especially now, when America’s economic recovery requires investment in efficient transportation. Why destroy nearly 30 years of steady, hard-fought progress?
Our special report, “Renaissance—or Retreat?”, represents an industry that speaks with one voice.
Good design, which evokes feelings of excitement, interest, and admiration, is something that entices people to purchase a certain automobile, or a piece of furniture, as much as price and quality.
Good design will also encourage people to use and appreciate rail, mainly passenger, but also freight.
With railways, the caveat of “form follows function” is especially important. A vehicle or facility should be attractive and ergonomically sound. Equally important, it cannot be difficult or expensive to maintain. Also, it must be safe. It’s not easy to to blend all these requirements into a single package like a railcar or locomotive or a station. That’s where an industrial designer comes in.
My good friend and colleague, industrial designer Cesar Vergara (above right), in the grand tradition of legendary railway industrial designers like Raymond Loewy, Henry Dreyfuss, Otto Kuhler, and Paul Philippe Cret, has been contributing his designs to this industry for the better part of 30 years. Among his more notable designs are Amtrak’s Genesis locomotive and Cascades Talgo train, NJ Transit’s PL42AC locomotive, and Metro-North’s new M8 (pictured). These are just a few of the “Vergaras” (my word, not Cesar’s) out there. “If it costs a million, it should look like a million,” Cesar likes to say. “It doesn’t cost any more to design a railway vehicle or structure that is aesthetically appealing than it does to design one that’s unattractive or uncomfortable.”
Since he graduated from Konstfack University College of Arts, Crafts, and Design in Sweden, Cesar Vergara has been plying his craft for others—National Railways of Mexico, Amtrak, Walter Dorwin Teague Associates, NJ Transit, Jacobs. Blessed with a personality as engaging as his creative spirit, he has (finally!) formed his own industrial design studio, Vergarastudio. With the railway industry in the midst of a renaissance, and passenger rail—including high speed—the priority of an enlightened (finally!) Administration in Washington, Cesar’s timing couldn’t be better.
Functioning in an advisory capacity to Vergarastudio are highly respected industry veterans like Jeffrey Warsh, Donald Nelson, and Peter Cannito. Like Cesar, they believe strongly in the importance of good design.
Access to great design by one of this industry’s most talented practitioners is a mouse click away at www.vergarastudio.com, an email to email@example.com, or a phone call to (203) 241-5264.
Most catastrophes don’t happen as the result of a single failure. There’s usually a series of oversights or smaller failures that eventually lead to a much larger, more awful occurrence.
Last month’s tragic wreck on the Washington Metro’s Red Line, a rush-hour rear-end collision at speed that claimed nine lives and caused numerous serious injuries, resulted from a combination of factors. While it will take several months for the National Transportation Safety Board to issue an official report on the crash, we can piece together a few parts of the puzzle.
The crash itself, NTSB investigators said the next day, resulted from a failure of the Metro’s automatic train control system to detect the presence of the train that was hit. That train had come to a full stop just north of the Red Line’s Fort Totten station. This condition is known by signal engineers as a blackout.
Train operator Jeanice McMillan, 42, had no chance to stop the following train as it rounded a curve at speed. She hit the emergency brake button, but it was too late. She and eight passengers perished as her train, equipped with the Metro’s oldest, original 1000 Series railcars, slammed into the stopped consist, telescoped, and tore open like an aluminum soda can. Both trains were operating in automatic mode.
While the train control system failure apparently caused the wreck, the dead and the injured may have had a much better chance had the train been equipped not with 1970s-vintage 1000 Series cars, but with the Washington Metropolitan Transit Authority’s newer railcars, which are built to recent, much stronger crashworthiness standards. In 2006, the NTSB recommended that WMATA accelerate retirement of its 1000 Series cars, but the agency said it could not. Why? As WMATA wrote to NTSB three years ago, it was “constrained by tax advantage leases, which require [us] to keep the 1000 Series cars in service at least until the end of 2014.”
Those tax advantage leases, better known as sale-in/lease-out or lease-in/lease-out, were, until outlawed in 2004, a method of financing that enabled funding-constrained public transit agencies to acquire new equipment that they otherwise would not have been able to afford and sorely needed funds for operations and maintenance.
As the Wall Street Journal reported on June 26, “Such agreements . . . typically involved banks buying or leasing municipal assets such as railcars and leasing them back to their original owners. They enabled the banks to claim tax deductions on the depreciation. Those deductions were otherwise worthless to the [transit agencies], since they don’t owe taxes. In return, the agencies got large slugs of cash. [WMATA] estimates it netted around $100 million from its deals. . . If the agency had wanted to break the leases . . . it would have had to pay penalties and fees on top of the cost of buying newer railcars.”
What we have here is an extreme case of unintended consequences. Money doesn’t necessarily buy safety, but it will pay for things like new transit cars and communications-based train control technology that could lessen the effects of a wreck or even prevent its occurrence.
One could forcefully argue that if WMATA, like most transit agencies, didn’t have such a hard time acquiring operating and capital support from its political masters, it may not have had to depend upon complex financing mechanisms to acquire new and better equipment.
Those of you who have been involved in the high speed rail business for a while may recall, with acid reflux, Herb Kelleher, the man who, with some creative legal shenanigans, single-handedly succeeded in killing the Texas TGV in the early 1990s. Let’s go back to Don Itzkoff’s “High Speed Currents” column in the July 1991 issue of Railway Age (p. 14) for some perspective:
“[Its] emergence into the national spotlight parallels a new, broader acceptance of high speed ground transportation as a significant future travel option for Americans. But recent events in Austin . . . teach a lesson in reality as well—that changing the entrenched domestic, political, economic, and institutional order to accommodate new high speed ground transportation systems will not be easy.
“In Texas, the opposition came from Southwest Airlines. Southwest, which itself was an upstart carrier when it challenged the established majors two decades ago, tried to prevent both high speed rail franchise applicants, Texas TGV and FasTrac, and the Texas High Speed Rail Authority from continuing the application process (in part on the terms that the Authority’s directors were improperly staggered) and succeeded in postponing hearings for a week. Southwest attorneys also interposed literally hundreds of objections to evidence introduced by both applicants and other parties, creating such disruptions that FasTrac moved that Southwest be fined for abuse of process. At the Authority’s hearing that commenced on March 25, a small army of Southwest lawyers assaulted the applications of both prospective franchises on every conceivable front.”
It gets better: “Not content to leave the battle solely to his lawyers, Southwest Chairman Herb Kelleher waded into the fray, too. Kelleher derided high speed trains as ‘gussied-up prairie schooners,’ called the concept a ‘somersault backward into the 19th century,’ and threatened to move Southwest’s corporate headquarters out of the state of Texas entirely. The Texas High Speed Rail Authority ultimately rejected the arguments of Kelleher and his lawyers, voting unanimously to award the franchise to Texas TGV. But Southwest drew blood through its campaign of attrition, and the battle may only be beginning.”
Kelleher proved quite shrewd. He probably knew that, just like the TGV’s effect on French domestic air service, 200-mph trains streaking across the Texas prairies would send his airline, which at that time was still a mostly regional carrier, crashing and burning. His tenacity paid off for him. The Texas TGV died, as did other high speed rail projects, such as Florida Overland eXpress (killed by another Texan).
It has taken nearly 20 years to overcome the entrenched order that Don Itzkoff so eloquently talked about in these pages. We now have an enlightened Administration in Washington (thank you, Mr. President, for this month’s “leaner-meaner-cleaner” cover line), and a supportive Congress. It’s going to take a lot more money than Obama’s initial $13 billion to build a high speed network in this country, but it’s a good start, $13 billion more than we’ve ever had.
Favorable opinions on high speed rail are coming from unexpected places. Commenting on the state of America’s automotive industry in the July 2009 issue of Car & Driver Magazine, David E. Davis Jr.—the dean of automotive journalists—said: “If I were [Obama’s] car czar, I would strongly suggest that we can have no national automotive policy until we have fully comprehensive transportation and energy policies. This is serious business. We desperately need high speed transcontinental trains based on the European and Japanese models, just as we need some modern version of the old interurban rail systems.”
I had to take off my bifocals and hold Car & Driver up to my nose to make sure I wasn’t imagining things, especially since I’d gotten used to reading silly anti-passenger-rail rants from (thankfully) now-retired columnist Patrick Bedard, who once called the New York City subway the “electric sewer.”
Then there’s this from Association of American Railroads President and CEO Ed Hamberger: “America’s freight railroads support the goal of increased passenger rail investment. It’s good for our economy and the environment when more people and goods move faster by rail.” Our privately owned freight rail network, he said, “is the literal foundation for high speed rail in America.” And of course (and we agree): “We are critical stakeholders that need to be engaged from the very beginning of project planning and development. Passenger and freight efforts to grow and expand must complement, not compromise, one another.”
Be sure to attend our 16th Annual Passenger Trains on Freight Railroads Conference, Oct. 19-20 in Washington D.C. Click here for more information.
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?