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.
A friend of mine, a camp counselor as a teenager, often recounts an early learning experience. He was in charge of 10 eight-year-old boys. His primary disciplinary phrase was “if you do that one more time . . .” The phrase had no conclusion and never a real consequence. Two days into the camp session, the threat was repeated when the boys were violating a no-talking rule during a mandatory afternoon rest hour. Immediately one of his more precocious and perceptive wards popped up from his bunk and said, “Talk, talk, talk. When are we are going to get some action around here?”
2010 is going to be a year of action in Washington, D.C., and for the short line railroad industry it will be both eventful and challenging.
The short line rehabilitation tax credit (45G) expired at the end of 2009 and must be extended retroactively in 2010. The short lines have done their usual stellar job in setting up the legislation. To date we have secured more than 50% of the House (247) and the Senate (52) as co-sponsors. We are particularly proud that the sponsorship is almost evenly divided between Democrats and Republicans. In today’s Washington, that is rare.
The extension passed the House in late 2009 but was pushed aside by the health care debate in the Senate. The longer Congress waits to act, the more difficult it is for short lines to do the planning and make the material purchases associated with the certainty of the tax credit’s availability. If Congress holds up passage to the end of this year, even if it makes it retroactive to Jan. 1, 2010, it will have lost a real opportunity to maximize the job creating potential of the credit. The time to act is now.
Sen. Jay Rockefeller spent the better part of 2009 trying to hammer out compromise legislation on the issues surrounding railroad regulation. His legislation was approved by the Senate Commerce Committee in late December and now awaits action by the full Senate and, subsequently, by the House. This isn’t what the industry ever would have sought and the short lines, along with the Class I’s, have worked with the Senator to minimize the harm to our franchises.
In fairness, Sen. Rockefeller and his staff have devoted substantial time and effort to address our concerns, and the legislation does incorporate numerous changes advanced by the railroad industry. We are continuing those efforts as the legislation proceeds. Unlike past years, Congress likely will act on a final bill this year.
In 2009, Congress passed a new rail safety bill, and in 2010 the Federal Railroad Administration is implementing hundreds of requirements contained in that new law. The vast majority of these requirements will add significantly to our cost of doing business—in Washington lingo, unfunded federal mandates.
PTC, Hours of Service, enhanced bridge inspections, and dozens of other regulatory decisions will be made in 2010. The short line industry’s goal is to reduce the burden through the regulatory process and to convince Congress to provide a fair level of government funding for what remains.
SAFETEA-LU, which authorized federal surface transportation spending and established most modal transportation policy, expired in 2009. Reauthorization was discussed, but no action was taken, so the status quo was extended. The legislation is largely a highway and transit funding bill, but two items affect the railroad industry: truck size and weight limits, and funding for highway grade crossings. Many in the trucking industry seek to increase size and weights, and some congressmen seek to tear down the wall that prohibits state DOTs from using grade crossing funds for general highway repairs. Fighting both efforts will be a high priority for the short lines in 2010.
The SAFETEA-LU bill is traditionally a six-year bill funded primarily through the gas tax. Most observers believe that adequate surface transportation funding requires an increase in the gas tax, so passing this bill before the 2010 election be difficult.
Keith Hartwell is President of Chambers, Conlon &Hartwell, is Managing Member of the Board of CC&H subsidiary firm Seneca Group, and the firm’s lead lobbyist for the American Short Line and Regional Railroad Association.
By Anthony D. Kruglinski
Our regular readers know that
in addition to being a Contributing Editor at Railway Age, I am the President
of Railroad Financial Corp., a financial advisor that works only in the rail
industry. Several weeks ago, Railroad Financial Corp. celebrated its 21st
birthday, and I had the opportunity to explain to a new acquaintance what my
I explained that during the
first five years of RFC’s existence, the majority of our financial dealings
involved buying and selling and financing and refinancing older railcars and
locomotives. The late 1980s and the early- to mid-1990s were mostly taken up
with extending the lives of existing rail equipment. (There were certainly
new cars and locomotives built and financed, but most of RFC’s customers at
the time were shortlines and regional railroads, not Class I railroads.)
The mid-1990s through 2007 or
so saw more new rolling stock being built and fewer cars and locomotives
rebuilt or remanufactured. At the time, we reported in Railway Age that
end-users of railcars and locomotives were voting with their checkbooks in
favor of new modern equipment rather than to continue to plow more money into
What’s happened recently?
While RFC is still financing new cars, the vast bulk of our activity—well in
excess of $1 billion in equipment last year—involved restructuring existing
leasing agreements to attempt to wring more efficiency from existing
Sometimes we find ourselves
working for a bankrupt entity seeking to restructure its operating lease
fleet. Other times we work for financially healthy lessees who are seeking to
lower their rental costs by trading term (longer) for rate (lower).
The point is that during the
past 21 years we have gone from extending the lives of various types of
railcars and locomotives, to building almost exclusively new equipment to,
today, very little building any equipment of any kind.
We are all, more or less,
sitting around waiting for developments:
• New cars are being built,
but in numbers that are 25% or 30% of the numbers built only a few years ago.
• Locomotive OEMs are not
inking any sizeable North American new locomotive orders. (Why would they
when there may be as many as 10,000 locomotives in storage?)
• Depending on how you do
your count (do you count cars awaiting the scrapper?), there may be as many
as 500,000 cars stored in North America.
• Several large lessors
reportedly are interested in selling some or all of their railcar and
locomotive fleets, but not at material discounts. The cars they do want to
sell are off lease; no one wants them.
Almost nothing is happening,
except that RFC is making a reasonably good living restructuring and
reformatting existing transactions involving railcars and locomotives to save
Those of you who wait for
this column’s annual predictions saw they did not come in December, January,
or February. For now, I think that the big prediction for 2010 is for more of
the same. That’s the first time that I have ever predicted that! But I can’t
leave 2010 alone without some prognosticating, so here we go:
Operating lessor sales: I
predict that there will be significant sales of operating leasing fleets
during 2010. Nothing much has happened since the last fleet sale at the end
of 2008, but I believe that several new investors are interested in making a
foray into the acquisition of operating leased rail equipment. The situation
just needs a bit of a push. What could that be? Foreclosure by lenders who
have the opportunity to do so, due to payment or other defaults. The need for
cash that’s required by one or more large diversified financial entities that
would cause them to sale rail equipment at a modest discount. A decision by
private equity investors to finally make investments they have been contemplating
for several years.
Scrapping equipment: The next
time there is an upward blip for the price of scrap steel, look for tens of
thousands of railcars and locomotives to be scrapped. Owners of these items
must face that many of these units will never go back into service. Surprisingly,
the cost of storage is now also becoming an issue.
Planning for EPA Tier 4
locomotives: While the Environmental Protection Agency’s Tier 4 locomotive
emissions regulations and 2015 are still a ways off, locomotive manufacturers
and high-horsepower end-users have to think about compliance. Here are some
of the questions that the railroads are asking:
• What should I do with my
existing high-horsepower locomotives? Should I invest in rebuilding some or
all of them now or should I cut my losses and start scrapping them as soon as
• EMD and GE are apparently
fielding two different solutions for Tier 4. The GE product reportedly uses
an aftermarket scrubber using urea. The EMD unit appears to continue to use
the existing technology adapted for Tier 4. Planning needs to get started,
but what planning?
That’s the best I can do this
By Douglas John Bowen, Managing Editor
Dallas gets it. It’s expanding its existing light rail
transit network, augmenting regional rail, and bolstering existing Amtrak
service, even as it faces the bumpy realities of advancing high speed rail.
Texas’ second-largest city has a real-world, practical hold on matters mixed
with a vision of what can be. Combine those elements with the ubiquitous
optimism and “can-do” attitude all Texans seem to carry, and you have a potent
force much of the U.S. would do well to emulate.
And please forget “right” or “left”; in this case; Dallas is
front and center, in some ways perhaps the ambitious edge of the current U.S.
passenger rail renaissance.
My latest trip to Dallas in late January only reaffirmed
this, even as I delighted over the passenger rail progress the city has
notched. More than many places, Dallas residents and officials, be it DART
President Gary Thomas or a taxicab driver, mix that powerful Texas pride with a
practical “what’s up in your town” inquiry. Where other cities pump up
boosterism to an extreme, Dallas (I’ve found) seeks real information. “We’ve
got this problem; do you? How are you guys dealing with it?” reflects an
honesty, an open-mindedness, that bodes well both for urban rail transit and
any future HSR development.
DART President Thomas and his staff are justly proud of the
agency, and it shows. But more than they might know or sense, DART is a pointed
refutation of the naysayers insisting passenger rail transit will not work and
does not affect development, that it’s meant for only us “rat-grey New Yorkers”
(in author Tom Wolfe’s words) who don’t know any better. It’s bolstered and
energized Dallas’ downtown, a downtown long ignored per many U.S. “cities” but
reasserting itself as a real place with a real purpose.
I base that not just on the gracious guided tour of new
construction provided me by DART Director, Media Relations Morgan Lyons—a task
he performed with relish and with obvious pride—but on my own multiple trips on
DART’s Red and Blue lines. I saw “those people” (commuters) but also saw
students, shoppers, and travelers with other purposes, generating on-off
traffic for many stations along the routes.
One of those stops is at Union Station and the Reunion
Center complex, served by DART, Trinity Rail Express (TRE) regional rail
service linking Dallas with Fort Worth, and Amtrak. In the 1980s, a refurbished
Union Station stood more as a monument to the past—almost a mausoleum—with few
passengers coming or going. Not anymore; it may not yet be 30th Street Station
in Philadelphia, but rail passengers now are in evidence throughout much of the
day. A modest four Amtrak trains
per day don’t do Dallas justice. But it’s
more than six trains a week and, along with TRE’s presence and DART
service, the station is set to welcome whatever HSR (or even just HrSR) might
That last component won’t arrive immediately. Advocates
gathering at the historic Magnolia Hotel for the 6th Annual Southwestern Rail
Conference, “Turning Vision into Reality” Jan. 29, were clearly disappointed when FRA Deputy
Administrator Karen Rae, the luncheon speaker, affirmed what the group already
had heard the day before: Texas wouldn’t get the big bucks for any HSR project,
at least in the first round. Rae delivered the “bad” news as diplomatically as
she could, saying, “Should you be disappointed and concerned? You should be
focused” on proceeding with HSR cohesively.
Indeed, even before Rae addressed the group, Texas DOT
Executive Director Amadeo Saenz allowed that the state needed a “comprehensive”
approach to HSR, noting Texas submissions to FRA during 2009 were “fractured”
into nine distinct projects or pieces. But Saenz remained upbeat, noting TexDOT
now has a Rail Division to guide the state “in focusing on a comprehensive
[statewide] rail plan.” The words and labels matter, Saenz said: “Not too long
ago, we all were ‘the highway department.’”
Beyond accepting reality, and vowing (in Saenz’s words) that
“we learned from what we did” and perhaps didn’t do, Texas HSR advocates also
showed their magnanimous side to the FRA “winners.” Those assembled bore no
demonstrative grudge in congratulating California, Florida, and Chicago-St.
Louis for their first-round fiscal victories. Many took time to congratulate conference moderator Fritz
Plous, a Chicago resident and longtime rail advocate, for Chicago’s successful
HrSR bid, something perhaps Rep.
John Mica (R-Fla.) could learn to emulate rather than acting as a sore winner.
In Dallas, they get it. Here’s
hoping they get the real thing, HSR, real soon.
By Richard F. Timmons
President, American Short line
and Regional Railroad Association
In the midst of unprecedented and historic regulatory changes demanding our attention and resources during the past year, short line railroads had the safest year in our history!
In the past 18 months, challenging new laws and regulations have swept across our industry, demanding investments, time, and new procurement, as well as customer and union acceptance. These changes will be felt during the next decade as we strive to comply with numerous phased-in requirements intended to enhance railroad safety across the industry. While many of these initiatives have merit, the difficulty is how to pay for them. These unfunded mandates will prove to be a significant burden in the years ahead, one that must not intrude on our daily safety focus.
These ongoing requirements notwithstanding, the questions of why and how our segment of the railroad industry has achieved this significant safety milestone are worthy of consideration. The continuous rail industry focus on every aspect of safety is the backbone of the dramatic downward trend for all railroads in terms of injuries and fatalities. This safety conscious orientation began about 20 years ago and has proven its value through years of steady improvements.
And while no fatality or injury is ever acceptable, the reduction in both categories over the years is commendable and demonstrates the wisdom of the determined approach that railroads, large and small, have applied to safety. This focus and determination to reduce accidents, injuries, and fatalities started at the senior levels of management and has ultimately been embraced by every functional level in the railroad industry. The perseverance of rail leadership to protect employees, the public, and rail resources, and the improved metrics-based approach used to understand weakness in our systems, receives the bulk of the credit for the dramatic safety changes in the railroad industry.
For 2009, Class II and III railroads logged a total of 26,160,055 employee hours over 52,000 miles of railroad. Operating on that system, 563 short lines experienced 1 fatality and 441 injuries. This is a 7% reduction in fatalities and a 25% reduction in injuries from 2008 with just 17% fewer hours operated. This is a record for the short line industry and a tribute to the competence of those railroaders at every level that are responsible for such impressive results.
But this has been a challenging path we have traveled over a number of years. I believe there are many contributing factors that have made this record possible. As mentioned earlier, the consistent safety focus and the measurements developed to assess progress have made clear to management and employees where we stood and what demanded our attention and resources year over year.
The obvious shortcomings described by an annual analysis prompted numerous training initiatives from both internal short line resources as well as partnerships with the Class I community and TTCI. In addition, the American Short Line and Regional Railroad Association sponsored programs and classes, and in partnership with the FRA hosted a variety of training events over the years that were necessary for compliance. Additionally, ASLRRA provided templates, documents, procedures, programs, and on-site safety assessments to assist small railroads in continuously working to improve their safety posture.
Possibly the most effective safety initiative was the establishment of the ASLRRA Safety and Training Committee. This body of short line railroad members has been instrumental in creating products, programs, and safety policies that contributed significantly to the improved safety performance of small railroads. Their individual and collective contributions have been invaluable.
The difficult and challenging work of this committee coupled with its involvement with the ASLRRA Safety Awards recognition program each year has served to highlight individual and short line railroad company performance, and rewarded those members and companies whose efforts have paid off with improved annual results.
At the end of the day, these exceptional outcomes boil down to people. Railroaders are responsible for these results, and their professionalism, training, awareness, and dedication to doing their jobs correctly every day under all conditions make for safe operations. The results are evident. We will continue to strive to achieve these high standards in the coming months and years. There is no alternative for railroaders and their companies because safety our the first priority.
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 firstname.lastname@example.org, 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?
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 email@example.com.
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!