Tuesday, May 07, 2013

Freight and passenger rail have little in common

Written by  Lawrence H Kaufman, Contributing Editor
Depending on how seriously one takes congressional hearings into the future of Amtrak, the national rail passenger service either is a candidate for termination and oblivion or, as has been the case on several prior occasions, it will survive another near-death experience.
At the moment, no one knows what Amtrak’s fate will be.

Freight shippers tend to tune out the never-ending battle over how much taxpayer money, if any, should be allocated to keep Amtrak in business. They want their serving railroad to provide consistently reliable on-time service at prices they agree to pay. As far as shippers are concerned, Congress only wastes time and energy when it spends time on Amtrak and its problems.

Shippers should not be so cavalier. Amtrak’s survival or death will affect the service they get from the freight railroads.

A key issue with which Amtrak must deal is the need to negotiate new wage and work rule agreements with unions that represent its employees. As is usually the case when railroads negotiate new labor agreements, the process appears endless. Most rail unions have reached agreement with Amtrak, but there still are a couple of agreements open. No one has yet used the dreaded “s” word (strike), so crisis is not imminent.

Officials involved in contract talks and congressional ideologues have a predilection to display ignorance in public. Unions can demand anything they want, but there is no law that says they must get what they want. One of the sillier aspects of the never-ending Amtrak saga is the attempts by some—both politicians and labor leaders—to argue that Amtrak workers should be better compensated than are the union employees of freight railroads.

Actually, no one makes that argument in such clear terms. It’s just that what they do demand seems to work out to better compensation.

Let’s get one thing straight. Freight and passenger rail have just one thing in common. Both rely on the dynamics of the steel wheel on steel rail. Beyond that, they are in different businesses that have virtually nothing in common.

Freight rail companies are privately owned and operated and, happily for their stockholders, customers, and employees, are profitable and for the moment enjoy increasing business.

Amtrak has all the trappings of a private corporation, but in reality is a government-owned entity. It must contend with libertarians and other ideologues who do not think Amtrak should be allowed to remain in existence soaking up taxpayer dollars. Amtrak never has earned a penny in the more than 40 years of its existence, and is not likely to do so in the future.

Amtrak management and supporters frequently tell congressional committees, as Amtrak president Joe Boardman did recently, that Amtrak operates some profitable services, particularly on the Northeast Corridor between Boston and Washington.

That makes it imperative that some terms be defined, especially if there is to be a rational discussion of the similarities and differences between passenger and freight railroading. Profit, for example, is one such term. A business that brings in sufficient commercial revenue to cover all operating expenses and provide investors a return, even if the sole investor is the government, is profitable.

Amtrak is not one of those businesses. While it may cover most of its operating expenses, it does not cover its capital costs. Nor do passenger rail services anywhere in the world.

Attempts to increase revenue by raising fares drives off so many customers that net passenger revenue declines. Nor can passenger operators discount their way to prosperity. Amtrak does not have enough capacity to increase revenue by lowering fares and in that way attract additional passengers. Increasing capacity would require more subsidy.

Despite ongoing losses and continued need for large federal injections of cash, some Amtrak unions demand wages that are as much as 20% higher than members of the same unions are paid by profitable freight railroads. They also want employee contributions for health care capped at lower levels than workers on profitable railroads pay.

It’s as though these unions exist in a parallel universe; they simply ignore the financial realities.

It was not so many years ago that railroad labor relations were acrimonious and drawn out. Only the refusal of the National Mediation Board, which administers the federal Railway Labor Act, to release the parties from mandatory mediation prevented any number of work stoppages.

Today, though, while rail union leaders and company executives may not be singing “Kumbayah,” relations are tranquil. Contract negotiations in recent bargaining rounds have resulted in settlements that exceed those in other industries. Managements are not giving their companies away, but they are treating their employees with a dignity that did not previously exist.

Labor peace may be in force today because profits have allowed wage and benefit increases well in excess of other industrial labor settlements. But as very expensive Positive Train Control (PTC) technology nears implementation, pressure to reduce train crews from two to one person will increase. Amtrak already operates with only an engineer in the locomotive cab; the conductor and one or two assistant conductors carry out their duties throughout their trains. PTC will spark a battle between the United Transportation Union and the Brotherhood of Locomotive Engineers that is likely to conclude with the demise of one of the two on-train operating unions. The question is “when,” and the clock is ticking.

Only small amounts of public money go to freight railroads to fund so-called public-private partnerships. The rationale for such assistance, however, is not to subsidize profitable operators but to fund investments in increased capacity and to enable operators to provide improved service. In turn, this is supposed to stimulate job creation and economic growth at shippers as well as at railroads. The theory is that the benefit to the economy exceeds the cost to taxpayers.

Amtrak can make no such claim of public benefit even though a hamburger in an Amtrak dining car can cost more than a hamburger at a major league sports venue.