Saturday, March 01, 2014

SPECIAL REPORT: Keeping Railroads Healthy

Written by  William C. Vantuono, Editor-in-Chief
SPECIAL REPORT: Keeping Railroads Healthy Bruce Kelly
Railroads are operating at peak safety, profitabilty, and productivity levels. Let’s keep them that way.

William C. Vantuono, Editor-in-Chief

America’s railroads today are handling more business more efficiently and safely and for better profits than ever before in their nearly 200 years of existence. They remain a growth industry. The record $15 billion they invested in 2013 will no longer be a record in 2014, considering that two of the Class I’s alone will be spending close to $10 billion. Shippers, though they continue to try to drive down prices, are paying on an adjusted basis an average of 50% less than they were prior to the 1980 Staggers Act, which partially deregulated the railroads. Since Staggers, railroads have invested close to a half a trillion dollars—yes, that’s right, trillion—in private capital for expansion, improvements, and maintaining a state of good repair. Access to capital allows the railroads to utilize state-of-the-art technology from a healthy supply industry.

Railroads haven’t achieved all of this easily, and they will not retain it easily without the continued strong leadership of the seven Class I chief executives who have joined Railway Age in putting this special report together.

The rosy state of things that generally prevails in the industry is all too well known, and the railroads’ healthy stock performance strengthens the prevailing belief of many economists that railroads are recession-proof. As Warren Buffett is said to have replied when asked why he paid $43 billion for BNSF: Because the railroads can’t be moved to another country.

But don’t kid yourself.

America’s railroad industry still needs to be vigilant, because wherever there is success, there are always those who seek to beat it down, for reasons of self-interest. Add to that a rancorous, adversarial political atmosphere, and a Congress whose members have little or no knowledge of how close the industry came to collapse before President Jimmy Carter signed the Staggers Act—and what would happen if those regulatory freedoms were reversed.

Ed Hamberger AARWhat are some of the danger signs? Railway Age asked Association of American Railroads President and CEO Ed Hamberger to comment. The key issues are: truck size and weight—an issue that many thought was dead, but that crops up every time a multi-year surface transportation bill is up for reauthorization; and reregulation, specifically, mandatory competitive switching.

Mandatory competitive switching, an issue now before the Surface Transportation Board, threatens to drive up operating costs and undermine the industry’s ability to invest. The AAR has broadened its argument. “We’ve done a good job in expanding the discussion beyond what we would lose financially,” says Hamberger. “We’re able to show what would happen if 7.5 million annual switch moves become controlled by shippers. We’re looking at a greatly reduced ability to plan, mounting operational problems, increased labor and fuel costs, and crowded yards. We’re able to show that mandatory competitive switching would result in close to a dozen extra moves in many situations. But how do you show people the operational issues, and educate policy makers to the fact that railroading is not a retail industry?”

Few people, even many truckers (who have become some of the railroads’ best customers, through intermodal), want to see 97,000-pound behemoths and double- and triple-tandems rolling on the nation’s highways and bridges, tearing them up in the process and driving up highway repair costs by tens of billions of dollars. Railroads pay 100% of their infrastructure maintenance costs. Truckers pay less than 80%, a figure that plummets to 50% for 97,000-pound vehicles.

That’s one side of the argument. The other is the potential damage to railroad revenues. “Right now we’re taking a look at the rail-to-truck diversion issue,” says Hamberger. “Advocates of larger trucks say that there will be little or no diversion because the railroads will lower their rates to keep the business. We know that’s not the case, mainly because railroads are already pricing to where they can. We estimate a revenue loss of up to $6.5 billion. The DOT studied this issue in 2000; another DOT study is under way. This issue is far from being resolved.”

On top of all this, there is crude by rail, the safety of which is now “front and center,” says Hamberger: “CBR is occupying a large part of the industry’s safety focus. We’re emphasizing that there is a shared responsibility among all players—railroads, oil producers and refiners, tank car builders. We take our safety record—99.998% of hazmat shipments moved without incident—very seriously. Railroads are safe, and trying to become even safer. Overall, crude oil is a good-news story, from the standpoint of energy independence. Railroads have an important role to play, as do pipelines and barges. CBR is a good business, and we are making investments in it because we expect a good return.”

Then there’s PTC and its looming Dec. 31, 2015 implementation deadline. “Class I’s and passenger railroads are pushing hard to get it done,” says Hamberger. “One of the biggest obstacles is antenna installation, and all the permitting and environmental issues associated with it. We’re saying there should be a categorical exclusion, an exemption, for antenna poles we install on our own rights-of-way. The FCC is attempting to streamline the process, but so far it’s not very streamlined. It’s a process that could drag on and on.”

“That this industry has been able to step up and make the capital investments it requires is a great testament to what the Staggers Act has done, as well as to the executive leadership teams at the railroads,” says Hamberger. “We have a well-maintained system with an excellent safety record. 2013 looks to be our safest year ever. Day in and day out, it’s how we do things. Balanced regulation—which this industry has had for more than a generation—will ensure that we can continue to serve our customers, safely.”

Let’s not forget those 550-plus short lines and regionals, which are so vitally important to the local communities they serve, and which are diligently working to reauthorize the investment tax credit they got a few years ago. And then there’s Amtrak, the backbone of America’s passenger rail network, in need of major public investment so it can continue to grow.

Railway Age invited North America’s railroad leaders to comment on these and other pressing issues. You’ll find their perspectives in the commentary that follows.

Creating value for customers

Jack Koraleski, President and CEO, Union Pacific Corp.

Jack Koraleski-UPThe rail industry plays a vital role in America’s economy. Railroads thrive by creating value for their customers, and that’s exactly what we do at Union Pacific. Every component of our strategy enables us to create value for our customers—by improving safety, standardizing operations, investing in technology, capacity, and infrastructure, and operating efficiently. Every decision we make, every project we undertake, every dollar we spend is measured against the yardstick of customer value. We help our customers stay competitive, both domestically and globally, by providing efficient and reliable transportation solutions.

Many factors affect our more than 10,000 customers—global economies, energy supply and demand, and even weather conditions. These factors in turn can cause major shifts within our business sectors. We carefully prepare for these fluctuations so we can ensure Union Pacific provides the capacity and service our customers require.

The agricultural sector provides a good example of our resourcing capabilities. In 2012, we saw a drop in grain volume due to a drought. One year and a bumper crop later, we saw a huge jump in volumes and were able to respond quickly to meet our customers’ needs. In certain cases, such as grain export volumes, we saw an increase of more than 90% vs. the prior year. This helped offset some of the areas where business wasn’t as strong.

Union Pacific’s strategy for success begins with our customers: We create value for them by operating safely, providing first-rate service, and focusing on efficiency every day. This approach not only drives bottom-line results and improves our operating ratio, but it has helped us generate record shareholder returns. That’s how we’re able to reinvest and continue to grow our business.

This spring, we’ll open a new facility in Santa Teresa, N.M., which will bolster the fluidity of train movement in the region. Upon completion, Union Pacific will have invested more than $400 million in the project, and, for the first time ever, southern New Mexico will have a key inland port, positioning the Santa Teresa area as a strategic focal point for goods movement in the Southwestern U.S. This facility will create hundreds of good-paying American jobs and generate numerous opportunities for our customers. It will significantly improve capacity and efficiency, which demonstrates our long-term commitment to deliver excellent service to our customers.

Across our six business areas—Agricultural Products, Automotive, Chemicals, Coal, Industrial Products, and Intermodal—we’re continuing to develop business opportunities in Mexico, where our unparalleled ability to link Mexico’s economic growth with U.S. origins and destinations is a key strength of the Union Pacific network.

We recently introduced new intermodal service between Chicago and Monterrey, Mexico, giving our customers yet another way to transport goods across the border. Foreign direct investment in Mexico continues to present opportunities for Union Pacific, which is the only railroad with access to all six Mexican rail gateways.

New crops should provide plenty of growth for our Agricultural business, especially in the first half of the year. We anticipate an increase in both domestic and export grain markets.

Automotive manufacturers expect sales growth to continue. This looks to be good news for our finished vehicle and auto parts businesses.

Our Industrial Products business will likely benefit from shale-related activity due to increased drilling supporting growth in frac sand and pipe shipments. Housing starts are predicted to exceed one million units for the first time since 2007, which is expected to drive demand for lumber shipments. Increases in commercial construction are expected to support growth in rock, metals, and other highway-related markets.

As Union Pacific looks ahead to developing and supporting future business opportunities, our focus remains—as always—on creating value for our customers through safety, service, and efficiency.

Technology can improve worker proficiency

James A. Squires, President, Norfolk Southern Corp.

Jim Squires NSNorfolk Southern is deploying groundbreaking technology on its road locomotive fleet to dramatically reduce fuel use and installing a revolutionary dispatching system to help plot train routes across its entire rail network. This new technology will help us increase ontime performance and reduce operating costs.

However, technology alone is not enough to prepare us for the future. We’ve learned that a crucial part of successfully implementing new technology depends on how we communicate with our employees who are using the technology.

LEADER (Locomotive Engineer Assist/Display & Event Recorder), NS’s flagship fuel-saving system developed with New York Air Brake, calculates and displays the optimum speed at which to operate a train, depending on topography and curvature of the track, the train’s length and weight, and other operating conditions. It’s a great system with proven benefits—tens of millions of dollars—if used regularly.

Following LEADER’s cues, the engineer learns to back off the throttle before reaching the top of a hill, allowing the train’s momentum to carry it over the crest, so the engineer may not need to use the brake going down the hill because the train is moving at a slower speed.

But that’s not the engineer’s instinct. Instead, he wants to power up the hill and apply the brake to slow the train after it crests. However that burns more fuel and puts more wear and tear on the tracks, exactly what LEADER was designed to correct.

So how do you encourage employees to try use new technology? The answer may surprise you.

Todd Reynolds, general manager of our western operating region, recently shared the story of how we were able to dramatically increase LEADER use on our Georgia Division. A group of road foremen met with engineers to explain LEADER’s fuel-saving benefits. After these one-on-one conversations, whenever an engineer started using the system, the supervisor made a point to thank the engineer. LEADER usage doubled in a matter of days. No incentives, no discipline—we just focused on giving positive feedback for good train-handling performance.

We met the same hesitancy to use new technology when we deployed Movement Planner, a train scheduling tool we developed with GE that has the capability to look eight hours in advance across the network and sort through thousands of pieces of data, including hundreds of daily train schedules, to make the best decisions to improve the flow of trains across the network.

Some of Movement Planner’s recommendations were counterintuitive to a dispatcher’s experience. For example, in response to a train delay on another division, Movement Planner may recommend moving a high-priority intermodal train into a siding to optimize overall network efficiency. In addition, some train dispatchers felt like Movement Planner was usurping their roles, the core of which was expertise in getting trains over the road.

A key part of implementing Movement Planner was recognizing the dispatchers’ concerns and helping them to become more comfortable using the new system. We invited the dispatchers to share their local knowledge of their operating division with Movement Planner’s programmers, and once they mastered the new system, to help train dispatchers on other divisions.

When introducing any new technology, we must be willing to reassure our employees that the skills they learn will not be wasted—for example, that an engineer proficient in LEADER and a dispatcher adept at Movement Planner have bright futures with Norfolk Southern.

Safety is a Resounding success story, but more can be done

Michael J. Ward, Chairman, President, and CEO, CSX Corp.

Michael Ward CSXAmong the many achievements of U.S. railroads, none stands out more than the astonishing and sustained improvement in safety over the last 30 years. That evolution was the result of many factors, but mostly by the commitment of railroaders everywhere to safe work practices and attention to every detail.

Science and technology played a role, too, with innovations that include computer-based train monitoring systems and advanced railcar health detectors that provide early warnings of potential problems. Market forces also contributed to safety, with customer demands for increasingly reliable service and damage-free transit, which also produced business growth and supported greater network investment. And society pressed for ever-higher safety standards.

The results speak volumes: The employee injury rate in 2012, the last year for which official data are available, was down 85% from 1980 and down 51% from 2000. The train accident rate was down 80% from 1980, and 44% from 2000. The grade-crossing collision rate was down 82% from 1980 and down 45% from 2000. Each of these categories achieved record lows in 2012, and preliminary 2013 data suggest the trend continues.

It’s an accomplishment shared by all, but every injury and every accident reminds us that more must be done to ensure that all of our employees go home safely to their families every day, and that every train moves without incident. Following are the factors that helped CSX:

• Values: We made safety one of our five Core Values—Safety is a Way of Life—which acknowledges the highest priority placed on injury and accident prevention.

• People: In addition to shaping a framework through our value system, we engaged the real experts—our fellow employees. In that regard, I trace some of CSX’s biggest gains in employee safety to the introduction of the safety overlap process. Employees at the local level identified safety concerns. If the resources needed to address them were unavailable, the safety issue would be elevated, ultimately to the Chief Operating Officer.

We also invested in employee training, as well as building a culture that prized adherence to rules as the cornerstone of safety. A united front with our unions was important to all of these advances, highlighted by initiatives such as the Switching Operations Fatality Analysis that identified ways to work more safely in busy switching yards.

• Investment: Substantial and sustained investments in our network hardened our infrastructure and reduced track- and equipment-caused derailments. We deployed additional machine vision technology to monitor equipment health. We also consolidated instruction for train crews and other front-line employees at our Railroad Education and Development Institute in Atlanta.

Of course, train accident prevention is critical to the safe, reliable transportation of hazardous materials. Railroads have a strong record for safely moving these products, and 100% incident free remains our goal. CSX has a team of hazardous materials experts to help customers with loading and unloading procedures. We also train hundreds of first responders every year so that they are better equipped to deal with railroad incidents.

• Public Awareness and Partnerships: Partnerships also are important to reducing grade crossing collisions. An industry wide focus on education and awareness, engineering solutions such as upgrading warning devices, and enforcement of traffic safety laws, all have contributed to a trend of fewer collisions. We partner with Operation Lifesaver to supplement our own company initiatives. CSX has worked with local officials to close unnecessary crossings, and improved motorist sight lines. We also conduct a highly visible Play it Safe campaign.

While crossings have been a success story, injury and loss of life to people illegally on our property regrettably remains a stubborn problem. CSX is further intensifying safety awareness, law enforcement partnerships, and other measures to keep pedestrians off tracks.

What does the future hold? Railroads are working on Positive Train Control (PTC), spending billions to develop technology from scratch. An extension to the 2015 deadline is necessary to ensure that the technology is properly developed. Once complete, PTC will undoubtedly add another layer of safety to an already safe industry.

While the rail safety story is a resounding success, that accomplishment is tempered by the terrible tragedy last summer in Canada, and the public’s growing concern over the transportation of oil by rail. The railroads, along with oil shippers, tank car owners, and federal officials, all are working together to find the most effective solutions and to maintain the public’s confidence in U.S. railroad safety.

America’s railroads are the global benchmark in freight transportation, and safety is a big reason. It’s also evidence of our commitment to employees, our customers, and the communities we serve.

Rail industry growth is driving record capital investment

Carl Ice, President and CEO, BNSF Railway

Carl Ice LO RESRail volumes in North America in 2013 were the highest since the Great Recession at nearly 43 million units, a good indication of the degree to which the economy has continued to recover. Freight railroads continued to make some of the most significant capital investments on record in 2013, just as they did during the Great Recession.

Freight railroads are investing massive amounts of private capital to improve the safety and reliability of our privately funded rail networks, and to expand capacity to accommodate the customer growth occurring on those networks. It is important for all members of the rail industry to continue to help shippers, public policy makers, and the communities we serve understand what a valuable and sustainable asset our privately networks have become to both the national economy and to the individual shipper and consumer.

That story always begins with safety and service. Railroads are a safer place to work than any other transportation mode by creating a safety culture of commitment and compliance in cooperation with our employees to identify and reduce safety risks in the first place. BNSF’s employees share our safety vision of an injury and accident-free workplace. We have supported that safety culture by continually investing in new technologies that help make our railroads even safer and more efficient by identifying potential safety issues before they can cause an accident or injury.

We have also significantly improved railroad service over the long term by investing in track infrastructure, equipment, and technologies that have helped make our physical assets more reliable and productive. Those safety and service improvements have helped attract significant volumes of traffic back to the rail industry, which have helped improve our returns on investment and generated additional free cash flow to reinvest in the growth those improvements have been generating.

That is the kind of sustainable long-term business model most companies and industries want to achieve.

That model enabled railroads to help U.S. agricultural producers develop the world’s most extensive network of grain unit train facilities to become even more competitive shippers and exporters.

It enabled the rail industry to attract millions of truckloads of consumer goods once lost to highways back to railroads in the form of intermodal traffic. Intermodal not only became a growth engine for most Class I railroads, it enabled many of the nation’s best trucking companies, steamship lines, and logistics companies to become some of our best customers.

It enabled the rail industry to help develop one of the most important new fuel sources for electric power in the U.S. in a half century in the Powder River Basin.

And now it is helping the U.S. economy achieve energy independence by enabling North America to develop its huge oil and gas shale reserves, which promise to attract more job-creating industrial production and manufacturing back to our economy. Rail is helping U.S. manufacturers and producers of products ranging from automobiles and aircraft, to farm and construction machinery, to lumber and steel, to fresh and frozen produce, to fertilizer producers and wind turbine manufacturers, expand production, and create jobs.

For BNSF, our 2014 $5 billion capital plan exceeds the single-year investment record we set in 2013 by $1 billion. More than $900 million will be invested in expansion and maintenance in our Northern Corridor alone, which has become a significant growth corridor for many of the industries we serve.

Our capital investments are one of the strongest indicators that we are focused on improving our ability to meet our customers’ service expectations, increasing our capacity where there is growth, and strengthening our railroad so that it remains the safest and most effective means of ground transportation for our customers, our people, and the communities where we operate.

Operating a 21st century railroad

E. Hunter Harrison, President and CEO, Canadian Pacific Railway

Hunter HarrisonThere’s no secret to running a successful railroad. The first thing to do is to get the very best people you can working for you, and tell them very clearly what it is you expect from them. Then, you let them do their job. That’s all there is.

Naturally, this explanation is a broad brushstroke, but the reality is pretty close to what I’ve just said. If you talk to your people, get them working with passion, and give them clarity on direction and expectation, then they will perform for you every time. You’ll find they will surprise you with what they can do.

If you accept this philosophy as your starting point, you’ll find it has direct application to many other areas. Communication with all your stakeholders—investors, communities, regulatory—should be just the same. Open, honest, and frequent. The most important element is to explain to people what you’re doing and why. And the other thing is: Just do what you said you would do.

It means delivering on our promises. Here’s an example of what I mean. Since becoming CEO of Canadian Pacific, the most fundamental change that I and my team instituted was to set a schedule and stick to it. It sounds basic, doesn’t it? You’re right: It is, but often, railroaders make excuses for failing to maintain a schedule rather than just doing it. Consider this: If we can’t tell our customers when we’ll deliver, and commit to it, how can we possibly expect them to entrust us with their shipments?

Railroads are operating companies. Watch your costs and your assets. You’ve surrounded yourself with good people. You’ve made commitments to your customers, and you’re delivering. Your credibility is good, and your people are working toward a common cause. What’s next? Your costs and your assets are next. Control your costs and watch your assets. It’s just smart business and it teaches you discipline. At CP, all it took was for us to drill down to the details and start asking, “Why are we doing it that way?” And, “Is there a better way?” I’ll be honest, the process itself wasn’t always easy, but the results have been worth it. “Why” is both a challenging and liberating question. It allowed us to look at ourselves honestly and make the operating changes we needed to become better.

It goes without saying that none of this is possible without running a safe operation. Safety is good business. Safety is the right thing to do. Period. That should be enough incentive by itself. But beyond that, it should be clear to us all that the industry’s license to operate depends on operating safely, and proving to the public that we do so. Teach people the right way to do something, and expect nothing less than total compliance. It’s not worth the risk, otherwise.

Since I started railroading, I’ve been fortunate to have participated in changes that have turned the rail industry into a safe, profitable business and a great place to work. To those of you joining our industry now and seeking to become leaders, you’re coming into a great industry at a great time—and you’ll be responsible for instituting the next round of changes. Our industry’s success depends on your ability to keep adapting. If you can welcome these challenges, and keep asking “why,” you’re heading in the right direction. We’re counting on you.

Our role as a backbone of the economy

Claude Mongeau, President and CEO, Canadian National Railway Company

CN’s agenda of Operational and Service Excellence is aimed at finding the best balance between high levels of operating efficiency and safety, and improved customer service.

CN CLAUDE MONGEAUCN record of growing its business at low incremental cost and generating solid financial results has reinforced its role as a true backbone of the economy and a key part of the solution in fostering the prosperity of the North American markets it serves, creating value for customers and shareholders alike. Of all the innovations that CN has initiated over the last four years, perhaps none has greater significance than our bold program of supply chain collaboration. We are an engine of supply chain capability that helps grow markets, and ultimately helps our customers succeed. We know that the next great step in expanding our role in the economy is to look at what we offer customers from an end-to-end perspective, with a view to improving efficiency with our supply chain partners for the entire process.

To achieve that, we’ve been going beyond hub-to-hub speed and reliability to focus on the first- and last-miles of our service, including better car order fulfillment and switch window compliance for merchandise traffic, better spotting reliability for grain, and daily engagement with all ports and intermodal terminal operators. This requires an intense focus on every detail of the receiving and origination part of our journey, with one outcome in mind: better end-to-end service for our customers so that we can help make them become more competitive in their markets.

Our agenda is anchored on running a safe railway—it’s the overarching imperative in everything we do. As a backbone of the economy we take our role very seriously when we’re entrusted to move dangerous goods. Our safety record is solid and has been improving continuously for a number of years. Our safety commitment is built on a culture that runs deep throughout our organization.

Nevertheless, in the tragic aftermath of the Lac-Mégantic accident, we believe the rail industry and other stakeholders must take further steps to advance the safe transportation of dangerous goods, which are key commodities in everyday life. For CN the central issue is managing the risk of low-probability, high-consequence incidents. In this context, it’s essential to keep in mind that a full 99.99% of CN and rail industry movements of dangerous goods arrive at destination without a release caused by an accident.

That being said, the first and foremost imperative for the rail industry and for tank car owners today is quickly solving the systemic risks posed by DOT-111 tank cars. CN is clear in its stand that old DOT-111 tank cars must be retrofitted or phased out, and that there be a reinforced standard for new tank cars built in the future.

Second, CN is committed to making its record of transporting 99.99% of dangerous goods without a release even better. While there are limited opportunities for CN to re-route dangerous goods away from urban areas, CN will do so when it can. And CN is also taking clear action to prevent and mitigate dangerous goods accidents through targeted corridor risk assessments that focus on enhancing train operating practices and flaw detection capability.

Third, when accidents do occur CN has in place comprehensive emergency response plans and resources, and will continue to work with other stakeholders on developing stronger emergency response capabilities through training support and mutual aid intervention protocols.

CN has an unwavering commitment to safety and always strives to responsibly deliver Operational and Service Excellence. CN’s broad safety record in 2013 continued to improve over that of 2012, which was the best year on record for main-track accidents. Since 2002, CN’s main-track accidents have declined by more than 50% despite rising freight volumes.

Five things for shippers considering intermodal

David L. Starling , President and CEO, Kansas City Southern

Dave Starling and Locomotive DSC9299 bIt’s no secret inside the railroad industry and investment community that the intermodal sector is growing rapidly. In reporting KCS’ 2013 year-end revenues, we told the market that the intermodal sector is up year over year and one of the fastest growing areas of our business. For KCS, the intermodal sector is providing significant, real potential for long-term growth driven by cross-border traffic; automotive plants, along with their respective Tier II suppliers, coming on line in Mexico; and a market share shift from truck to rail.

We know that KCS’ current franchise cross-border intermodal market share represents less than 3% of the available market. We also know that 3.1 million truckloads originate or terminate in KCS’ target market with 50% of loads moving to and from locations deep in Mexico.

Our ability to convert more traffic from truck to rail and secure more of the available intermodal business depends on two things: serving existing customers well, and educating potential customers (third parties and beneficial owners) about the advantages of moving their products via intermodal.

If I had only a short time to tell a potential customer why they should convert from truck to rail, I would focus on the following:

• Ease of crossing the border. KCS’ rail network has operations in both the U.S. and Mexico, allowing KCS to continuously improve transit time and equipment utilization and reduce terminal dwell.

• New service offerings with gateway partners. KCS is only one interchange away from any major market in North America. These interchange gateways extend our network reach and that of every major railroad. For example, CSX’s mega-facility in northwest Ohio is increasing traffic through KCS’ intermodal facility in Kansas City, Mo. Norfolk Southern’s Crescent Corridor is helping customers cut transit times, avoid congestion in Atlanta, Ga., and providing KCS customers (cross-border customers in particular) with access to the northeast U.S. Our gateway strategy to extend our network reach by partnering with connecting carriers and supply chain partners is an industry strength and we continue to provide customer solutions beyond markets we serve directly.

• Investing in the International Intermodal Corridor. KCS’ investments in intermodal facilities in the U.S. and Mexico is changing the landscape of the North American intermodal network, bringing service to areas like Houston, Tex., where it didn’t exist before. In 2014, KCS will continue work to expand intermodal facilities at Puerta Mexico (Toluca/Mexico City), Salinas Victoria (Monterrey), Interpuerto (San Luis Potosi), and Kendleton, Tex. (Houston). We will also begin construction on a new intermodal facility in Wylie, Tex., centralizing KCS’ Dallas-area facilities. KCS intermodal facilities are state-of-the-art and adding capacity for the expected intermodal growth.

• Changing regulatory environment for trucks. Driver shortages, more and stricter rules, and fewer hours on the road for truck drivers mean fewer available drivers and greater demand, which means shippers may need to be flexible with logistics planning.

• Intermodal is a green option. Moving freight from truck to rail takes trucks off our overcrowded highways. Railroads are a more fuel-efficient option with a 75% smaller carbon footprint vs. truck. Plus, changes in emissions regulations for tractors are driving down the fuel economy.

KCS proudly serves what is an ever-expanding intermodal frontier—Mexico. While larger U.S. railroads compete for east-west traffic with long-term deals and competitive rates, Mexico presents one of the last great opportunities for over-the-road conversion. As freight patterns shift, KCS is in place with the capacity to serve this burgeoning market.

The continuous commitment of short lines

Richard F. Timmons, President, American Short Line and Regional Railroad Association

TimmonsIn the beginning there were just short lines. But the ideas and dreams and visions of early local railroad entrepreneurs sprawled into small networks and gave to these early railroaders a sense of what might be possible.

It seized the imagination of those now legendary industrialists of the late 19th and early 20th centuries. They attempted big things, struggled with unheard of challenges, and saw the potential of railroads even as they strived to expand their crude networks and coped with the poor science of the day.

Yet these men and their ideas shaped America and American life every day and protruded into every dimension of a growing nation. Their thoughts and dreams spilled out in an endless parade. The Transcontinental Railroad and military logistics and operations during the Civil War opened the vast potential of the great plains, were the backbone of the Panama Canal, created domestic and foreign commercial markets for millions, exposed the abundance of our resources, put millions to work, and forcefully expanded their influence and networks across the continent.

These small early railroads focused hard on meeting some demand for consumers. Despite the rapid growth and unheard-of technical and scientific breakthroughs that were in evidence in the railroad industry, the economics of service and competition were the principles that made expansion and profits possible.

Today the freight railroad networks that have evolved throughout North America are the envy of the world. Nowhere are volumes of such diverse commodities moved with greater efficiency or reliability and safety than in the U.S. These are privately owned companies, large and small, knitted together to provide excellent service to the farms, factories, ports, terminals, mines, well sites, and cities and communities across the country. Short Line and regional railroads significantly increase the efficiency, productivity and competitiveness of freight movement. They are the beginning and end of the journey for many in this economy. Fifty thousand miles of short line right-of-way and 550 short lines and regional railroads are in service every day reinforcing the economy, working with Class I railroads, and concentrating on service to customers 24 hours a day.

This has all been made possible through a continuous commitment of short line railroads to improving and expanding facilities, upgrading infrastructure, and incorporating technology that allows enhanced communications with customers and Class I partners. Nearly 28% of the bottom line revenues of small railroads are invested annually in infrastructure and equipment laying the foundation for safe and productive transport of over 7.5 million carloads. This origination number covers all commodity groups in 2013 to 49 states as well as Canada and Mexico. The majority of this investment has been made by short line and regional railroads and reinforced by the Short Line tax credit: a federal program to strengthen and expand the rail network.

The “First Mile-Last Mile” of the any freight trip is demanding but it is where small railroads excel. Their flexibility, adaptability, and customer commitment are central to their record of successes. The clear evidence of this is the explosive growth of short lines in the past 30 years from 243 railroads to 550 today. The safety record is impressive and clearly has enhanced their high standing with more than 12,000 customers, as well as Class I railroads, through hundreds of thousands of interchanges each year. In the end, the strength of the short line railroad segment of the industry rests on its contributions toward expanding the reach of rail service, opening commercial opportunities, providing unequaled service to customers, and making highway travel safer and more efficient.

A 21st century investment program for passenger rail

Joe Boardman, President and CEO, Amtrak

Joseph Boardman Amtrak 2009Intercity passenger rail has been growing for more than a decade with Amtrak setting ridership records in 10 of the past 11 years. Several states have started new or expanded and extended existing passenger rail services in recent years. Amtrak and various states are buying new equipment to support the increasing numbers of passengers that keep showing up at stations.

In addition, Amtrak is constantly asked by everyone from rural communities to the nation’s biggest cities to deliver more and better service. Many towns without intercity rail service are seeking to be Amtrak-served communities. Can this growth continue? I believe it can because the demand is there, but it faces challenges that must be overcome.

As a nation, we’re not really making the investments we need for growth and improvement—we’re just barely keeping the existing system going. Amtrak, like everyone else in the transportation business, is trying to keep pace. We have to make do, cramming more onto the existing and aging infrastructure, and missing real growth opportunities.

In addition, communities are starving for tangible transportation improvements that can meaningfully impact their lives, particularly as airlines and intercity bus companies abandon small town America. State and local leaders see passenger rail as providing the connectivity, mobility, and economic development they want and need.

In many key respects, transportation has gotten worse for many Americans—and more expensive. This isn’t an Amtrak problem. It’s a national problem, and it’s symptomatic of the declining emphasis we’ve put on national connectivity in recent decades.

Look at the airline business. About half of airline flights on routes of less than 500 miles have been discontinued since 2005—and this is hitting small and mid-sized communities hard, and making it difficult for them to grow, or even to do business outside town limits.

Under these circumstances, you might think that strengthening national connectivity between our communities and economic centers would be a national priority. But if you thought that, you would be wrong. It’s not.

This year, Congress and the Administration will take up the reauthorization of federal funding for surface transportation. The focus of discussion is on the Highway Trust Fund (HTF), but it is financially unviable and built on an outmoded vision for mobility in the United States. We need to be thinking about how to replace it with a surface transportation program for the 21st century.

The HTF is an important policy tool for states and mass transit systems. It provides what is considered essential for complex multi-year projects—long-term planning and funding, because it is not subject to the annual appropriations process. And while there is a congressional limitation on contract authority, it has not posed a problem for states wishing to advance projects once the formula distributes funding for them.

When it started, the HTF had a real vision—to build the 47,000-mile Interstate Highway System. That work was substantially completed in 1992, and today the program has expanded and it pays mostly for maintenance of 220,000 miles of highways, less than a quarter of which are Interstate highways. Local transit was made eligible for funding in 1982, but intercity public transportation is still not eligible.

Bicycle and pedestrian projects, recreational trails, enhancement projects, and freight and passenger rail projects like CREATE were also funded by the HTF as the years went by. In 2008, the HTF could no longer sustain the demands on it and Congress began to transfer money from the general fund to HTF. Including 2014, that has amounted thus far to $53 billion dollars. The U.S. Department of Transportation says the HTF is set to run out of money again as early as August 2014.

Said another way, the federal government has been regularly tapping the general fund since 2008 to bail out a 60-year-old program that has lost its sense of direction.

We need a new, balanced federal surface transportation program that can provide investment in any of our surface modes—including highway, transit, and rail (both passenger and freight)—and would unshackle transportation planners, system users, and other decisions makers from simply chasing mode-restricted dollars and instead ask them to produce results that matter to the nation.

I believe the United States needs a new focus as it restores a sense of direction for 21st century connectivity. Our vision must be to provide the connectivity that will enhance and extend our global competitive advantages. The vision for the Interstate system and the HTF in 1956 was national connectivity for commerce, for defense and for the common good. The vision is still good, but the focus has been lost.

We need a federally funded Interstate Surface Transportation program that is focused on all surface modes maximizing their ability to provide their unique contribution to the most efficient and productive nation on earth. A world-leading economy today requires a world-leading transportation system supported by a new, mode-neutral trust fund that strengthens the whole network.

If national outcomes are our goal, I believe that federal investments in Amtrak have a home in a redefined, well-targeted surface transportation program. In particular, the operation of long-distance trains is a core federal responsibility, as is capital funding for Northeast Corridor infrastructure to establish a state of good repair, expand capacity for the future, and reverse a rapidly increasing degradation of components, ride quality, and system reliability.

Some may think redefining our approach to transportation investment may produce winners and losers, but that’s the wrong way to think about it. The right way is to think about transportation is as a tool for producing national outcomes. To forge it, we make some important choices—choices that go deeper than continuing to do something because it’s the way we’ve always done it.

The nation is facing a real challenge, and the bankruptcy of the HTF is just the tip of the iceberg. This is not an insolvable problem—if we are willing to work together to solve it. It won’t be easy, but if we strive in good faith, we can find a way through to a solution that will give America what it needs.

The people out there—customers, constituents, citizens, and taxpayers—want us to deliver good, relevant infrastructure solutions. As transportation leaders, we have a challenge to meet, and it’s one that we can no longer afford to dodge or neglect.

Rail transit: A growth industry somehow goes largely unnoticed

Douglas John Bowen, Managing Editor

Across North America, rail transit’s growth—and success—is becoming increasingly impossible to ignore.

And don’t think rail suppliers—established players and newcomers alike—haven’t noticed.

Just a generation ago, U.S. “commuter rail” systems were limited mostly to the waterfront heavyweights and holdovers. Light rail transit (LRT) or streetcars existed in the surviving “seven sisters,” and new LRT systems in Edmonton, Calgary, San Diego, and Portland were launched under clouds of doubt.

Those days seem increasingly distant, as new rail starts sweep across the U.S. and Canada, oblivious to local political ideologies and shrugging off issues of “relative” urban size and density. Citizens don’t just want rail transit; they’re seeking it out, advocating for it. And political figures at the local, state, and federal levels are responding to that interest in rail, sometimes even leading it, as fiscal concerns, land use issues, and resource problems (energy, water, infrastructure decay) spur the need for adaptation.

Even just five years ago, new streetcar lines had a toehold in three Pacific Northwest cities, complemented by heritage lines in San Francisco and New Orleans. In 2013, South Salt Lake, Utah, joined the club. In 2014 alone, Atlanta, Tucson, Ariz., and Washington, D.C. will commence streetcar operations. Portland, Ore., a rail trendsetter, will add significant streetcar mileage. Places such as Charlotte, N.C., Cincinnati, Dallas, and Kansas City continue streetcar line construction. And a list of cities too long to list here are planning routes, identifying funding sources, and moving toward a rail transit future.

Five years ago, no U.S.-based company was building streetcars. Today, United Streetcar, LLC, and Brookville Equipment Corp. are in fierce competition with several big competitors with U.S. operations for a share of the streetcar market.

Meanwhile, LRT, once in the vanguard of rail transit submodes, continues growing in Denver, Phoenix, Portland, Seattle, and Toronto, with new lines debuting this year alone in Dallas (yet again), Houston, and St. Paul, Minn.

Interestingly, both of those rail submodes include access to major train stations in a number of cities, offering passenger intermodal opportunities now and in the future for connecting rail services to and from city centers, as well as to and from Amtrak and VIA Rail Canada connections. That suggests urban rail transit momentum may eventually “trickle up” to aid and bolster larger rail efforts, including regional (“commuter”) passenger rail, intercity rail, and even higher-speed rail (HrSR) and true high speed rail (HSR).

“I would suggest that the U.S. will experience a ‘back to the future’ passenger rail renaissance,” says Anthony Perl, professor of Urban Studies and Political Science at Simon Fraser University in Vancouver, B.C. “Just like the late 19th century, when local communities first recognized the advantages of rail transport for short distances, and only later connected these systems up—first through interurbans and then through intercity passenger rail—the current renaissance of rail transit will be an important precondition for future success in intercity passenger rail.”

Such preconditions are not yet fully in place, as evidenced by the resistance (or at least lack of interest) some still hold for larger rail projects covering larger geographic spans. “’What’s in it for me?’ is much easier to say when one’s talking high speed rail, even on [Amtrak’s] Northeast Corridor, compared with your neighborhood light rail stop,” one New Jersey rail advocate observes.

California sports the most light rail systems (five) of any state in the U.S., all in cities to be served by the state’s 700-mile HSR network, but outright resistance to the project continues to slow progress, often generated by mid-sized, midpoint cities with no current stake in any kind of rail transit at all. The state’s “blended” approach marrying HSR and conventional rail development has mollified some communities and objections, but the payoff for many seems distant and remote.

Then again, three decades ago, “new” LRT lines in Edmonton, Calgary, and San Diego were dismissed by skeptics as a flash in the pan; the payback to those cities, and numerous others, today appears almost a given. Indeed, the changes and progress “across the continent” shortchanges Hawaii, in particular Honolulu, now building its elevated rapid transit line to serve the state’s largest city—more proof of a figurative sea change for the better in rail transit’s fortunes.