Is this New Orleans-to-Mobile Amtrak commuter-like train proposal “a rather complex story,” like the meaning behind the lyrics of the 1974 Lynyrd Skynyrd hit, Sweet Home Alabama?
For five decades, there has been considerable tension between those that run and favor the Amtrak intercity passenger train services vs. those who own the for-profit freight railroad tracks over which so many Amtrak train miles are operated.
Amtrak is what some economists call “track asset-light.” It does not own much of its own right-of-way. Yes, there are notable exceptions such as the Northeast Corridor between Washington and Boston. But Amtrak was created by Congress as a cut-down and cut-back service a half-century ago. It received second-hand but still useable railcars and locomotives. It was given grandfathered operating privileges to run its trains over the private railroads. In return for being allowed to cease money losing passenger operations, the various railroad carriers of that time so long ago were to give a big track usage discount price to the new Amtrak company.
Amtrak would pay only minimal marginal cash-type fees for its track use. That is not normally the fee paid by a going-concern company.
Thinking back now, at the time it was a business/political compromise. The railroads received some l government regulatory relief. The federal government picked up the service funding obligations of the new Amtrak. And the federal government cut its subsidy losses by promptly allowing (indeed perhaps ordering) Amtrak to cut out much of the previous train service.
Amtrak became in railroad parlance “a skinny railway network”—a thin line of tracks, most with perhaps only one train each day moving in each direction. Vast areas of the nation would no longer receive passenger services. Buses would have to fill in across much of previously rail-served territory.
The freight railroads got a symbolic equity position in the “to-be-profitable” future Amtrak—not likely an appreciating asset on their balance sheets. Plus, they received just enough in cash payments from Amtrak’s use of their private freight tracks to cover so-called “avoidable costs.”
What’s an avoidable cost, you ask? The best street definition that avoids complicated accounting or economic terminology might be this:
“An avoidable-cost payment for the use of the freight tracks is just enough money to equal the cash flow no longer needed to cover immediate and direct operating expenses if the passenger trains suddenly stopped running.” (Thank you, Randolph Resor, my departed railroad friend).
FOR 50 YEARS, TENSION CONTINUED
As some had predicted, Amtrak never really obtained profitability, not according to the best audits of their complicated accounting records. Amtrak has never broken even from its passenger revenues in trying to cover its Income Statement operating expenses, and could never cover even a token payment toward their capital replacement and long-term infrastructure expenses. No dividends were ever paid to the “equity holders.” But there was sufficient deficit funding to keep the passenger network in survival mode as a rudimentary service over its skinny network. A stream of managers in succession tried to win over the taxpayer “Amtrak owners” via the legislative process. There were some victories.
Over that half-century, the best enterprise characterization that sums up Amtrak’s strategic plight is from another colleague, Lou Thompson: “Amtrak received just enough funding from its owners’ ‘representatives’ in Washington to survive, but not enough to succeed.”
We will not here argue the complex reasons. Instead, we need to be thankful that a sufficient skeleton service mass is still there to keep the Amtrak vision alive—but not yet sustainably funded.
LOOKING AHEAD AS OF 2021
Amtrak’s future is somewhat suspended in a twilight zone. Five decades on, there still is no mechanism to execute the desired sustainability plan for either maintenance as a skinny network nor for its possible expansion to become more robust in its nationwide daily train service coverage.
There is a four-corner-like struggle enveloping Amtrak’s future. Unable to come to reasonable commercial use terms on selected new passenger route implementation, Amtrak has decided to accelerate its public policy freight train asset use argument, largely basing what happens on the current battle over restoring service between New Orleans and Mobile, Ala., the so-named Gulf Coast service. The parties involved in finding a resolution:
- The current executive and Amtrak Board leadership, which has authored a strategic vision plan.
- The asset-heavy, track-owning CSX and Norfolk Southern.
- The Surface Transportation Board (STB) staff and Commissioners
- The Supreme Court, possibly.
One of the sticky issues is that Amtrak and its plans lack a clear funding commitment. Amtrak’s owners must fund that conceptual plan.
Who are Amtrak’s owners? They are we, the taxpayers, of course. When something is nationalized, it is the people who are “invested.” Amtrak also needs a solid “rights to use freight rail tracks.” It needs a regulator, a court or some possible negotiated deal upon which it can execute its rural train plan.
Suddenly, Amtrak has elected a course to seek governmental relief from the STB. It is pursuing a legal case. Underlying that logic, Amtrak assumes it has the necessary long-term federal and state funding to execute the required capital and operating funding.
Amtrak accelerated the fight in March. In a move that appeared to be a pre-emptive strike, Amtrak on March 16th, 2021, formally asked the STB to intervene on its behalf if CSX and Norfolk Southern continue to resist cooperating on “their” hosting of Amtrak’s new service proposed between New Orleans and Mobile. Here is the core of Amtrak’s aggressive regulatory pleas:
- “Under STB procedures, CSX and NS will be required to provide Amtrak access to their railroads for this service or prove to the public why they cannot successfully host these trains in accordance with the law.”
- “Amtrak has a legal right to use this route, which has sufficient capacity to host these trains, and up to $66 million in targeted improvements to support the new intercity passenger rail service along the line awaits action.”
- “These potential investments have been reviewed, approved and funded by the Federal Railroad Administration (FRA), Amtrak and others.”
Amtrak is using this as a test case for its rights. Does it have a legitimate economic case? Speaking as an economist, yes. On the surface, Amtrak appears to have a reasonable business case for requesting the use of the private freight railroad tracks. The Amtrak marketing and engineering economic case in part rests upon a 2017 report issued by the Gulf Coast Working Group (GCWG). Here is a summary of that group’s findings:
WHERE: The dispute covers the use of a single-track rail right-of-way between Mobile and New Orleans.
HOW MUCH: The financial argument is between less than perhaps $5 million for a beta test demonstration service to just under $100 million of required operational and bottleneck capex for a fully rolled out two daily trains in each direction of commute-like service. Trainset equipment would be an additional capex cost.
However, CSX experts have countered that the required passenger/freight capital capacity improvement price tag would be magnitudes higher—around $2 billion—but has not publicly demonstrated its methodology for calculating and insisting upon those much higher costs. The FRA’s independent analysis by its safety experts is shown below in Table 1.
WHY: There is a general market demand report as to possible commuter and longer distance intercity passenger use and revenue to be earned from the farebox. There may even be several different market ridership and financial pro forma projections. This one is from a 2015 base line market demand forecast. Typical revenue per rider trip is less than $20:
The required long-term operating subsidy will at some point become a shared financial burden of the three involved states. It does not appear to be an extraordinary future annual subsidy amount in comparison to other similar commuter-range Amtrak routes.
The project has been in limbo for at least seven years. How long is that? Arguably, about a half of a generation’s term in position of organizational leadership. That’s a pretty long time to be arguing over evidence. Thus did Amtrak on March 16, 2021, in an STB filing, ask for “expedited consideration” and an order requiring host freight railroads CSX and Norfolk Southern to permit Amtrak access for twice-daily round trips starting on or about Jan. 1, 2022.
There is a critical open question: Does Amtrak have the proper funding to in fact implement this service and pay for all of the capital expenses ultimately deemed as necessary and prudent”? That is not clear. Whatever the political process on Capitol Hill, there will have to be a commitment of assets and funds from the local states and some communities for what is called “matching shares” of operating subsidies and capital grant coverage.
The Association of American Railroads (AAR) and, independently, CSX and NS have filed briefs with the STB objecting to the Amtrak pleas for an STB ruling on the matter. The AAR is a research and a lobbying group with some executive representation roles and occasionally a legal role. For more of the legal background, see this Railway Age analysis:
David Peter Alan offered his opinion in part that this Gulf Coast dispute “seems to be coming down to a contest between Amtrak and Mississippi wanting to get the trains rolling, against CSX, NS and Alabama, who are playing for time and hoping to delay the new start.”
Railway Age Executive Editor Marybeth Luczek also summarized the CSX and NS legal arguments in part with her April 8th report:
“The CSX and NS arguments for a dismissal by the STB in part came down to this assertion of three reasons.
- “’Amtrak asks the Board to rule on a dispute that is not ripe because (1) CSX and NS have not refused to accommodate Amtrak’s proposed service—they have simply asked Amtrak to live up to the commitments it made to complete a joint Rail Traffic Controller (RTC) modeling study to determine the infrastructure that will be required to support such service and (2) Amtrak lacks important state support to ensure success.’
- “The charge that ‘Amtrak asks that the Board take major federal actions with significant environmental consequences, but it fails to submit an Environmental and Historic Report …’
- “The assertion that ‘Congress did not give Amtrak any cause of action that could support its extraordinary demand for an “interim order” allowing Amtrak to enter other railroads’ lines to perform “preparations” for new service before the Board issues any decision on whether the new service will be allowed.”
In railroading’s internal culture, these assertions seem like buying time. They may or may not be true. But they ignore the agonizingly long time of failing to reach closure upon what seems to veteran rail economists like me to be a rather uncomplex sharing of track for freight and passenger business use.
Without a commercially negotiated business deal, the regulators will certainly at some point have to render an opinion. That is primarily the independent agency known as the STB. To old timers, the modern STB is a less-intrusive regulatory group than was its predecessor, the Interstate Commerce Commission. The STB is a much more laisse faire hands-off oversight group, with a far smaller staff then when the ICC played a more prescriptive decision-making and enforcing role until its function was transferred to the STB in 1996. But make no mistake: The STB does have rulemaking power—and up until now at least has not been overturned by the courts on very many of its still-important official railroad decisions.
The Supreme Court could be a wildcard party in this dispute. That’s because sometimes, the federal courts do get involved in technically difficult regulated decisions by such bodies as the STB. The federal courts might (after a regulatory process has run its course) be asked by one of the parties to make a judgment. Yet no one can be sure how the courts might rule.
There is a group of my colleagues that privately thinks about the precedents and the legal principles that the court “might” rule upon. Here are some of their debated issues:
- Would public niche-market passenger rights trump private freight rights?
- Whose value of time and value of those rail track asset “train paths” is more valuable? Freight trains delayed with hundreds of millions of dollars in supply chain commodities in each train? Or passenger trains where the sum of passenger delay costs might be far less than that of the freight customers?
It is mostly up-in-the-air thinking with no specific level of confidence in predicting the outcomes of either an STB decision or that of the courts.
CONSULTING FEEDING GROUND?
There will probably be an ongoing search for expert witnesses who can help bolster either the freight or the passenger economic benefit and costs arguments. Besides the basic “right to use freight tracks,” there will be a continuing argument as to how to penalize a railroad for delayed Amtrak trains. Amtrak wants the railroad freight companies to pay a penalty fee reimbursement for such future operational delay incidents. It clearly sees a train delay cost that should be offset.
However , this is not a one-way street:
- Amtrak seeks only reimbursement or fines for delayed passenger trains.
- In a counter move, what if freight shippers see their valuable cargo delayed because of Amtrak preferences? Should they be compensated?
We at Railway Age considered this a year and a half ago.
Congestion delay can impact different parties in different ways. Regardless of the cause, train delay costs can range from just $200 per hour per delayed train to well over $3,000 per delayed train-hour. It actually depends upon the value of time by passenger travel purpose as well as by the freight commodity being disrupted.
Random delay events are often the cited reason for train schedule interruptions. These are complex technical reasons. An Amtrak rebuttal to my above-cited column was submitted and printed, but Amtrak chose to ignore the calculated impact upon freight shipper hypothesis. And clearly, the Port of Mobile has decided that freight delays should be part of the public-need STB review process.
Let’s add a further rail freight market role complexity to the public benefit debate. Arguably, the public wants more trucks taken off the highways via more reliable, additional freight train service. The freight railroads counter that the Amtrak incremental user train path logic might limit the capability of increasing their actual “going concern” rail freight volumes. This translates to the following economic choices:
Is the general public better off with using incremental track capacity for four to six passenger cars per train daily passage, or adding freight trains with the equivalent of perhaps 300 53-foot semi-trailers? HINT: Highway pavement engineers can give us a quick answer.
How is the STB (and possibly later the Supreme Court) going to judge these technical questions? The big regulatory unknown is how the STB will adjudicate them reasonably. Why the uncertainty? Because there are not many business-case examples from the past regulatory proceedings that delt with business delay valuations. Logistics thinking is going to become an important litigating skill. Are all of the parties ready for that kind of fact-finding evidence?
When we see legal firms issuing discovery requests (for either side) for things like time sheets, equipment failure records, freight train dispatching stringline diagrams and accounting records, it will signal that tension has broken out into a series of combat battles for real. Into April and June 2021, we have seen the energy level picking up as Amtrak, the AAR and a number of freight railroads are engaged in a war of press releases and letters of protest to the STB. The legal issues are, however, complex.
Amtrak cannot grow unless access and pricing are more clearly determined. And across selective routes, the freight carriers do have a problem that critical location freight bottlenecks do exist if Amtrak use increases. Over time, every culture or period faces a rebalancing.
Here are this veteran rail economist’s views going forward:
- The STB will likely tread carefully. It may be very deliberate and test decisions in a step-like function. There is precedent for probing the parties to reach independent terms. Will that be the outcome here for the Amtrak dispute? Hard to tell.
- The STB might be better-served by ordering the parties in the Gulf Coast case to demonstrate a series of Amtrak test train runs. That would provide evidence of operational conflicts and give engineers a practical manner upon which to base capex solutions.
- STB Chairman Marty Oberman has taken to openly discussing pending rail issues. He signals an openness to listening to evidence, independently probing the issues before the Board. Do his comments tack with the Board’s majority? Hard to tell.
Meanwhile, Amtrak has increased the pace of its campaign when it made two bold and perhaps unexpected assertions.
- It attacked CSX in the pending regional railroad restructuring built around CSX’s Pan Am system acquisition. Who saw that coming?
- It seemed to attack the CN and the Kansas City Southern for misdeeds regarding Amtrak services in the Midwest and other locations out along Amtrak’s thin service routes.
Does Amtrak have sufficient damages costs and delay evidence to support its charges? Or is this like a poker game bluff?
There are other possible solutions. If the feds and the states support the Amtrak public service passenger mission, then they ought to adopt the proven action path used by others. Here are workable solutions negotiated elsewhere:
- California bought out large sections of Southern Pacific corridor tracks. The state became the primary real estate owner, as did New York State much earlier in the 1960s and 1970s when it took over parts of the New Haven and New York Central and the Long Island Rail Road, then owned by the Pennsylvania Railroad). The freight railroads became tenants. The freight railroad stockholders caught a on-time real estate dividend.
- Virginia has just recently this year repeated the pattern, buying out critical passenger-priority track and bridge ownership from CSX south of Washington D.C. Now Virginia is now negotiating with Norfolk Southern.
The future of freight railroading’s business model may strategically be enhanced by milking its hard-to-reproduce linear rights-of-way. The private freight railroad rights of way might be the next-step function growth for those freight carriers—not everywhere, but in some key corridors.
Here are observations by one passenger rail independent expert, Will Allen a Raleigh-based rail member of the GoTriangle (Central North Carolina Regional Transit Authority) Board of Trustees. As to freely negotiated use of freight tracks, he writes:
“Virginia is on the right track (pun intended) with its recent purchases, including the CSX S Line all the way to Ridgeway, N.C., where North Carolina hopes to negotiate buying the S Line from there to Raleigh.”
This is the public policy path that other states have found to be productive as to sharing rail freight assets. It’s a simple economic shift. In return for cash now plus future access rights conditions for the continuing to use private railroads, passenger rail gets an increased level of operational control.
2021-2022 will likely see some testy moments as these parties jostle for leverage. They are going to be looking for deep thinkers to support their arguments.
Or, perhaps two leaders, unexpectedly, reach a bargain that sets up a new spirit of business cooperation. Who might they be? The history of mankind suggests it might be led by someone who today is an outsider. I am not predicting winners or losers, leaders or followers.
STRANGER THINGS: Did you know that Lynyrd Skynyrd’s “Sweet Home Alabama” cracked the Top 10 back in 1974? It went on to be a sort of fight song for the University of Alabama’s Crimson Tide football team? And that CSX, Conrail Shared Assets and Norfolk Southern more than 60 years later still run freight trains at discounted use rates over the passenger real estate tracks of both New York State (MTA) and New Jersey (NJ Transit)? And that Union Pacific (successor to Southern Pacific) still runs freights over California’s Metrolink commuter line tracks—while Phil Anschutz of SP and DRGW fame got richer?
Independent railway economist and Railway Age Contributing Editor Jim Blaze has been in the railroad industry for more than 40 years. Trained in logistics, he served seven years with the Illinois DOT as a Chicago long-range freight planner and almost two years with the USRA technical staff in Washington, D.C. Jim then spent 21 years with Conrail in cross-functional strategic roles from branch line economics to mergers, IT, logistics, and corporate change. He followed this with 20 years of international consulting at rail engineering firm Zeta-Tech Associated. Jim is a Magna Cum Laude Graduate of St Anselm’s College with a master’s degree from the University of Chicago. Married with six children, he lives outside of Philadelphia. “This column reflects my continued passion for the future of railroading as a competitive industry,” says Jim. “Only by occasionally challenging our institutions can we probe for better quality and performance. My opinions are my own, independent of Railway Age. As always, contrary business opinions are welcome.”