On Track

The sketch at the top of this website depicts a container ship with containers on board. Some of those boxes are destined to be freighted by truck and some by rail. Prior comments in this column dealt with hurdles facing truckers, but only if railroad problems can be adequately funded and managed will a plan be formulated that will bring timely and cost-efficient delivery to end users. But the obstacles are considerable. “The rail infrastructure is a critical problem”, says John Bowe of APL.

One of the problems that may never be overcome is the general feeling among investors that the rate of return on invested capital is unacceptable. In his recently released annual study, transportation specialist Wendell Cox stated that; “In order to carry increasing freight volumes, railroads need more capacity. Rail capacity depends on investment returns. Since railroads are not meeting their cost of capital, government policymakers may want to consider investment incentives to help meet the growing demand for freight rail”. Raising rates in order to fatten up the bottom line for investors, however, may not be possible because these rates are controlled by powerful shipping lines. These lines negotiate long-term contracts in order to keep prices at a level that generate profits for the shipping lines, albeit unattractive returns to potential investors, and because the rate of return is in low single figures, potential investors are not likely to materialize, with or without tax incentives.

The surge in cargo, however, has placed great strain upon railroads, and the amount of spending required to keep pace is almost mind-boggling. “ Keeping pace” means that BNSF, for example, is investing $ 1.9 billion in 2004 in order to add some 400 locomotives and thousands of railroad cars to its inventory, along with more than 2,000 train-operating personnel to its roles. “Keeping pace” means that Union Pacific has added 500 locomotives to its fleet in the past year and hired and trained over 3,000 train-operating personnel as well. “Keeping pace” in NY/NJ means proposing a two-track tunnel to carry intermodal trains under New York Harbor at an estimated cost of $ 7 billion, according to Rep. Gerald Nadler of Brooklyn. The wily Everett Dirksen once said that; “A billion dollars here and a billion dollars there and pretty soon we’re talking about real money”, or something to that effect. More recently, Chuck Raymond reminded us that many transportation planners acknowledge that the national highway and rail systems cannot build themselves out of this impending trade explosion.

Bear in mind also that a seagoing vessel can steer any course desired and even be redirected to an alternate destination because there are no barriers at sea. A trucker can likewise elect to take a detour because of the millions of miles of roads and highways that crisscross the nation. Trains, however, don’t have the luxury of being able to alter course. Trains are restricted to travel along existing railroad tracks, but communities will eventually put limitations on new track construction, and no amount of capital, even if it could be made available, will remove that natural barrier.