CAPACITY AND THE FUTURE OF RAIL INFRASTRUCTURE
Dr. Malcolm Cairns Research and Consulting
Presentation to the Rail-Government Interface Conference, Ottawa,
February 26 2015
Outline

Definition of Capacity

Transportation Market and Corridor Level

Network Level

Co-production Increases Capacity

Rail Capital Expenditures

Technology and Innovation

Future Rail Capacity Requirements
Dr. Malcolm Cairns
 CP Network Capacity Projects
 CP Centralized Traffic Control Projects

Regulatory Constraints Impact Future Capacity
 Issues Related to Western Grain
 Noise/Vibration Complaints and Railway Crossings

Government Investment
 Asia-Pacific Model and the Roberts Bank Corridor

Conclusions
Capacity and the Future of Rail Infrastructure
1
Definition of Capacity

The capacity of rail – like other transport modes – is a complex issue

Rail capacity can be considered at several levels:






Asset efficiency: Equipment and locomotive crews
Operational Management: Length and weight of trains, balancing of traffic flows, coordination with shippers and other
stakeholders, handling of bottlenecks – including winter/accident recovery
Infrastructure: Track structures, sidings, signaling and multiple tracks
If rail is part of a supply chain, then capacity also impacted by terminals, ports, trucking, shipping
At the network level capacity may be reported in several ways:




Transportation Market: The capacity of a specific transportation market which involves a given origin, destination and
commodity. Rail may be one segment in a transportation market which may involve other rail and modes in a supply chain
Rail Corridor: A number of transportation markets may coexist in a given rail line corridor with specific train capacity
Rail Network: The overall capacity of a railway and its network
At the market or corridor level several factors are involved:



Dr. Malcolm Cairns
Volume of total traffic moved in a given period
Volumes of traffic by commodity groupings moved in a given period in a general direction – east, west, south
Average train speed
There are diverse measurements available at each level:





Revenue ton-miles (RTMs) and Gross ton-miles moved
Cycle times and Dwell times
Number of train starts
Number of trains per day
Number of carloads per week/cars online
Capacity and the Future of Rail Infrastructure
2
Transportation Market and Corridor Level (1)
Dr. Malcolm Cairns
ASSET EFFICIENCY

Freight Cars: New materials, stronger wheel
assemblies, lower tare weights leads to increased
content volumes per car

Locomotives: Higher HP, more reliability leads to
fewer locomotives moving longer heavier trains

Train Crews: Better training, more technical assists
leads to reduced crew size, longer crew runs at
higher speeds
OPERATIONAL MANAGEMENT

Improved balancing of cars, locomotives and crews through IT produces a balanced and consistent
traffic cycle

Redesign or elimination of rail yards reduces dwell times

Coordination with shippers and other stakeholders




Consistent delivery of cars reduces bunching and congestion
Reliable and rapid loading and unloading reduces cycle times
Advanced IT has improved communications between the parties and reduces unexpected delays
24/7 operations at origin and destination will improve throughput
Capacity and the Future of Rail Infrastructure
3
Transportation Market and Corridor Level (2)
Dr. Malcolm Cairns
INFRASTRUCTURE

Track Structures: Weight of Rail, Strength and durability of ties, quality of ballast and
sub-grade – improvements lead to increased train weights and speed

Sidings: The length and frequency of occurrence of sidings leads to improvements in the
operations of a single-track corridor

Signaling: Extending Centralized Traffic Control (CTC) to more of a rail network increase
the number of trains per day that can be moved in a corridor

Double/Triple tracking: With sufficient property in an existing corridor, double or even
triple tracking is possible and will eliminate meets and significantly improve capacity

CP and CN western corridors through the Rocky Mountains can now handle more than
35 trains per day

By way of contrast, the western corridors of BNSF and UP can handle over 100 trains
per day

This provides a glimpse of what the future rail infrastructure in Canada might look like,
given the right economic and regulatory conditions
Capacity and the Future of Rail Infrastructure
4
Transportation Market and Corridor Level (3)
Dr. Malcolm Cairns

If rail is part of a longer supply chain then other factors impacting throughput capacity may be involved

Pick up and delivery trucking constraints such as road congestion

Loading and unloading terminals




Speed of loading or unloading rail cars – loop track configurations
Storage capacities
Hours of operation
Port facilities




Size of property to ground containers
Speed of cranes loading and unloading ships
Labour relations with longshoremen and truckers

Illustration of the Aluminum Supply chain

Alumina






Ship capacities
Speed of transit
Offshore sources Australia, Jamaica, Guinea, Brazil
Bulk ship to Port Alfred on the Saguenay River
RS shortline to aluminum smelters at Arvida or Alma
Aluminum billets



Marine shipping
RS shortline to the connection with CN
CN movement to domestic and US destinations – perhaps interlined with a US railroad
Final Products


Destinations are factories: aerospace, automotive, packaging, or fabrication
Final move by truck to construction sites or retail outlets
Capacity and the Future of Rail Infrastructure
5
Network Level

Exhibit 2 demonstrates that the overall traffic
volumes handled by CP and CN in terms of RTMs has
kept pace with the demands of the national economy
and matched real GDP growth

Since 1990 real GDP grew by an annual average of
1.9% while rail traffic grew by an annual average 2.2%
Note the downturn in rail traffic during the financial
crisis and the subsequent strong recovery

Exhibit 3 illustrates the growth in CP intermodal
traffic when compared with total CP traffic

Intermodal traffic has grown at a faster pace than
traffic overall since intermodal traffic is more closely
aligned with the trade sector, which in turn has grown
with increased globalization

The financial crisis negatively affected rail intermodal
traffic and it has not yet fully recovered, but the
average annual growth between 1990 and 2007 was
6.2% in line with the growth in international trade

It is clear that CP and CN have provided sufficient rail
capacity to meet the challenge of serving overall
demand for several decades
Capacity and the Future of Rail Infrastructure
Dr. Malcolm Cairns
6
Co-production Increases Capacity

Dr. Malcolm Cairns
CP and CN engage in “co-production” – a
form of commercial access, to improve
efficiency and service:




Directional running – Fraser Valley
Reciprocal access to bottleneck locations Vancouver
Access to line haul segments – northern Ontario
More complex arrangements – US north east

These are commercial agreements, do
not generally provide the right to solicit
traffic, and do not impact rail
competition

The impact of these many
co=production agreements has been to
increase the rail capacity of both CP and
CN together

Such co-production agreements have
also involved US railroads when
appropriate

Such collaboration along a supply chain
can also increase capacity
Capacity and the Future of Rail Infrastructure
7
Rail Capital Expenditures

At the heart of the ability of the Canadian
freight railways to meet the challenges of
increasing future demand is the level of
investment or capital expenditures

Exhibit 4 presents the combined capital
expenditures of CP and CN in Canada from
2000 to 2013. The increasing trend is
apparent despite the dip during the
financial crisis

Exhibit 5 presents the components of
capital expenditures by CP and CN in 2013.
The dominance of track and roadway, and
to a lesser extent rolling stock, is apparent

It is a favourable regulatory regime and its
stability going forward that provides the
railways with its favourable investment
climate
Capacity and the Future of Rail Infrastructure
Dr. Malcolm Cairns
8
Technology and Innovation
Capacity and the Future of Rail Infrastructure
Dr. Malcolm Cairns
9
Future Rail Capacity Requirements

Cambridge Systematics Inc. has forecast US
freight demand for AASHTO in 2000, 2005
and 2010

As presented in Exhibits 7 and 8, their
forecasts have been declining, and the rail
investment gap has also been declining

Forecasting is not an exact science. Recent
unexpected events: 2008 financial crisis,
the dramatic increase in shale oil
production, and the dramatic drop in the
price of oil

Future environmental developments may
further curtail the use of coal

Wish lists from shippers or governments do
not make for reliable railway investment
decisions

Rail will and should invest when shippers
commit to traffic volume increases and
freight rates in contracts, and the internal
rate of return is appropriate
Capacity and the Future of Rail Infrastructure
Dr. Malcolm Cairns
10
CP Network Capacity Projects
Capacity and the Future of Rail Infrastructure
Dr. Malcolm Cairns
11
CP Centralized Traffic Control Projects
Capacity and the Future of Rail Infrastructure
Dr. Malcolm Cairns
12
Regulatory
RegulatoryConstraints
ConstraintsImpact
- Western
Future
Grain
Capacity
(1)

Dr. Malcolm Cairns
In May 2014, the federal government passed the Fair Rail for Grain Farmers Act “to help deal with the
current backlog in the grain handling and transportation system” and to “facilitate the movement of
grain by rail”
BACKGROUND

2013 Fall crop of western grain at 76 million tons was 50% higher than average – some 35 million tons

CP and CN moved significant volumes in the Fall but there was spare capacity at that time

Farmers held back grain hoping for future higher prices or to push their income into the next tax year

The record crop increased the demand for rail during the 2013/14 winter which was one of the worst
years on record

All three western carriers CP, CN and BNSF were forced to reduce train frequency, size and speed

While railways have equipment, materials, and labour pre-positioned and on call to deal with
disruptions – rock, earth, and debris landslides, hydraulic erosion, avalanches, frost and snow fall – the
speed of recovery is dependent on the severity of conditions

The temporary reduction in rail capacity affected all shippers
THE ACT

The CTA to gather information from all grain supply chain
partners and to advise the Minister

The GIC has the authority to order the minimum amount of
grain that CP and CN must move in a given crop year
Capacity and the Future of Rail Infrastructure
13
Regulatory
Constraints
Impact
FutureGrain
Capacity
Regulatory
Constraints
- Western
(2)
Dr. Malcolm Cairns
Dr. Malcolm Cairns
A public policy to order railways to move minimum volumes of any given commodity is a deeply disturbing
development for several reasons:

Railways already have a strong financial incentive to move western grain traffic – and instead of issuing Orders
the federal government should consider instead eliminating the Maximum Revenue Entitlement (MRE) to
establish a fully commercial system

Favouring western grain traffic means disadvantaging other western traffic – coal, potash, sulphur, energy,
containers. It also hurts shortlines who have been unable to receive freight cars for the movement of other
traffic from CP and CN, who are otherwise focused on western grain

Government meddling leads to less capital investment by the railways over the medium and longer term which
sets back rail capacity expansion. In particular, the replacement of the aging government-owned hopper car
fleet by the railways with a more efficient fleet comes into question

One of the key issues is the variability and seasonality of western grain production. This cannot be “solved” by
government diktat and requires a balancing of interests that only the private sector can effectively and
efficiently deliver

Government’s efforts to meddle in the commercial decisions of railways has a long and inglorious history – it has
usually led to the eventual need for government subsidies or even bankruptcy
EXTENDED REGULATED INTERSWITCHING

The Act also extended regulated interswitching to 160 km for all commodities originating on the Prairies

Extending interswitching was irrelevant to the issue of a grain backlog – all westbound rail routes were affected

The amendment requires CP and CN to deliver traffic to BNSF at the border through regulated interswitching.
Why would Canadian public Policy expressly favour US companies over Canadian companies?
Capacity and the Future of Rail Infrastructure
14
Regulatory Constraints – Noise Complaints and
Crossings
Dr. Malcolm Cairns

There are two current regulatory constraints that can also restrain rail capacity and need
review
NOISE AND VIBRATION COMPLAINTS

The CTA is authorized to resolve complaints regarding rail noise and/or vibration

The complaints frequently occur in urban areas where new residential or commercial
development has been built in close proximity to rail

Rail being present first, why are these developments authorized when the risks are obvious?

Measures to alleviate the nuisance – such as sound barriers – encroach on rail property and
restrict future rail capacity expansion
RAILWAY CROSSINGS

Road authorities, municipalities, landowners and utilities may wish to cross rail property

If the parties cannot agree, the CTA may authorize a crossing – and it has become common for
the CTA to approve such crossings

More frequent rail crossings have a negative impact on rail traffic flow thereby reducing rail
capacity
Capacity and the Future of Rail Infrastructure
15
Government Investment – Asia Pacific Model

If governments in the future are concerned with the prospect that future rail
capacity may be inadequate to meet the demands of the national economy,
then the 2006 Asia-Pacific Gateway and Corridor Initiative would be an excellent
model to follow

Its purpose was to strengthen Canada’s competitive position in international
trade by:



Boosting Canada’s commerce with the Asia-Pacific Region
Increasing the share of North America bound container imports from Asia; and
Improving the reliability of the Gateway and Corridor for Canadian and North American
exports

One important component was the Roberts Bank Rail Corridor, which, as
indicated in Exhibit 9 involved a $307 million investment jointly from all the
stakeholders

The improvements included:



Dr. Malcolm Cairns
The provision of associated road closures/road detours/advanced warning systems/overpasses
Addressing the forecasted train traffic related to Roberts Bank developments to 2021 – Deltaport’s third birth and Terminal 2
Addressing the forecasted growth in population and employment, as well as the road transport networks and traffic to 2021

This was a highly successful partnership – a similar approach recommends itself for future needs

In that regard, in the CP submission to the CTA Review Panel it is stated that “Over the medium to long term we
are concerned about the ability of ports, especially the Vancouver inner harbour, to increase needed capacity to
facilitate growing trade volumes. In the case of Vancouver, there is limited access to industrial lands for future
development and there is strong community resistance to the expansion of industrial activity. Consideration must
be given on how Government policy can support future growth at Canada’s major port gateway”
Capacity and the Future of Rail Infrastructure
16
Government Investment – Roberts Bank Corridor
Dr. Malcolm Cairns
Capacity and the Future of Rail Infrastructure
17
Conclusions

Dr. Malcolm Cairns
Determination of Rail capacity is a complex matter:


Often measured at a micro-level as trains per day in a corridor
At the network level measured as volume of traffic per = perhaps by commodity group and direction

Capacity increases with asset efficiency, better operational management, and improved infrastructure

Co-production increase the capacities of the participating railways – and so does collaboration along a supply chain

Over the past 25 years:


Traffic growth at CP and CN has kept pace with the growth in real Canadian GDP
Intermodal traffic growth has kept pace with the growth in international trade

Overall, the Canadian railways have met the challenge of serving the demands of the national economy

Capital expenditures are key to increasing rail capacity to meet future demands

This requires a favourable and stable regulatory regime

Capital expenditures will continue to enable significant advances in technology and innovation, and there is room to
significantly increase the capacities of the existing networks

Wish lists of shippers and governments, and expert forecasts of future demand, are unlikely to be a reliable basis for
future rail investment decisions

The Canadian railways continue to make significant capital expenditures based upon market needs

Regulatory constraints that lead to encroachment on railway property can constrain present and future capacity –
they should be avoided

If needed, government investment associated with increasing rail capacity should follow the Asia-Pacific model

The 2014 Fair Rail for Grain Farmers Act was a step in the wrong direction to improving rail capacity and should be
allowed to lapse in 2016
Capacity and the Future of Rail Infrastructure
18