Rail Transportation In the U.S. - Impacts
Presentation to AASHTO – Standing Committee on
Rail Transportation – September 8, 2014 Denver
Whiteside & Associates – Billings, Montana
Four Briefing Items
1.
2.
3.
4.
U.S. Rail Maps and Rail Concentration
Rail Captivity and its effects on State and their economies
Coal/Oil/Intermodal – Growth Traffic - Movements on Rail
Role of Communities/Government in assisting with upcoming
impacts of increasing rail traffic
B
N
S
F
U
P
The Big
Four
Control
Over 95%
of all
Ton-Miles
Hauled
N
S
C
S
X
Burlington Northern/Santa Fe
UPSP
CSX/Conrail
Norfolk Southern/Conrail
Did HASBRO, in 1935, Get It
Right About Railroads?
They said, “if you own all four of the
railroads….you are allowed to charge
8 times the rates
that you can charge if you only own one railroad”!
The Union Pacific ‘Opoly’ Game
Is On The Shelves!!!!
•The UP became the UP of
today by buying the Southern
Pacific, the KATY, the Missouri
Pacific, The Denver & Rio
Grande, the Chicago
Northwestern, and the Western
Pacific…..
•On the Denver & Rio Grande
card it states: Rent = 4 times the
amount show on the dice, 10
times amount shown on the
dice if both “Western Pacific”
and “Denver & Rio Grande” are
owned!!!!!!!! (see lower right
hand corner)
If the UP gets it, why not everyone?
WHAT IS THE CAPTIVE SHIPPER RAILROAD
PROBLEM IN U.S.?
1. Combination of ineffective regulation and ineffective competition
2. Monopoly railroads control essential facilities of commerce
3. Railroad negotiating position is too often “Take it or leave it” or even “No,
we won’t allow that”
4. STB rail regulation is too expensive, too slow and too rarely actually helps.
Railroads are not penalized when they act unlawfully. At most, they are
merely required to undo the damage they caused (e.g., refund excess rates
after the rare successful shipper rate challenge)
5. In U.S., rail short lines are neutralized and antitrust laws are largely
inapplicable due to erroneous assumption of effective regulation
Times and Markets Have Changed;
Policies Have Not
1980: Policy Goals
2014: Time to Reassess
Strengthen Railroad Finances
Railroads are Financially Sustainable
Provide Quick Dispute Resolutions
Disputes Costly and Time Consuming
Ensure Effective Competition
Wherever Possible
Policies Prevent Shippers from
Competitive Access and Reasonable Rates
Maintain Reasonable Rates Even
Without Effective Competition
Rail Mergers Significantly Reduced
Competition and Rates Soared
“The goal of the Staggers Acts was not to enrich railroad companies, but to ‘provide a regulatory process that
balances the needs of carriers, shippers, and the public.’ [Policymakers] will need to carefully consider whether
changes are needed to reach this goal.”
- Senate Committee on Commerce, Science, and Transportation; 2013
Most Shippers Lack
Competitive Rail Service
78% of freight rail stations are captive by a single Class I railroad.
In every state, the majority of rail stations are now captive to a Class I railroad.
Source: Analysis of Freight Rail Rates for Chemical Shippers; Escalation Consultants; 2012
How Rail Rates Are Measured by The Surface
Transportation Board (STB)
• There are two components of any cost – fixed and variable
• STB for regulatory purposed measures and models RR Variable Costs based
upon an allocation model called the Uniform Rail Costing System (URCS)
• To measure relative profitability – a ratio of Revenue/Variable Cost (called RVC)
of a movement is developed
100% RVC is exactly what you would think – those 100% of costs that vary with output
120-140% RVC is where most economists believe are the full cost of railroad for its
operations
< 180% RVC – the STB does not have jurisdiction to adjudicate the fairness of a rail rate
>180% RVC is the Congressionally mandated threshold where the STB can adjudicate the
fairness of a rail rate
the degree to which a rate is above 180% is the degree of ‘Premium’ the railroad is
exacting from the movement
Revenue to Variable Cost - Rail Wheat Shipments
BNSF and UP to Mexico Crossovers, Gulf and PNW - January 2014
360%
Revenue to Variable Cost (URCS) in %
351%
332%
308%
319%
303%
292%
274%
303%
308%
306%
278%
239%
225%
260%
251%
216%
180% RVC - Threshold of Unreasonable Challenge
Origin
205%
Revenue to Variable Cost - Rail Wheat Shipments to Gulf
BNSF and UP - March 2014
Revenue to Variable Cost (URCS) in %
Rates to Gulf on Wheat (BNSF and UP) Are
Well-above the Threshold of
Unreasonableness
490%
436%
333%
293%
305%
281%
272%
269%
245%
180% of Variable Threshold of Unreasonable Challenge
Origin
Whiteside & Associates
Billings, MT March 2014, email: twhitesd@wtp.net
Two Avenues to Address High Rate
Structures
1.The Surface Transportation Board adjudicates railroad
rate and service railroad cases
• The Alliance for Rail Competition and individual states
(Commissions, Committees, Attorney Generals, etc.) can
and do participate in STB cases or at the STB bar on behalf
of the growers, merchandisers and their constituents
2.To change policy at the STB, requires legislative action
• There is a Rail Customer Coalition operating in DC of which
the Alliance for Rail Competition, NAWG and the ACC
together with other groups, actively participating and
working to educate policymakers about the rail shipper
problems and regulatory/competition issues
What I Worry About Re:
Future Rail Mergers
• The “final solution” – i.e., east-west trans-con
mergers (e.g., BN-NS and UP-CSXT or BN-CSXT and
UP-NS).
• UP and CSXT cannot sustain billion dollar losses per
year from the reduction in coal traffic. They will look
to merge to create synergies (e.g., more efficient and
less costly intermodal traffic) to help off-set these
losses.
• Big Hurdles to accomplish this – may occur with
working agreements first
• Result: Duopoly over the whole country
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BNSF AVERAGE TRAIN SPEED IN MPH
Chart II – BNSF Systemwide Average Train Speed – System and Grain
BNSF Systemwide Average Train Speed - Grain Vs System
25
24
Train Speeds
(all)
Train Speeds
(grain)
23
22
21
20
19
18
Source: American Association
of Railroads
Whiteside & Associates
Billings, Montana
08/28/2014
Email: twhitesd@wtp.net
17
Increasing Coal, Oil and Intermodal Spell Capacity
Problems
Poor Service =
Tighter Capacity =
Higher Prices for Traditional
Commodities
Figure 23 from HTSA, February 2014
North Dakota Crude Oil Production
BNSF ORIGINATED CARLOADS PER QUARTER
OF CORN, WHEAT & SOYBEANS VS. OIL & SAND
160,000
140,000
120,000
BNSF Carloads
100,000
Corn, Wheat & Soybeans
80,000
Oil & Sand
Linear (Corn, Wheat & Soybeans)
Linear (Oil & Sand)
60,000
40,000
20,000
0
2Q 2011
3Q 2011
4Q 2011
1Q 2012
2Q 2012
3Q 2012
4Q 2012
Date by Quarter
1Q 2013
2Q 2013
3Q 2013
4Q 2013
1Q 2014
23
Chart IV
BNSF Originated Carloads Per Quarter of
Wheat Compared to Oil and Sand
BNSF ORIGINATED CARLOADS PER QUARTER
OF WHEAT VS. OIL & SAND
120,000
100,000
BNSF Carloads
80,000
Wheat
60,000
Oil
Linear (Wheat)
Linear (Oil)
40,000
20,000
0
2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014
Date by Quarter
24
The Decline in Coal Movement and the BNSF
shift to Westbound Export Coal + Oil –
Impact on Grain Rates
The decline in coal movements and the shift to
potential export movements is important to and for
grain shippers for several reasons:
• Domestic grain rates will likely increase,
especially on CSX, NS and UP
• Capacity for export grain transportation will tighten
as RR’s export coal and Bakken oil shipments
increase and, as a result, RR’s export grain rates will
increase. There will also be an impact on revenue
adequacy. Five RR’s are now Revenue Adequate
Table II
Recent Increases in BNSF Grain Rates Per Ton Carried
Poor Service = Tighter Capacity = Higher Prices
The Danger is Ever Present
All Oil Fires in Past 2 Years Bakken Oil
What Can The Communities/Government
Do To Provide Mitigation/Planning?
Conclusion & Recommendations
• This is not a time for panic for Communities – but it is a time for conversations to be
initiated among all of the stakeholders
• RR’s continue to state publicly that estimated coal numbers are not realistic while
confirming that at “50 to 100 Million tons” are on track to move to “2 or 3 terminals.”
• ‘Don’t concern yourself professed by some of the railroads’ is not a strategy that will
produce solutions
• ‘Let the process work professed by some of the railroads’ – fact: there is no process to
involve or protect stakeholders
• Not all coal, intermodal, oil volumes will come to fruition – but in the PNW for example,
in Longview and Cherry Point and BC Roberts Banks – most advanced are on track to
move over 110 million tons/year. FACT: Not all terminals will NOT be built but the
danger to communities of transporting hazardous loads by rail will present
challenges
• Work together with cities, towns, railroads, environmental organizations, assessing
environmental impacts, coal companies, associations, commissions and state, federal
and Congressional reps makes sense
• Looking forward – the path towards solutions requires engagement of all parties and
developing conversations and concerns
• Example: The Northern Tier of the BNSF is suffering the worst service meltdown in
modern history – started with increasing coal and oil shipments in 2012
• Cities and communities need to develop data or what impacts/solutions they need
• State DOT’s need to be pro-active with communities, transportation providers to help
develop solutions and collaboration to mitigate expected impacts