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“Trouble Ahead – Trouble Behind”

“Trouble Ahead – Trouble Behind”. Overview. Recent History What Works What Doesn’t Work Why? Where Are We Headed?. Where Did We Come from? Major Trends 1945 - 1980. Rail Industry in Decline Since WW II Intermodel Competition Captures Passengers and Smaller Freight Shipments

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“Trouble Ahead – Trouble Behind”

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  1. “Trouble Ahead – Trouble Behind”

  2. Overview • Recent History • What Works • What Doesn’t Work • Why? • Where Are We Headed? Rail Freight: Issues and Policy Challenges

  3. Where Did We Come from?Major Trends 1945 - 1980 • Rail Industry in Decline Since WW II • Intermodel Competition Captures Passengers and Smaller Freight Shipments • Steady Process of Disinvestment • Competition Based Heavily on Service • Regulation • Held Rates Up Overall • Prevented Network Rationalization • Limited Service Innovation Rail Freight: Issues and Policy Challenges

  4. Where Did We Come from?Major Trends 1980 - • “Deregulation” • Enabled competition to force rates down • Permitted network rationalization • Permitted service innovation • Industry Consolidation • More Disinvestment • Rise of Short-Lines • Competition Based Mostly on Cost Rail Freight: Issues and Policy Challenges

  5. What Works 1980 - • Profitability Improved Since “Deregulation” • Very,Very Efficient Goods Movement • Consolidation of Railroads has Permitted Greater Availability of “Single-Line” Service • Stockholders Well Rewarded During Many Mergers Rail Freight: Issues and Policy Challenges

  6. What Doesn’t Work 1980 - • Railroad ROI Still Too Low To Promote Aggressive Growth • Marketplace Promotes Bad Outcomes • Intensive intramodal competition • Incentive to develop only captive shippers • Promotes greater use of intermodal moves, at the expense of “cheaper,” all-rail alternatives • Service takes a “back seat” to cost control Rail Freight: Issues and Policy Challenges

  7. Why Doesn’t The Market Work? • Public Utility Economics • Cost per incremental carload often below average cost • Competition can result in higher costs • Lack of competition can result in higher rates • Increased Shipper Negotiating Power • Bundling of lanes into single contract • Increased shipper size • Long-term contracts increase negotiating risk for railroads Rail Freight: Issues and Policy Challenges

  8. Where Are We Headed? • Nationalization Not an Option • New Competitive Rules Could Fix Marketplace, but.......................... • Unrestricted Open Access Would Restructure Industry With Disastrous Consequences • Some Combination of Tax Incentives and Public Money Could Help us Muddle Through Rail Freight: Issues and Policy Challenges

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