U.S. Freight Railroad Infrastructure: Current and Future Issues Craig F. Rockey

1. U.S. Freight Railroad Infrastructure: Current and Future Issues Craig F. Rockey Vice President - Policy and Economics Association of American Railroads Washington DC March 17, 2004

2. The U.S. Rail Network

3. U.S. Freight Intercity Modal Market Share: 2001 Pipeline 2% Water 1% Other 7% RRs 10% Pipeline 17% RRs 42% Water 13% Trucks 80% Trucks 28% Ton-Miles Revenue “Other” for ton-miles is less than 0.5%. Source: Eno Transportation Foundation

4. Railroad Fuel Efficiency (Ton-Miles Per Gallon of Fuel Consumed) Freight Rail Provides Major Public Benefits Fuel efficient  Less pollution  Reduced congestion  Safer

5. Freight Rail Provides Major Public Benefits, cont. Fuel efficient Less pollution  Reduced congestion  Safer The EPA estimates that for every ton-mile, trucks emit roughly three times more nitrogen oxides and particulates than locomotives. Other studies suggest trucks emit 6 to 12 times more.

6. Costs of U.S. Highway Congestion (Billions of Constant 2001 Dollars) Freight Rail Provides Major Public Benefits, cont. Fuel efficient  Less pollution Reduced congestion  Safer Source: Texas Transportation Institute

7. Truck vs. Railroad Hazmat Incidents Freight Rail Provides Major Public Benefits, cont. Fuel efficient  Less pollution  Reduced congestion Safer Source: AAR analysis of data from FHWA, FRA, RSPA, and STB.

8. Today’s Freight Rail Environment Vast majority privately-owned. Generally owner and operator. Access privately negotiated, voluntary.  Essentially no government funding. Separate freight & passenger operations.

9. Economic Fundamentals of Freight Railroading  Railroads are networks with virtually unlimited origin-destination pairs — what happens in one place affects many others.  High fixed and sunk costs — infrastructure can’t easily be picked up and moved.  Substantial economies of scale and scope.  Huge differences in customer demands and options.

10. Freight Rail Traffic Density (Millions of Class I Ton-Miles Per Mile of Road Owned) Source: AAR

11. RRs Have Far Higher Capital Expenditures Than Other Industries

12. Class I RR Spending on Roadway and Structures ($ Billions) Source: AAR

13. Drivers of Railroad Demand • Transport Demand: U.S. DOT says freight traffic will increase nearly 70% by 2020; international higher. • Service Quality: Reliability, speed, frequency • Price  Highway Congestion: Pressure to reduce congestion, emissions, fuel use, and enhance safety.  Passenger: Demands for freight-owned track.

14. But Because Railroads Do Not Earn Their Cost of Capital… Class I Cost of Capital vs. Return on Investment Cost of Capital Return on Investment Source: Surface Transportation Board

15. …They Cannot Make All Desired Investments

16. Public-Private Partnerships Can Help “Relatively small public investments in the nation’s freight railroads can be leveraged into relatively large benefits for the nation’s highway infrastructure, highway users, and freight shippers.” --AASHTO • Best used for projects whose main purpose is to meet public needs. • RRs pay for their benefits and public pays for public benefits. • Not “subsidy” to RRs

17. Railroads Providing Better Service  Alliances with other RRs, other modes, customers, suppliers, others  Technological applications  Innovations in locomotive operations, staffing, asset utilization, scheduling • Better equipment and infrastructure • New offerings

18. Reregulation Staffing Environmental Fuel Tax Safety Security Passenger Rail TEA-21 Other Challenges Facing RRs Economic Growth 3 P Truck Size and Weights New Technology

19. Summary  Daunting growth forecast.  Infrastructure is preeminent issue. • Don’t restrict rail earnings through reregulation • Tap public/private partnerships.  Continued focus on meeting customer needs