October 2007 | Commentary | Checking In

Railroad RXR?

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The nation is at a crossroads on how to handle the rail industry in the coming decades. While much attention has been paid to the state of the nation's highways in light of the I-35 bridge collapse, a new Association of American Railroads study indicates that U.S. railroads need an overhaul, too.

The National Rail Freight Infrastructure Capacity and Investment study (www.aar.org/newsroom/Capacity_Investment_study.asp) lays out in detail the need for major investment - to the tune of $135 billion over the next 30 years - to augment freight capacity to meet an expected doubling of rail freight demand. Investments would go toward constructing new track, signals, bridges, tunnels and terminals.

One proposed remedy is the bipartisan Freight Rail Infrastructure Capacity Expansion Act, introduced on Capitol Hill in July 2006 by Trent Lott (R-Miss.) and Kent Conrad (D-ND), and still bouncing around Congress.

The bill aims to legislate a 25-percent tax credit for any transport business - shippers included - investing in new rail track, intermodal facilities, rail yards, locomotives, or other rail infrastructure expansion projects.

On the other side of the "how do we handle the railroads issue" is Rep. James Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee.

Oberstar recently proposed legislation that would re-regulate the railroad industry by introducing price controls and controlling access to shared networks to reduce costs for freight shippers - an appealing proposition for some shippers with zero alternatives.

These converging and conflicting initiatives place rail shippers, specifically smaller players and captive shippers, between the rails.

The promise of reduced freight costs in a market historically monopolized by a small number of large railroads spells welcome relief for some. But would reverting to pre-Staggers Act regulations stifle or stimulate private sector investment?

The AAR argues that such legislation would cost the industry $5 billion in lost revenue annually and impede efforts to increase capacity. And we all know how regulation fared in the past.

Ultimately the railroad's complacency over the past three decades since deregulation is partly to blame for this current scenario.

"Although the railroads have been increasing their capital expenditures, most of that capital is going to sustain existing capacity rather than toward expansion,' reports a January 2007 position paper by the Railroad-Shipper Transportation Advisory Council (www.stb.dot.gov/stb/rail/railshipper_council.html).

That both of these bills are garnering bipartisan support in Congress has laid down a gauntlet for the railroad industry. My view is that these initiatives are going nowhere while Bush is president.

I think in 2008-09 we will be at an intriguing crossroads: to price-control railroads, give them tax credits, or both. Let's see who controls Congress and the executive branch next time around.

On which side of the track do your loyalties fall? Let us know. Email: editor@inboundlogistics.com

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