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AAR Report on US Railroads and Ecnomic Recovery 2010

AAR Report on US Railroads and Ecnomic Recovery 2010

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Great Expectations: Railroads and U.S. Economic Recovery


I. II.

Executive Summary Great Expectations – Railroads and the American Economy Railroads and Jobs Lower Prices for Consumers Private Rail Investments Support America’s Rail Network Easing Congestion, Lowering Emissions Great Expectations – Railroads Weather the Recession The Current Downturn Impacts on Railroad Employment Railroad Equipment Great Expectations – Challenges Ahead The Call for Expanded Passenger Rail The Safety Mandate The Threat of Expanded Government Regulation Climate Change – Policy Implications for Coal Great Expectations – The Road to Recovery Eliminate Uncertainty, Preserve Rail Network Investment Rail Infrastructure Tax Incentive Preserve Coal, Enact Railroad Contingency Allowances Public Private Partnerships Conclusion More Information Additional Background Resources Contact Information





Association of American Railroads

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reduce greenhouse gas emissions. It provides American industries access to global markets and American consumers with goods from around the world. or to a port where a ship can take it to a foreign market. Freight rail moves coal to hundreds of power stations across the country to generate electricity for millions of people. Congress and the Administration are weighing sweeping changes to the freight rail industry that could have a direct and negative impact on Americans in the form of higher costs for goods and services. D. and provide the foundation for new high-speed and intercity passenger rail around the country.000 miles of coast-to-coast rail network enables a company in New England to ship its products to a buyer in California. But rail is under attack. What’s more.S. Association of American Railroads Page 3 of 26 . ease highway congestion.C. freight rail is the common thread that allows businesses to thrive. EXECUTIVE SUMMARY Freight rail drives America’s economy and touches the lives of most Americans every day. fuel efficiency. when jobs are so desperately needed. Economic Recovery I. because freight rail shipping rates are so competitive. But these public benefits are in danger if proposed regulatory and legislative action in Washington. from manufacturing to small business.Great Expectations: Railroads and U. especially if it stifles job growth during a recession. Rail helps keep prices low for all kinds of consumer and industrial products. This report underscores the importance of a healthy freight rail system to our nation’s economy. American industries and consumers have great expectations of our nation’s railroads: competitive shipping rates. It also outlines what’s at stake and provides a roadmap to ensure that the rail network remains viable as our nation struggles to emerge from the deepest recession in a generation. The vast 140. which railroads help support. These changes are under consideration as Americans are increasingly leery of excessive government intervention in the marketplace. as well as job creation in other areas such as housing. manufacturing and agriculture. comes to pass. these changes threaten high paying American jobs with freight rail companies. From steel to housing to agriculture.

000 $0 Benefits Benefits Wages Wages Rail employees are covered by the Railroad RRs U. The list of the ways that freight railroads promote economic growth and improved quality of living is tremendous. Average Data are 2008. earned average wages of $68. Workers) $105. is connected by the most efficient. including retired railroad employees and their survivors.000 $45. and service firms throughout the economy.S. In 2008.S.000 $75. Whether it’s by supporting millions of American jobs. the average wage per full-time employee in the U.Great Expectations: Railroads and U. for total compensation of $95. some 600. Source: AAR.900 and average total compensation was $62. and environmentally sound freight rail system in the world. the 184. freight railroads generate nearly $265 billion in total annual economic activity. and directly or indirectly support 1. in 2008 was $50. the U. Railroads and Jobs Based on U.2 million jobs.000 $15.300 (see Chart 1). Unlike all other modes of transportation. freight railroad employees.000 $60. including rail suppliers and other manufacturing.S.000 beneficiaries.S.000 $30.200 and fringe benefits of $27. or easing traffic congestion and lowering greenhouse gas emissions. instead of Social Security.600. affordable.000 $90. GREAT EXPECTATIONS – Railroads and America’s Economy From one end of the country to the other. This does not include the countless jobs provided by rail customers that benefit from the cost effectiveness of shipping their products by rail. received more than $10 billion in retirement and survivor benefits from the Railroad Retirement System.S. Bureau of Economic Analysis Retirement System. Freight RRs vs. Economic Recovery II. roughly 80 percent of which are union employees. All U. By contrast.000 U. Chart 1 Average Compensation in the Freight Rail Industry is Far Higher Than Average (U. In fiscal year 2008.S.S. keeping the things we buy and use more affordable. freight rail confers tremendous public benefits on society. Association of American Railroads Page 4 of 26 . Freight railroad employees are among America’s most highly compensated workers. retail. Department of Commerce data. Every freight rail job supports another 4.S.5 jobs elsewhere in the economy. freight rail delivers these benefits with almost no taxpayer help.100.

Freight Railroad Rates Are Half What They Were in 1981 7. According to World Bank data. and countless other goods that all of us buy every day cost less than they would if rail were not involved. the American Association of State Highway and Transportation Officials (AASHTO) estimated that if all freight rail traffic were shifted to trucks. Railroads’ cost effectiveness provides a huge competitive advantage for American businesses in the global marketplace.0¢ 3.5¢ 5. In 2003. Economic Recovery Lower Prices For American Consumers Chart 2 Thanks to the cost-effectiveness of America’s freight railroads.0¢ 5.Great Expectations: Railroads and U. That means the average rail shipper can move twice the freight today for the same price it paid 27 years ago.S.5¢ 1981 (Class I Revenue Per Ton-Mile. Railroad Rates* vs. freight rail rates are half those in China and Japan.5¢ 2. revenue per ton-mile. rail shippers would have to pay an additional $69 billion per year. 1984 1987 1990 1993 1996 1999 2002 2005 2008 Source: AAR Association of American Railroads Page 5 of 26 .0¢ 4. electricity. clothes. average U.0¢ 1. % Change 1981-2008) +160% +137% +121% +135% +68% +76% +65% +5% RR Rates Bananas Gasoline Bread Chicken Eggs Potato Postage Chips *Avg.S.5¢ 6.5¢ 4.0¢ 6. Prices of Common Consumer Goods (Current Dollars. Changes in rail rates compare very favorably with changes in the prices of most things we buy (see Chart 2). the food. Average rail rates were 49 percent lower in 2008 than in 1981 (see Chart 3). AAR Chart 3 Average Inflation-Adjusted U. That.5¢ 3. America’s freight railroads are the most affordable in the world. Source: Bureau of Labor Statistics.0¢ 2. in turn. and 50 to 75 percent below those in major European countries. means more American jobs.S. In fact. All Commodities) Railroad rates are down 49% since the Staggers Act restored reasonable balance to railroad regulation.

S. Source: AAR RR Fuel Consumed* Railroad Volume** That means moving freight by rail instead of truck reduces greenhouse gas emissions by on average 75 percent. In 2008 alone. recreational boats.Great Expectations: Railroads and U. Lowering Emissions America’s freight railroads have been “going green” for decades. aircraft. greenhouse gas emissions. In 2008.S. freight railroads consumed nearly 52 billion fewer gallons of fuel and emitted 579 million fewer tons of carbon dioxide than they would have if their fuel efficiency had not improved. railroads are on average four times more fuel efficient than trucks.S. Economic Recovery Easing Congestion.7% Other Freight Transporters 1. Fuel efficiency is one reason for this. freight railroads moved a ton of freight an average of 457 miles per gallon of fuel – an increase of 94 percent in efficiency since 1980.4% Trucking 5.8% Freight RRs 0. According to a recent independent study prepared for the Federal Railroad Administration (FRA). passenger rail Data are 2007.7% Passenger Transportation* 19. U. they are the most environmentally sound way to move freight. U. Greenhouse Gas Emissions NonTransportation Sources 72. Source: EPA Transportation-Related Not Transportation-Related Association of American Railroads Page 6 of 26 . since greenhouse gas emissions are directly tied to fuel consumption. freight railroads Freight Railroads Account for Well Under 1% of U. fuel consumption. railroads have nearly doubled how much freight they move — while using virtually the same amount of fuel. If just 10 percent of long-distance freight now moving by truck moved by rail instead. Environmental Protection Agency (EPA). America’s freight railroads burned 3. Because railroads reduce highway gridlock. annual greenhouse gas emissions would fall by more than 12 million tons.S.3% *On-road vehicles. That’s equivalent to taking 2 million Chart 5 cars off the road or planting 280 million trees. Railroads Have Doubled Freight Volume But Consumed the Same Amount of Fuel (Index 1980 = 100) 200 175 150 125 100 75 50 25 0 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 *in freight service **revenue ton-miles Data are for Class I railroads. Railroads’ fuel efficiency gains have meant sharp reductions in rail-related greenhouse gas emissions. From 1980 through 2008.S.7 billion fewer gallons of fuel and emitted 41 million fewer tons of carbon dioxide than they would have if their fuel efficiency had remained constant since 1980. (See Chart 4) Chart 4 Since 1980. According to the U. Since 1980. and pollution.

equal to nearly a full week per traveler. bridges. Paper manufacturing Computer & electr.2 billion hours. By contrast. and 2. Chart 6 and other infrastructure. easing wear and tear on our nation’s highways. spending more on their systems in 2008 than ever before. In March 2008. Since 1980. Rail reinvestments were down only slightly in 2009 from the previous year’s record pace and in 2010 are expected to remain about equal to 2009.Great Expectations: Railroads and U. or three weeks’ worth of gas per traveler. 1997-2006 Average all manufacturing Food manufacturing Petroleum & coal products mfg. Each year. According to the 2009 Urban Mobility Report by the Texas Transportation Institute. Nonmetallic mineral product mfg. terminals.S.8 billion gallons. Wood product mfg. Chemicals manufacturing Plastics & rubber products mfg.S. Electric utilities Class I Railroads 3% 2% 3% 3% 3% 3% 3% 4% 4% 4% 5% 5% 13% 17% Note: Utilities are 1999-2006 Source: U. signals. AAR. Railroads are working with manufacturers toward meeting these new standards.S.8 percent) (see Chart 5). cargo delays. which while yielding emissions reductions of other harmful pollutants also will dampen fuel efficiency gains. and waterways that the government provides and taxpayers subsidize. Bureau of the Census.7 percent of total U. and barges operate over highways. greenhouse gas emissions. Economic Recovery today contribute just 0. modernize and expand their systems. Lost productivity. highway congestion annually costs $87 billion just in wasted travel time and wasted fuel. America’s freight railroads have spent some $460 billion on infrastructure and equipment — more than 40 cents out of every revenue dollar — to maintain. product mfg. Private Investments Support America’s Rail Network Trucks.S. the EPA issued stringent new locomotive emissions standards that will cut particulate emissions by up to 90 percent and nitrogen oxide emissions by up to 80 percent. far less than trucks (5. Freight railroads have even kept reinvesting during the recession. Rather than require significant taxpayer support. travelers lose 4. Finally. airways. airlines. and other costs add tens of billions of dollars to this already huge tab. Machinery manufacturing Motor vehicles & parts mfg. railroads actually significantly contribute to our Capital Expenditures as a % of Revenue for Various U. Industries: Avg.7 percent) and passenger transportation (19. America’s privately owned freight railroads use their own funds to pay the overwhelming majority of the costs to maintain tracks. tunnels. railroads also reduce the huge costs associated with highway gridlock. EEI Association of American Railroads Page 7 of 26 . Fabricated metal product mfg. A typical freight train carries the load of more than 280 trucks.

88 New York 5. (See Chart 7) State Highway Agency Spending .49 CSX 9. Florida.96 2.79 Pennsylvania 6.S.09 Florida 3.05 BNSF 4.S.S. The comparable figure Chart 7 for U.S. In 2008 alone. from 1997 to 2006 (the most recent year for which data are available).2007 ($ billions) Total 1. Texas $10.25 Ohio 11. Likewise. Sources: FHWA.08 New Jersey $2. $6. industries in terms of capital intensity. $2.51 Illinois 7.000). For example.07 Norfolk Southern Data include capital outlays and maintenance expenses. $3. in 2008.30 Georgia 10.65 Michigan 8. Economic Recovery state and local treasuries. manufacturing ($96. railroad net investment in plant and equipment per employee was $738.16 Union Pacific $4.43 California $4.Great Expectations: Railroads and U. the average U. AAR Association of American Railroads Page 8 of 26 . than five times higher (see Chart 6). Short line railroads paid millions of additional dollars in property taxes. and California highway agencies spend more on highway construction and maintenance programs than Union Pacific and BNSF each spend on their networks. In fact. Railroads are at or near the top among all U. The massive investments railroads must make in their systems reflect the extreme capital intensity of their business. CSX and Norfolk Southern are in the top 11 compared with all states. $5. $2. $3. railroads spend far more on capital outlays and maintenance of track and roadway than the vast majority of state highway agencies spend on their highway programs. $2. or more RR Spending on Way & Structures vs. manufacturer spent 3 percent of revenue on capital expenditures. only Texas. $3. $2.S. the nation’s major railroads paid $625 million in state and local property taxes on their infrastructure.51 North Carolina $2.000— nearly eight times the average for all U. freight railroads was 17 percent. $2. The four largest major U.S.

• A surge in U.1 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Beginning around 2003 and 2004. Still. when the credit crisis exacerbated the decline in the economy already under way. In 2008.S. and most coal is shipped by rail.3 $9 $8 1. agricultural exports boosted rail shipments to and from ports.S.9 hauling. In other words.5 1. intermodal traffic. if America Growth and Freight Railroad Traffic is not building or buying. That is why rail traffic is a solid gauge of the health of the overall economy.S. AAR number of factors in addition to economic growth led to an increase in rail freight volume: • Rising fuel costs led to increased demand for rail. U.S. • A rise in natural gas prices caused power plants to burn more coal to generate electricity. railroad history. rail traffic was relatively stable until the fall. with four months that year registering the highest-volume months in U.Great Expectations: Railroads and U. rail carload traffic was 21 percent lower than it had been two months earlier. By December 2008. Association of American Railroads Page 9 of 26 Trillions of Revenue Ton-M iles R eal GDP (Trillions of $2005) $13 . autos and auto parts. railroads are not $14 1. imports and record U. Economic Recovery III. is closely related to freight rail traffic.7 $12 $11 $10 1. a Sources: Bureau of Economic Analysis. railroads have suffered during the economic downturn. GREAT EXPECTATIONS: Railroads Weather the Recession Like other U. considered the single most conclusive indicator for the health of the economy. • Railroad investments in capacity. 2007 was the second highest-volume year in history for America’s freight railroads. innovations and use of technology led to service improvements and enhanced reliability. Freight rail is a “derived demand” industry – demand for rail service occurs when Chart 8 there is demand for the products that There Is a Close Relationship Between Economic railroads haul. The Current Downturn While the current recession officially began in December 2007 rail traffic that year was down slightly from 2006’s record levels – due primarily to dips in the housing and auto sectors that caused drops in carloads of lumber. Gross Domestic Product.S. industries. wood. (See Chart 8) Real GDP (left axis) RR Ton-Miles (right axis) 1. since railroads are on average four times more fuel efficient than trucks.S. By 2006 America’s railroads were carrying more freight than ever before.

freight rail traffic today remains well below 2008 levels. railroads since 2002 (see chart 10).000 220.000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Data are weekly average originations for each month. Rail Carloads: All Commodities 360.000 230. down 14. 2010 190.S.000 2006 2007 340. Economic Recovery covering truck trailers and shipping containers. operations of CN and CP.Great Expectations: Railroads and U.S. Chart 9 Average Weekly U.7 percent from 2007.S.000 250.9 million trailers and containers in 2009. Last year’s carload total was the lowest for U. exclude U. Rail Intermodal Traffic 260. recession starts and ends. U.000 Jan. As of February 2010.1 percent compared with 2008 and down 18. are not seasonally adjusted. This decline in rail traffic carried over into 2009. and reflect revisions from original reporting. and reflect revisions from original reporting. Source: AAR 1 The National Bureau of Economic Research (NBER) officially determines when a U.000 170.000 320.000 300.S.000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 240. Because the peak and trough can only be determined after the fact — often months after the fact — it is often unclear when an economy begins a new growth cycle or ends one.000 260. 2010 2009 2008 280.S. exclude U.1 While economic recovery may be on the horizon.000 180. rail carload traffic was down 16. many economists believe the economy is likely technically out of the recession.000 2006 2007 Chart 10 Average Weekly U. intermodal traffic totaled 9.S.S. are not seasonally adjusted.S. A recession begins just after the economy peaks and ends when it bottoms out.000 210.1 percent from 2008 and down 17. when the AAR data series begins.000 2009 Jan.2 percent compared with 2007. Source: AAR Data are weekly average originations for each month. Association of American Railroads Page 10 of 26 . when U. in December 2008 was down 24 percent from where it was in October 2008 (see Chart 9). railroads since before 1988.S.S.000 200. The industry’s intermodal total in 2009 was the lowest for U. operations of CN and CP.000 2008 240. Meanwhile.

1% 30. rail employee 140.0% 34.000 475.7% 28.Dec. The drop in rail traffic the industry is experiencing has meant a sharp decline in rail revenue.000 As in other industries. 2010. how much freight is Data are not seasonally-adjusted and do not include non-Class I carriers.000 165.0% 27.000 n/a Likewise. 2009 170.000 500.000 per railcar.5% 26. equal to 28 percent of total rail cars. Class I freight railroad employment reached its recent peak in November 2006 before beginning a downward trend.0% 325.e. The Impact on Railroad Equipment Excess rail cars are placed in storage while they are not needed. Source: STB being hauled. (See Chart 12) Chart 12 Freight Cars in Storage on North American Railroads: Actual and Percentage of Total Fleet 525.000 150. % are cars stored as % of total fleet.8% 28.000 155.9% 31. are working to balance expenses with revenue levels below what they were a couple of years ago. 2002 . 440.4% 28.000 have had to park several thousand Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan '09 '09 '09 '09 '09 '09 '09 '09 '09 '09 '10 locomotives that are not needed to haul Data are as of the first of the month. They too will return to service when traffic levels increase.000 425. around 2 percent to 3 percent of freight cars might be in storage.000 24.5% 31.9% 31.000 counts are mainly a function of the level 2002 2003 2004 2005 2006 2007 2008 2009 of business — i. As of December 2009.0% 30. that means the industry has assets worth approximately $43 billion now standing idle. When the economy is healthy and railroads are busy.000 375.000 22. like other businesses.000 160. during the recession railroads 300.S.000 400.000 145. Economic Recovery The Impact on Railroad Employment Chart 11 Railroads.. Class I Railroad Employment: Jan.0% Feb '10 Association of American Railroads Page 11 of 26 .900 from then (see Chart 11).Great Expectations: Railroads and U. which in turn has led to a reduction in the railroad workforce.8% 28.000 450. rail employment was down nearly 21.000 freight cars were in storage.2% 28.0% 31.4% 29. 1. Source: AAR freight. As of Feb. 20.0% 32. At around $2 million per locomotive and roughly $80.0% 350.

President Obama announced the Vision for High Speed Rail in America (Vision). escape respirators. It also was aimed at generating desperately needed jobs to help stimulate our nation’s economic recovery. Source: AAR regulations that have been enacted since 2005. Locomotive emissions $2. rail customers. The Call for Expanded Passenger Rail The Obama Administration has put tremendous emphasis on the importance of rail to our nation’s economic recovery. and other industry stakeholders to help ensure that America can realize the full potential benefits of a healthy national rail system that enhances our economic competitiveness and meets our future transportations needs. or permit excessive government interference in day-to-day rail operations. TIH chain of custody. the regulatory environment has shifted to become more government-centric and less market-driven. D. (See Chart 13) These challenges greatly threaten the economic viability of rail and all the public benefits it provides to American industries and consumers.C. cab noise. Railroads are currently facing more than $13 billion in costs *Includes conductor certification.S. livability. But just as a runner cannot run as fast when injured. as $0. PTC Today. reduced highway congestion and lower greenhouse gas emissions. This blueprint for expanded high-speed and intercity passenger rail recognized that railroads confer tremendous public benefits on society – including improved mobility. railroad performance will be hamstrung by Chart 13 legislation and regulations that threaten Unfunded Mandates Just From 2005-2009 healthy revenue levels. event recorders.9 bil. Shortly after taking office. then-candidate Obama often drew a connection between transportation infrastructure investment and jobs.4 billion Railroads are working with key policymakers.. and other regulations.Great Expectations: Railroads and U. Economic Recovery IV. inject unnecessary Will Cost More Than $13 Billion uncertainty. associated with complying with new locomotive crashworthiness. Throughout his campaign. the industry faces a confluence of Other* $10 billion unique challenges in Washington. reflectorization. training. GREAT EXPECTATIONS – New Challenges Ahead Moving more freight and people by rail is good for our national economy and good for our environment. Association of American Railroads Page 12 of 26 . environmental benefits and long-term national energy policy.

Economic Recovery When he announced his Vision on April 16. cheaper and easier than building more freeways or adding to an already overburdened aviation system – and everybody stands to benefit. D. There's no reason why the future of travel should lie somewhere else beyond our borders. 2009. Policy Implications “It is the inherent efficiency of rail transportation that enables freight railroads to do something that is expected of no other form of transportation: maintain their infrastructure. Association of American Railroads Page 13 of 26 . millions of commuter rail trips each year operate over tracks or rights-of way owned by freight railroads. freight railroads are successful partners with passenger railroads all across the country.C. each high-speed rail corridor is unique and comes with its own set of opportunities and challenges. Striking the right balance as we grow both passenger and freight rail is key to ensuring America’s economic engine keeps running while providing the foundation for President Obama’s Vision for high-speed rail. agricultural and mining based business sector of our nation’s economy. October 2009 The President’s Vision outlines that with the exception of some express high-speed rail projects. wholesale. host passenger operations. the development of a world-class passenger rail system must not come at the expense of our country’s existing world-class freight rail system. retail. The Foundation for Passenger Rail Today. President Obama said: “This is America. add capacity. With the exception of the Northeast Corridor between Boston and Washington. As FRA has noted publicly. railroads account for 43 percent of intercity freight volume – more than any other mode of transportation.” Less than one year later. and pay local property taxes on their real estate.Great Expectations: Railroads and U.. trade. Today. In addition.S.000 miles over which Amtrak operates. However. Building a new system of high-speed rail in America will be faster. This movement of passengers takes place over the same network that supports the movement of goods for nearly every industrial. intercity passenger rail operations will involve at least some shared track. freight railroads own some 97 percent of the 22.” – FRA National Rail Plan. the federal government awarded $8 billion in stimulus grants for projects in 31 states that include 13 high-speed rail corridors under the High-Speed Intercity Passenger Rail Program.

Source: U. Preliminary data suggest that 2009 will be even safer in each of these safety categories. PTC technology is intended to prevent train-to-train TIH materials are liquids. the train accident rate fell 72 percent. Stores Trucks Agric. Economic Recovery The Safety Mandate For railroads. Today.S. with 2008 the safest year on record for U. communities. and technology. Bureau of Labor Statistics '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 Source: FRA The Rail Safety Improvement Act of 2008 (RSIA) requires Class I freight railroads by 2015 to install positive train control (PTC) systems on tracks that carry passengers or toxic-byinhalation (TIH) materials. in extensive employee training. rail industry safety record is excellent. the rail employee injury rate fell 82 percent. From 1980 to 2008. which are especially hazardous if released. such as chlorine and anhydrous ammonia. equipment. suppliers. Chart 15 Rail Accident & Injury Rates Have Plunged 12 10 8 6 4 2 Train Accidents Per Million Train-Miles: Down 72% 1980-2008 Injuries Per 200. Air Transp.S.S. railroads. and construction — even lower than food stores. The overall U. in cooperation with rail labor. and all Class I freight rail tracks over which 5 million or more gross tons of rail traffic is transported and carry TIH must be PTC-equipped. railroads have lower employee injury rates than most other major industries. Food & Bev. RRs All Mfg. (See Chart 15) Chart 14 RRs Are Safer Than Most Other Industries (Injuries Per 200.S. and the FRA. Mining 0 Data are 2008. manufacturing.000 Employee-Hours) 7 6 5 4 3 2 1 0 Water Transp. and the grade crossing collision rate fell 79 percent.Great Expectations: Railroads and U. agriculture. customers. 2 Association of American Railroads Page 14 of 26 . and in cutting-edge research and development. all freight rail tracks that carry passengers must be PTC-equipped.000 Rail Employee-Hours: Down 82% 1980-2008 All Private Industry Constr. (See Chart 14) Freight railroads have made significant investments in safety: in infrastructure. barges. airlines. Under the RSIA. mining. including trucks. pursuing safe operations is not an option — it’s an imperative. In general.2 PTC describes technologies designed to automatically stop or slow a train to avoid certain accidents.

an agency of the U. Expanded Mandate. is regulated mainly by the FRA. derailments caused by excessive speed. industries is regulated by the Occupational Safety and Health Administration (OSHA). The benefits of PTC will be significantly lower than its costs. roughly 20 percent of rail capital spending has been devoted to capacity growth. freight railroads will have to spend more than $5 billion to install PTC systems. there have been a number of legislative efforts to reintroduce the fees and to expand their scope. Since then. Railroad payments during this period totaled approximately $159 million. Recognizing that these fees were really nothing more than taxes. railroads will incur approximately $20 in PTC costs for each $1 of PTC benefits. In other words. Economic Recovery collisions.S. Congress eliminated them in 1995. Each time FRA safety user fees have since been 3 In recent years.3 FRA Safety User Fees Safety in most U. from 1991 until 1995 freight railroads paid fees to the FRA to cover many of the costs associated with the FRA’s rail safety program. The FRA estimates that the net present value of PTC-related rail safety benefits over 20 years will be between $440 million and $674 million. Funding for OSHA and the FRA typically comes from general appropriations.S. Perhaps most perplexing are the regulations the FRA put forth to implement the PTC mandate.S. Railroads are committed to complying with the Congressional PTC mandate. These regulations include several new provisions that are over and above the statutory requirements and add hundreds of millions of dollars to railroads’ costs. The $5 billion initial railroad PTC installation costs is roughly equal to what railroads spend in a typical year on all infrastructure-related capital spending. Safety in the rail industry. but this well-intended legislation will have negative unintended real-world consequences.Great Expectations: Railroads and U. however. The FRA estimates that the net present value of the total costs of PTC to railroads over 20 years will be between $10 billion to $14 billion. equivalent to around $215 million in today’s dollars. Department of Labor. and movement of a train through a track switch left in the wrong position. However. unauthorized incursions by trains onto sections of track where repairs are being made. Expanded Costs According to the January 2010 FRA final rule on PTC implementation. plus an additional $700 million each year thereafter for their maintenance. Association of American Railroads Page 15 of 26 . and is about equal to what they’ve spent over the past five years combined on network capacity expansion. yet will not improve safety in any meaningful way. The remainder has been devoted to replacing assets already in place.

Economic Recovery proposed. where the safety record is far less favorable than it is on the rails. even for something as important as safety. largely deregulating the railroad industry. cost-effective freight rail service. Association of American Railroads Page 16 of 26 . Congress eliminated with the Staggers Act many regulations that were hindering efficient. railroads were given authority to base their rates on market demand. Under the Staggers Act.S.Great Expectations: Railroads and U. Policy Implications Because railroads have limited funds to devote to infrastructure projects. Congress put the emphasis on the railroads’ ability to find their way through to recovery. government regulators retained authority to protect shippers against anti-competitive railroad behavior. rather than have the government set their rates. Safety improvements can not be advanced if resources are spent on programs or requirements that do little to improve safety. this fee would cover the costs associated with FRA rail safety inspectors. Further. improve service. expenditures on PTC or FRA user fees will therefore drain funds that otherwise would have provided for other projects that would increase rail capacity. with more than 47. These fees have again been proposed in the Obama Administration’s proposed 2011 budget. and enhance safety.000 miles of track operating at reduced speeds because of unsafe conditions. it was taking a leap of faith. was commonplace. At the time. Meanwhile. Congress recognized the industry’s need to earn adequate revenues to build and maintain the nation’s rail network. ensuring that railroads are held accountable for their actions. starting in 2011 and increasing in subsequent years. The Threat of Expanded Government Regulation When Congress passed the Staggers Rail Act of 1980. key Congressional committees acting on a bipartisan basis have rejected them. Railroads also were allowed to enter into confidential contracts voluntarily negotiated with shippers. Resisting the urge to flex expanded regulatory muscle or prescribe an industry bailout. According to the Administration’s budget. provide environmental benefits. at a rate of $50 million per year. or if unfunded mandates lock up resources that would have a more pronounced impact on safety if spent elsewhere. Perhaps most importantly. and the term “standing derailment. the nation’s rail infrastructure was crumbling. Policies such as these increase the cost of rail service and drive more traffic to the highways. no budget — whether it’s a household.” when stationary railcars simply fell off poorly maintained track. Railroads had billions of dollars in deferred maintenance. a government or a business — is unlimited.

which had been falling for decades.0 percent from 2000 to 2008. “Providing significant rate relief to some shippers will likely result in rate increases for other shippers or threaten railroad financial viability” – A Study of Competition in the U.Great Expectations: Railroads and U. an independent study conducted at the request of the STB determined that competition in the industry is working. In fact. In addition. Disconnect with Marketplace Reality These proposals are not supported by what is happening in the marketplace. Today. Association of American Railroads Page 17 of 26 . Economic Recovery Since 1980. They also seek to repeal key elements of the Staggers Act that have made it possible for the industry to sustain itself and support the U. Return on investment.. and that while there have been incremental rail rate increases in recent years. railroads are a vital. Christensen Associates Inc. self sustaining industry that has weathered the recession and emerged positioned for growth. railroads remain subject to most antitrust laws. rail network. allocate markets. rail accident rates are down 72 percent.0 percent in the 1990s.4 percent in the 1980s. some rail shippers continue to call for new legislation that would in effect force railroads to lower their rates to certain large shippers and vastly expand the role of government in the day-to-day running of railroads.S. rose to 4. Freight Railroad Industry and Analysis of Proposals that Might Enhance Competition. The Surface Transportation Board (STB) is the independent federal agency with jurisdiction over railroad mergers and other rail-related issues. including those that prohibit railroads from getting together to set rates.S.S. The few narrow antitrust exemptions available to railroads cover areas under STB jurisdiction. rail freight traffic has nearly doubled. these increases are in line with overall increased costs. and 8. including oversight of rates in cases where there is no effective rail competition. 7. railroad productivity has increased 144 percent. Greater Government Involvement While the Staggers Act removed many of the government controls which were preventing competition from driving down rates while supporting returns adequate to yield reinvestment in the network. Despite enjoying the tremendous public and business benefits from the railroad industry’s self-propelled gains. average rail rates have fallen 49 percent. it also provided rail customer protections. or unreasonably restrain trade. January 2010. and railroads have reinvested some $460 billion back into their systems.

Pending climate change legislation in Congress. exclude U. are not seasonally adjusted.S. Source: AAR Weekly Railroad Traffic Association of American Railroads Page 18 of 26 .000 2007 2009 130.000 2006 140.S. it is clear that these proposed policies would affect the industry’s ability to meet the nation’s call for expanded passenger rail and increased demand to move more freight by rail.000 -5% -10% Jan. Climate Change Policy and Rail’s Coal Business Railroads are a part of the climate change solution. and reflect revisions to original reporting. Source: AAR -20% 2006 2007 2008 2009 Data are based on originations.S. These proposals – whether they call for vastly expanding the role of the STB or repealing railroads’ limited antitrust exemptions – attempt to mandate lower rates for some shippers and would increase regulatory uncertainty during times of tremendous economic uncertainty.S. 2008. as well as EPA’s attempt to regulate greenhouse gases under the current Clean Air Act. Rail Carloads of Coal 160. In 2008. 2010 -15% Jul Aug Sep Oct Nov Dec 110. 2010 15% 10% 5% 0% 150.1% from Jan. Rail Carloads of Coal From Same Month Previous Year: Jan. coal accounted for 45 percent of freight rail tonnage and 23 Chart 16 Average Weekly U. 120. exclude U. operations of CN and CP.0% from Jan. Without a level of certainty in the marketplace and the ability to earn adequate returns.S.000 Jan Feb Mar Apr May Jun Data are weekly average originations for each month. 2006 . railroads will be unable to attract the capital needed to build and maintain the nation’s rail network.Jan. threaten the future of America’s coal industry – and the freight rail industry’s single largest customer segment.Great Expectations: Railroads and U. The impact of climate change policies on the railroad industry cannot be weighed without first examining the impact such policies would have on America’s coal industry. Nonetheless. yet may suffer unintended consequences from climate change legislation.000 Jan. and railroads haul more than 70 percent of it. 2009 and down 15. are not seasonally adjusted. Coal generates close to half of America’s electricity. 2010 was down 12. operations of CN and CP. and reflect revisions from original reporting.000 2008 Chart 17 % Change in U. Economic Recovery Policy Implications Much of what is being proposed in legislation that would dramatically change the existing railroad regulatory structure relies entirely on the STB’s interpretation of new and incredibly complex economic regulations and legal processes.

then their ability to continue to take trucks off the roads. signals and equipment 160 required to serve coal 140 customers. electric power sector. the federal government pressured 80 2003 2004 2005 2006 2007 2008 2009 railroads to expand rail Source: Energy Information Administration capacity to serve coal. Today. Policy Implications Chart 18 Coal Stockpiles in the Electric Power Sector: Railroads have invested tens of January 2003 . reduce highway congestion and lower greenhouse gas emissions will be severely compromised.S.7 million carloads of coal in 2008 — enough to meet the electricity needs of every home in America. Both Congressional and EPA regulations affecting climate change and the future of the coal industry have the potential to undermine all of the positive environmental benefits provided by freight rail. These assets would be abandoned or greatly underutilized if America’s coal industry were to be diminished. Economic Recovery percent of revenue for Class I railroads. railroads originated 7. If railroads lose a substantial share of their coal revenue and cannot maintain and expand their network infrastructure investments. The charts below show coal stockpiles in the U. current events dampening the coal market offer a glimpse at what might happen should freight railroads see a reduction of business from this single largest customer segment due to climate change legislation. This in turn means railroads hauled less coal than any year in recent history. and one in every four revenue dollars is related to the movement of coal. Association of American Railroads Page 19 of 26 . such as the 180 tracks. electric power sector. 120 particularly when natural gas 100 prices were high. In 2009. America experienced reduced demand for electricity not only because of the weakened economy.Great Expectations: Railroads and U. Over the years. One in every five railroad jobs.S. (See Charts 16 and 17) However. (See Charts 15 and 16) The result is higher stockpiles of coal in the U. All told. but also because of milder weather trends and low natural gas prices.November 2009 (Millions of Tons) billions of dollars in unique 220 assets and rail network 200 infrastructure. there are tremendous stakes for railroads as they weigh the impacts of a significant reduction of coal business.S. Note the huge run-up in stockpiles since early 2009 (see Chart 18).

lawmakers and regulators should support polices that: 1) do no harm to the financial viability of the self-sustaining railroad industry. airlines. paving the way forward for a healthy rail network that can support U.S. Economic Recovery In order for our nation’s railroads to aid the U. As the Government Accountability Office noted in a recent report: “Rail investment involves private companies taking a substantial risk which becomes a fixed cost on their balance sheets. Reduced investments mean a decrease in growth and loss of additional freight rail jobs. it will not be able to make capacity investments to maintain a healthy rail system needed to make additional investments in the replacement or expansion of infrastructure required by growing demand.S. economic recovery. GREAT EXPECTATIONS – The Path to U. While the financial health of many of America’s freight railroads has improved since being partially deregulated. October 2006. Association of American Railroads Page 20 of 26 . and barges operate over highways.Great Expectations: Railroads and U. Rail earnings allow railroads the ability to make investments that are needed to keep their track and equipment in top condition. 56.S. but Concerns About Competition and Capacity Should Be Addressed. railroads must be able to earn enough to finance their costs and attract investors. rail profitability has suffered in the current downturn. To keep their existing networks in top condition and to build the new rail capacity that America will need in the years ahead. America’s freight railroads pay nearly all of the costs of their tracks. freight railroads are privately owned and must finance the vast majority of their infrastructure spending themselves.”4 For this reason. Economic Recovery V. Eliminate Uncertainty. and 2) bolster the industry’s ability to attract investments needed to sustain a healthy national rail network and thousands of high paying American jobs . trucks. economic recovery. adequate rail earnings are critical. By contrast. capacity investments are accompanied by substantial financial risk. and waterways that the government provides.S. Because U. and tunnels themselves. If a railroad is not financially sustainable over the long term. and add the new rail capacity 4 Government Accountability Office. airways. p. bridges. one on which they are accountable to stockholders and for which they must make capital charges year in and year out for the life of the investment. improve service. Preserve Rail Network Investment As noted earlier. Freight Railroads: Industry Health Has Improved.S. The following offers a framework for ensuring these two equally critical goals are met.

(See Chart 20) In 2008 railroads spent more than ever before on their infrastructure and equipment and kept re-investments at a high level in 2009. tunnels..S. There is a very high positive correlation — meaning that when one is up. not just railroads themselves.8 $180 $3. $4. to be sure. should be eligible for the incentives.leading directly to record levels of rail reinvestments.depreciation Class I railroads only. Rail Infrastructure Tax Incentive In order to help ensure that tomorrow’s rail network will be able to handle the freight and people of tomorrow — and stimulate the economy at the same time — policymakers should enact tax incentives for projects.9 $160 $140 $120 '00 '01 '02 '03 '04 '05 '06 '07 '08 '00 '01 '02 '03 '04 '05 '06 '07 '08 *Capital spending + maintenance expenses . Railroads’ best estimate of the cost of a freight railroad infrastructure tax incentive is a few hundred million dollars per year — not insignificant.2 $2. bridges.5 $6.7 $2. based on U. Railroads support legislation that calls for a 25 percent tax credit for capital investments used to grow the nation’s rail network. (See Chart 21) Chart 20 Class I Railroad Net Income: 2000-2008 ($ billions) $8. Economic Recovery that America will need for expanded freight and passenger service in the years ahead.5 $2.Great Expectations: Railroads and U.7 $2..1 Chart 21 Infrastructure and Equipment Spending* Per Mile ($000s) $240 $220 $200 .. In fact. Source: AAR Source: AAR This Congress and the Administration must exercise care and balance when considering changes to the economic regulatory system that has given rise to the rail renaissance. the other is too — between rail earnings and reinvestments in their systems.S. Rail earnings have risen in recent years. All businesses that make capacity-enhancing rail investments. and intermodal facilities that expand freight rail capacity. but the stimulatory benefit to the economy would be much greater.9 $6. such as new track.. Tax incentives are also appropriate to help cover the huge costs of the expanded PTC mandate. Department of Association of American Railroads Page 21 of 26 .

but would not be enough to cause economically unjustified projects to go forward. the American Council for an Energy Efficient Economy. Second. In addition to the freight rail tax incentive. the Congressional Budget Office lists three main criteria for assessing a fiscal stimulus proposal — and a rail infrastructure tax incentive meets all three. every $1 of new rail infrastructure investment that would be stimulated by a tax incentive would generate more than $3 in total economic output. Many transportation experts. this tax credit has enabled the creation of over 5 million track worker-hours per year.S. positive economic benefits. the National Retail Federation. and the economic benefits of. The credit also supports thousands of jobs in the timber. Supporters have included the American Association of Port Authorities. $300 million in additional freight rail capacity investment would result in nearly $1 billion in overall economic stimulus. each $1 billion of new rail investment induced by the tax incentives would create 20. A rail infrastructure tax incentive would yield immediate. and many others. transportation capacity expansion. Chamber of Commerce. is it likely to be timely? Highways and other public works projects can take years to plan and begin. The incentive would help worthwhile projects get built sooner. Expired in 2009.000 jobs. the U. the expired short line tax credit should be renewed. the American Society of Civil Engineers. First. the Alliance to Save Energy. how certain are the economic impacts of the proposal? Virtually no one disputes the need for.Great Expectations: Railroads and U. Thus. and years more to build. a tax incentive would reduce the cost of the project. Third. Freight rail projects. businesses. often in a matter of months. Hewlett Packard. In a January 2008 report. raising the likelihood that the project will be economically viable and allowing the public benefits of the project to accrue more quickly. is it cost effective? The budgetary cost of a rail infrastructure tax incentive is small compared with the stimulating benefit to the economy. Association of American Railroads Page 22 of 26 . and others support rail infrastructure tax incentives because they know rail expansion is in America’s best interests. tax incentives for freight rail infrastructure investment would immediately stimulate additional investment and employment by rail suppliers as they responded to increases in multiyear capital projects by the rail industry.S. Moreover. For a railroad considering whether to fund an expansion project. and $330 million in annual track upgrades. the National Mining Association. Moreover. government policymakers. the CBO asks. steel and track materials industries. however can be started far more quickly. Economic Recovery Commerce data.

regional and national economy. states applying for federal grants for high-speed or intercity passenger rail projects are required to have written agreements with the host freight railroads on issues such as safety. creating jobs and ultimately providing the Chicago region with public benefits valued at more than $3. CN. CREATE: A Public Private Partnership in Action The Chicago Region Environmental and Transportation Efficiency Program – or CREATE – is a project of national significance that was formed in 2003 when the State of Illinois and City of Chicago joined with passenger and freight railroads serving the region to identify critically needed improvements to the Chicago region’s rail and highway transportation infrastructure. CP. In the Chicago area alone. Under the public-private partnership of CREATE. In other cases.2 billion over the past five years to maintain and improve rail infrastructure. For example. railroads will pay for the business benefits they gain from improvements to the rail network. The government will pay for public benefits such as grade crossing separations and commuter rail improvements. The program also preserves the footprint for high-speed rail in the Midwest region. Economic Recovery Public-Private Partnerships For intercity passenger rail expansion to take hold in this country – at higher or truly high-speed – public-private partnerships must exist between the host freight railroads and passenger rail sponsors that protects the business needs and responsibilities of both parties. Public-private partnerships also are provided for in FRA’s high-speed and intercity passenger rail program. Under FRA’s program. compensation and liability if they are to be considered eligible for federal funding. as well as benefits for freight rail. As the nation’s busiest rail freight gateway and world’s third busiest intermodal hub. These partnerships offer a mutually beneficial way for railroads and governments to solve critical transportation problems. increasing safety. with the railroad responsible for funding all future maintenance to keep the project productive and in good repair. Through public-private partnerships. some projects might provide a combination of public benefits. Chicago’s rail network is crucial to the local.Great Expectations: Railroads and U. NS and UP. CSX. The CREATE program is aimed at improving passenger rail service. The vast majority of Chicago’s rail infrastructure is privately owned and maintained by the six major freight railroads that operate in the area – BNSF.S. Association of American Railroads Page 23 of 26 . while preserving the health of the freight rail network so that it can provide the literal foundation for intercity passenger rail expansion. governments can greatly expand the use of rail while only paying for the public benefits – while railroads pay for the business benefits they gain from improvements to the rail network. They are a critical first step to making higherspeed passenger rail a reality in America. Policies like these recognize public-private partnerships can support mutually beneficial development of passenger and freight rail. improving air quality.8 billion. the public entity contributes a portion of the initial investment required to make a project feasible. reducing motorist delays. such as decreasing highway congestion by taking trucks off the road. such as enabling faster more reliable train operations. railroads have spent more than $1. infrastructure capacity.

the railroad would be obligated to invest the full amount of the after-tax net value of the climate change adjustment allowance on capital expenditures.” If a robust coal industry is preserved. The railroad industry developed a legislative solution. such as investment in developing carbon-capture-and-storage (CCS) technology. the Obama Administration recently called for creation of an interagency task force that would facilitate the development of five to 10 commercial demonstrations of CCS technology by 2016. Association of American Railroads Page 24 of 26 . Economic Recovery Preserve Coal. The reasons are simple: • 1 in every 5 railroad jobs is coal related • 1 in every 4 railroad revenue dollars is coal related Railroads support policies that enable greater use of coal. However. processes or uses coal to generate electricity or manufactured goods. However. called the Rail Carrier Adjustment Assistance Proposal. Decreased demand for coal would result in stranded assets that are uniquely suited to serving coal customers – coal cars. which would provide payments beginning in 2018 to any railroad that experiences a decrease in revenues as a result of enactment of climate change legislation. resulting in billions of dollars in stranded coal-related assets and a concurrent loss in revenue. produces.Great Expectations: Railroads and U. If granted. The proposal would direct the Secretary of Transportation to determine whether any decrease in total revenue ton miles in coal is the result of a shift caused by the legislation from coal to other sources of energy at a facility that mines. such allowances are simply “just-in-case. including the renewal or expansion of its rail infrastructure. Contingent allowances would ensure that freight rail can continue to be a part of the climate change solution. and some locomotives. if there is a loss of demand for coal. allowances would simply ensure we can invest in our networks to meet increased demand to move more people and goods by rail. dedicated rail lines.S. Enact Railroad Contingency Allowances Railroads’ first priority in climate change policies is support for a robust coal industry. there would be no need for allowances for railroads. For example. and there is no loss of coal. uncertainty about the future of coal has required preliminary contingency planning by railroads. However. facilities.

all while avoiding having to rely on taxpayer funds. Association of American Railroads Page 25 of 26 . provide safe and affordable movement of people and goods.S. climate change policies that avoid unintended negative consequences that threaten vital American jobs. investment tax incentives that ensure railroads can continue to make the billions of dollars each year to build. these public benefits are in danger of diminishing if certain regulatory and legislative proposals that greatly expand the role of the federal government become reality. safety regulations based on critical need and true safety benefits. market-driven policy initiatives that instead offer a better way forward to ensure freight rail can deliver on these expected public benefits: • • • • • market-based policies that enable railroads to attract private capital necessary to build and sustain the nation’s passenger and freight rail network. However. Public policy makers simply have come to expect freight rail will be able to provide these public benefits while sustaining private investment in the nation’s rail network needed to facilitate our nation’s economic recovery. maintain and expand the nation’s rail network. Conclusion America has great expectations of freight railroads – continue to take trucks off the road. and which do not come at the expense of other critical safety and capacity enhancing projects. Supporting such policies will ensure freight rail can meet America’s great expectations for U.S. These changes are under consideration despite broad public view that is increasingly leery of government intervention in the marketplace. and public-private partnerships that ensure a new national high-speed and intercity passenger rail system is not developed at the expense of the nation’s world-class freight rail network. lower greenhouse gas emissions. Economic Recovery VI. economic recovery. reduce highway congestion.Great Expectations: Railroads and U. especially if it stifles job growth during a recession. when jobs are so desperately needed. There are balanced.

economy. released the second week of each month which includes a video summary presented by a member of the AAR Policy & Economics team.S. AAR also issues a monthly Rail Time Indicators report. housing starts and industrial production – offering a snapshot of how rail traffic data reflects the broader U.S. economic indicators – including consumer confidence. and other key data – please visit www. Economic Recovery VII.org AAR Communications 202-639-2100 Association of American Railroads Page 26 of 26 .aar. For More Information To learn more about railroad economics – including freight rail traffic.org.Great Expectations: Railroads and U.S. the movement of commodities. intermodal movements. For additional background or to arrange interviews with key AAR experts and spokespersons. The report combines rail traffic data with more than 15 key U. please contact: Holly Arthur AVP Public and Media Relations 202-639-2344 harthur@aar.

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