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RAILROAD CAPACITY RAILROAD CAPACITY ISSUESISSUES
Talking Freight SeminarTalking Freight Seminar
By:Robert H. Leilich,Railroad Operations ConsultantSpringfield, VA(703) [email protected]
Washington, DCSeptember 21, 2005
Prepared by R. Leilich – 9/05
In 2000, the US freight system moved 14 billion tons of freight valued at $11 trillion, over 4.5 trillion ton-miles.
Un
its
Source: Cambridge Systematics, Inc.
Between 1990 and 2000, high price / service Between 1990 and 2000, high price / service modes grew the fastest. Between 2000 and modes grew the fastest. Between 2000 and 2020, total freight is forecast to grow by 2020, total freight is forecast to grow by 57%. Rail traffic grows, but still lags truck . 57%. Rail traffic grows, but still lags truck . Service appears to be worth the higher price.Service appears to be worth the higher price.
Source: Cambridge Systematics, Inc.
Prepared by R. Leilich – 9/05
Congestion Hotspots - Freight Congestion Hotspots - Freight Analysis Framework (FAF) Analysis Framework (FAF)
Highways 1998Highways 1998
Congestion Hotspots - Freight Congestion Hotspots - Freight Analysis Framework (FAF) Analysis Framework (FAF)
Highways 1998Highways 1998
Prepared by R. Leilich – 9/05
By 2020, It Only Gets By 2020, It Only Gets Worse In Every Section of Worse In Every Section of
the Country...the Country...
By 2020, It Only Gets By 2020, It Only Gets Worse In Every Section of Worse In Every Section of
the Country...the Country...
Prepared by R. Leilich – 9/05
Railroads have similar problems and
are even turning away some business
Major airports are at capacity with little or no room to grow
Prepared by R. Leilich – 9/05
Our Nation’s Our Nation’s Transportation System Transportation System Is At Or Nearing CrisisIs At Or Nearing Crisis
Our Nation’s Our Nation’s Transportation System Transportation System Is At Or Nearing CrisisIs At Or Nearing Crisis
Auto commuters in
big cities spend 2
to 8 days a year
stuck in traffic – and
its getting worse.
Highways between
major cities are
heavily congested.
Prepared by R. Leilich – 9/05
How much How much can the can the system system handle?handle?
How much How much can the can the system system handle?handle?
Prepared by R. Leilich – 9/05
On Railroads, As Traffic On Railroads, As Traffic Increases...Increases...
On Railroads, As Traffic On Railroads, As Traffic Increases...Increases...
Train delays increase (average speed declines)
Recovery time decreases
Productivity Suffers
“Slots” to run extras or new schedules decline
Maintenance windows decrease (and MofW costs increase)
Prepared by R. Leilich – 9/05
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
YEAR
IiN
DE
X (
19
82
= 1
00
)
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
FREIGHT TRAIN MILESPER MILE OF ROAD
MILES OF ROAD OWNED
AVERAGE COMPOUND GROWTHRATE 1982 - 2003 = 4.3%
AVERAGE COMPOUND GROWTHRATE 1982 - 2003 = - 2.2%
REVENUE TON-MILESPER MILE OF ROAD
AVERAGE COMPOUND GROWTHRATE 1982 - 2003 = 5.6%
AVERAGE VELOCITY - MPH
How Bad Are the How Bad Are the Railroads Problems?Railroads Problems?Source: STB / ICC Transport Statistics and AAR Railroad Facts
(Almost Identical to Miles of Track)
Prepared by R. Leilich – 9/05
Railroads are Railroads are Approaching the Limits of Approaching the Limits of
Practical CapacityPractical Capacity
Railroads are Railroads are Approaching the Limits of Approaching the Limits of
Practical CapacityPractical Capacity
What are the choices?What are the choices?
Build more trackBuild more track
Change operating Change operating
practices and schedulespractices and schedules
Drop least profitable Drop least profitable
traffictraffic
Prepared by R. Leilich – 9/05
$$ for Reinvestment$$ for Reinvestment$$ for Reinvestment$$ for Reinvestment
0
5
10
15
Year
$$
- B
illio
ns
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98
Capital Expenditures
Funds Available for Reinvestment
Funds Shortfall
Even since railroads won economic Even since railroads won economic freedom in 1980, internally freedom in 1980, internally generated cash has been generated cash has been
insufficient to meet capital needsinsufficient to meet capital needs
Profits Don’t Cut ItProfits Don’t Cut ItProfits Don’t Cut ItProfits Don’t Cut It
The Gap Persists
0%2%4%6%8%
10%12%14%
91 92 93 94 95 96 97 98 99 00 01
Railroad Cost of Capital
Railroad Return on Investment
Prepared by R. Leilich – 9/05
Let’s Do Some Let’s Do Some Simple MathSimple Math
Let’s Do Some Let’s Do Some Simple MathSimple Math
Facts (STB / ICC Transport Statistics):
Average velocity 1990-1993 = 23.7 MPH
Average velocity 2003 = 20.0 MPH
Road train hours 2003 = 25,849,050
Freight train miles 2003 = 515,919,000
Total car-miles 2003 = 35,554,941,000
Loco unit-miles 2003 = 1,353,884,708
Prepared by R. Leilich – 9/05
From These Facts, We From These Facts, We Derive…Derive…
From These Facts, We From These Facts, We Derive…Derive…
2003 vs 1990-1993 extra train hours (due to
average velocity difference) = 4,076,940
2003 average unit-miles / train mile = 2.62
2003 average car-miles / train mile = 68.9
Prepared by R. Leilich – 9/05
Toss in Some Toss in Some Assumptions…Assumptions…Toss in Some Toss in Some
Assumptions…Assumptions…
Extra train hours are related to capacity
delays
Average loco unit value = $1,000,000
Average car value = $30,000
Cost of capital = 9 percent
Idling fuel = 4 gal/hour at $1 per gallon
(Remember – this is 2003!)
Labor value = $100 per hour
Prepared by R. Leilich – 9/05
Some More Some More Assumptions…Assumptions…
Some More Some More Assumptions…Assumptions…
Annual in-revenue-service loco unit
hrs (70% utilization) = 6,132 hrs/yr
Annual in-revenue-service freight
car hrs (50% utilization) = 4,380
hrs/yr
Loads per car per year (22 day
cycle) = 16.6 loads
Average revenue per load = $1,500
Prepared by R. Leilich – 9/05
More Calculations More Calculations From Facts and From Facts and
AssumptionsAssumptions
More Calculations More Calculations From Facts and From Facts and
AssumptionsAssumptions
Loco unit cost / service hr Capital = $5.44 Cost of capital = $.49 Fuel (idling) = $4.00Freight car unit cost / revenue service Capital = $.20 Cost of capital = $.02Average annual revenue per freight car =
$24,886
Prepared by R. Leilich – 9/05
From All This We Get Annual From All This We Get Annual Velocity Penalty (Capacity Velocity Penalty (Capacity Delay) Costs…Delay) Costs…
From All This We Get Annual From All This We Get Annual Velocity Penalty (Capacity Velocity Penalty (Capacity Delay) Costs…Delay) Costs…
COST ITEM $(MILLIONS)
Locomotive
Capital & Capital
Cost
63.4
Fuel 42.8
Labor 407.7
Frt Car Capital & Capital
Cost
59.9
TOTAL 573.8
Prepared by R. Leilich – 9/05
What $573.8 Million What $573.8 Million Translates To…Translates To…
What $573.8 Million What $573.8 Million Translates To…Translates To…
11 percent of 2003 NROI
“Loss” of 1,750 locomotive units
“Loss” of 64,150 freight cars
“Loss” of $1.6 billion in revenue
“Loss” of 5,400 operating employees
(@1500 on-duty hours / yr)
Equal to cost of adding 230 miles of
new main line track (@$2.5 million
per mile)
Prepared by R. Leilich – 9/05
Now, Assuming Current Now, Assuming Current Trends…Trends…
Now, Assuming Current Now, Assuming Current Trends…Trends…
Freight train miles will double by 2020 – and double again by 2036 (four times 2003 levels) – even counting continuing productivity improvements
And… The analysis does not count passenger or
commuter traffic The greatest demand for capacity is in
and around major metropolitan areas
With little additional room on the With little additional room on the highways or in the air – who’s highways or in the air – who’s going to handle the traffic?going to handle the traffic?
Prepared by R. Leilich – 9/05
The Real Dilemma...The Real Dilemma...The Real Dilemma...The Real Dilemma...
If sunk (existing) If sunk (existing) infrastructure investment infrastructure investment can’t earn the current cost can’t earn the current cost of capital, it is even less of capital, it is even less likely that new likely that new infrastructure investment infrastructure investment will. The revenue will. The revenue inadequacy of railroading is inadequacy of railroading is really clear when the need really clear when the need to invest exists. to invest exists.
Prepared by R. Leilich – 9/05
Let’s Look at a Sample Let’s Look at a Sample CaseCase
Let’s Look at a Sample Let’s Look at a Sample CaseCase
Cost - $3.5 million per mile to build an additional signaled main track
o 40 percent equity investment (18% pre-tax)
o 60 percent debt financing (9% pretax)
25 year life
Under the above simple assumptions, the Under the above simple assumptions, the annuity capital cost is $465,800 per mile.annuity capital cost is $465,800 per mile.
Prepared by R. Leilich – 9/05
What Does It Take to Recover What Does It Take to Recover That Cost?That Cost?**
What Does It Take to Recover What Does It Take to Recover That Cost?That Cost?**
Revenue – $2.12 per loaded car-mile
Profit margin (EBIT) – 15%
Ratio – loaded / total car-miles - 61%
Train size – 90 cars (assumption)
Loaded cars/train – 54
"Profit" / train- mile – $17.46
Number of additional trains required to earn annuity
– 26,680
Additional trains per day – 73 – THIS WON’T FLY
*Averages from Year 2000 STB data
Prepared by R. Leilich – 9/05
If railroads are the low cost If railroads are the low cost service provider, why is it they service provider, why is it they cannot price to earn their cost cannot price to earn their cost of capital? If laying rail adds of capital? If laying rail adds more freight and passenger more freight and passenger transportation capacity per transportation capacity per dollar, why aren’t the dollar, why aren’t the economics there?economics there?
Given the non-level playing Given the non-level playing field where competing rights of field where competing rights of way are publicly provided, the way are publicly provided, the market isn’t willing to pay the market isn’t willing to pay the price.price.
Prepared by R. Leilich – 9/05
Whose job is it to resolve Whose job is it to resolve transportation capacity transportation capacity
issues?issues?
Whose job is it to resolve Whose job is it to resolve transportation capacity transportation capacity
issues?issues?
FederaFederall
Local
StateState
Private Private //
usersusers
All need to All need to play a role play a role to keep the to keep the
stool stool standingstanding
Prepared by R. Leilich – 9/05
While Public / Private While Public / Private Partnerships Are a Partnerships Are a
Solution...Solution...
While Public / Private While Public / Private Partnerships Are a Partnerships Are a
Solution...Solution...
Public Benefits + Private Benefits
Public Investment + Private Investment
=
WIN / WIN
Prepared by R. Leilich – 9/05
There Are Often There Are Often MisunderstandingsMisunderstandings
There Are Often There Are Often MisunderstandingsMisunderstandings
Railroads often do not offer convincing evidence of the
public benefits of adding capacity
The basis for sharing capital costs are difficult to establish
Indirect benefits (such as safety) are difficult to quantify
and justify
When traffic corridors near capacity limits, the value of
existing infrastructure increases
New services may require additions to capacity - not
necessarily just when the limits of practical capacity are
reached
Railroads want to reserve excess capacity for their future
use
Prepared by R. Leilich – 9/05
Public/Private Rail Partnerships Public/Private Rail Partnerships Require:Require:
Public/Private Rail Partnerships Public/Private Rail Partnerships Require:Require:
Clear understanding of public benefits
Clear understanding of private benefits
Preservation of private rail management
rights
Private sector commitment
Political constituency
Public involvement and support
Commuter rail and the Alameda Corridor are Commuter rail and the Alameda Corridor are examples of public partnerships that appear to work.examples of public partnerships that appear to work.