For economists, optimism is unnatural. Thus, as I digested the STB hearings on rail growth, I became increasingly uncomfortable with my buoyancy. As creepy as it sounds, the hearings left me fairly hopeful about freight railroading’s future. Just the same, getting to that conclusion took some thought, and translating happy thoughts into tangible outcomes will take work. Let me explain.
First, while there’s observable angst and concern, there is no eminent freight catastrophe on the horizon. This is not 1971. Instead, all concerned come to the table from positions of relative strength and prosperity. Also, while a casual listen to the testimony might suggest that nobody agrees on anything, that’s not actually the case. Instead, what we heard were brilliantly spun variants of what is largely an agreed-upon story.
Rail traffic growth is lagging. This is bad. It is bad for the national economy, bad for our environment, yes, ultimately bad for the railroads, bad for those who ship by rail, and bad for rail labor. It’s not the direction we need nor the one we want. Still, if we strip the various stories of their spin, the reasons for this decline are not mysterious. Probably, Rick Paterson (Loop Capital) provided the hearing’s most cogent, balanced explanation. Here are his words (scroll down to near the bottom of the report), but I’ll summarize Paterson as well as I can.
First, railroads were rocked by coal’s decline and by other exogenous macroeconomic forces that hit rail traffic particularly hard. But, pressured by Wall Street, the railroads have also compounded these traffic losses. Specifically, under the banner of Precision Scheduled Railroading (PSR), rail carriers have done all they can to simultaneously increase revenues and further reduce costs. There is neither shame nor crime in this behavior, and had the railroads acted differently, the appetites of Wall Street’s activist investors would have been even more disruptive than they’ve been. Nonetheless, the railroads have been a little brutish and clumsy at their work, so that other market participants are unhappy with the outcomes and understandably irked.
Very simply, what we have today is an exquisitely constructed, wonderfully equipped and incredibly safe rail system that is nonetheless starved for operating resources. It is unacceptably fragile, and for now at least, is clearly struggling to satisfy rail customer needs.
“So where’s the good news?” you ask. This is supposed to be a happy story. Yes, I believe it is, or at least, I believe it can be.
First, to repeat, this is not a crisis. Nobody’s hair is on fire. Second, to the extent that Wall Street has been the nagging culprit, there’s some evidence that the financial sector’s passion for lowered operating ratios and short-term profits is slowly giving way to discussions that include growth. Moreover, against this backdrop, we have or can have the other things we need. To achieve a second railroad renaissance, we need good ideas, a set of staunch and able leaders, and a dependable, uncorrupted, forward-looking institutional environment.
There are plenty of excellent ideas. First, we needn’t toss out the PSR baby with the bathwater. As Paterson suggests, rail carriers may need to retreat a little to ensure that PSR doesn’t eclipse concerns for rail service quality or overall network resilience, but there’s nothing wrong with pursuing more efficient operations. Also, the short lines are clearly proving their worth and there are many useful thoughts on how their role could be made even more productive.
Next, there are emerging tools that can advance railroad operations and improve customer outcomes. RailPulse is a visible example. To be sure, anything as powerful as real-time railroad telematics is scary to everyone and those who have volunteered to tame this dragon still face challenges, but as somebody said at the hearing, “Technology will win.” That’s always true, so while RailPulseis an exciting example, there are myriad other opportunities for technology just as fertile.
Turning to leadership, more would be better, but the cupboard is by no means empty. We didn’t hear from everybody last week, but even so, there were encouraging examples of solid, fresh, stalwart leaders. Joe Hinrichs (CSX, above) in particular was amazing for his candor, optimism and sound, real-world thinking. It was also encouraging to hear Karen Hedlund (STB) and Rand Ghayad (AAR) link rail performance and opportunity to the broader (even international) tableau. For reasons we all understand, railroads and their users generally prefer invisibility, but the reality is that understanding rail’s role in and dependence on the overall economy is critical to future survival, let alone success.
Finally, as with everything else, it will take work to further refresh the institutional environment that supports and guides rail commerce. Again however, there’s no need for handwringing. The challenges are clear, the resources are here, and there’s ample time to get things right.
To begin, in an era where pronouns are so important, it is notable that Robert Primus (above), the STB’s Chair, continually used the words “we” and “our” instead of “you” and “yours.” That sounds like engagement and shared responsibility. That’s good; the Board has much to do. Nearly everyone in the hearing clamored for the stability and predictability that can come from a clearer definition of common carriage. Everybody needs to know their jobs and what they can expect in return.
Next, in a fast-moving era like ours, the alphabet soup jumble of federal entities must set territorialism aside and better coordinate their efforts. In the land of monolithic giants, can the smallish STB start that ball rolling? Well, why not?
Finally, the technology referenced above generates a lot of data that can be used to monitor and measure performance. Again, nobody likes sharing information; it creates vulnerabilities, but we’re going to have to get over that. The STB can help with that too.
Generally, when economists write like this, we proffer conclusions replete with warnings and predictions, but this is not the time for that. The STB did us a favor by organizing an agenda. Now, we need to get to work and put Chicken Little to bed. This is doable.
Dr. Mark Burton is a semi-retired transportation economist with a long-standing interest in freight transportation. An Economics faculty member at the University of Tennessee assigned to UT’s Center for Transportation Research, his professional career has included both academic and consulting research in transportation economics. In addition to authoring a number of articles and monographs, Dr. Burton has provided testimony in proceedings before the Surface Transportation Board, a variety of state agencies, and the U.S. Senate. In August 2004, Dr. Burton was named as Director of Transportation Economics at the University of Tennessee’s Center for Transportation Research. In addition to his academic work, Dr. Burton has three years of practical experience, serving in Burlington Northern’s Law Department between 1982 and 1985. The opinions expressed here are his own.
