David Briginshaw, Editor-In-Chief

Oil surge is rail’s golden opportunity

THE current surge in the price of oil and the global credit crunch could have a silver lining, at least for rail, even if these developments also pose a threat to the global economy in terms of inflation and an economic downturn, which could in turn rebound on rail.

The price of oil was hovering at around $US 133 a barrel as IRJ went to press, which is more than five times what it was in 2002 when oil was trading at just $US 25 a barrel. But the rate of increase has been accelerating and most of the increase has occurred in the last year. Most analysts are forecasting further price rises. This is because the economies of the world’s largest countries - China, India, and Russia - are surging ahead.

People and economies can cope with price increases in basic commodities such as fuel, provided the rate of increase is gradual. If prices increase over a sufficiently long period, people hardly notice. But sudden shocks force people to rethink the way they live their lives. The rapid increase in fuel prices is now causing even die-hard motorists in North America to think about alternatives like the train.

There are some encouraging signs that people are switching to rail, with several North American operators reporting substantial increases in traffic. Amtrak ridership was up 11.5% nationally in March compared with March 2007, and traffic on its short-distance routes jumped 16.5%. New Jersey Transit recorded a 5.3% increase in commuter rail traffic during the first three months of this year, even though fuel prices are lower than in other US states due to lower taxes. Path, which operates between New Jersey and New York, says ridership grew by 7.8% during the first four months of 2008 due to “the rising cost of gasoline” (petrol).

Even if fuel prices do stabilise or even fall, there is considerable evidence from previous price hikes that a good proportion of the people who switch from road to rail tend to stay with rail once they have tried it: they suddenly realise the benefit of not being stuck bumper-to-bumper in traffic jams.

Of course diesel-powered trains are also affected by higher diesel prices, but the effect is less noticeable than for road or air, as trains can move a lot more freight or people per litre of fuel than trucks or cars. Nevertheless, the price of diesel in the United States has increased threefold since 2004 compared with a 19% increase in the cost of electricity.

A recent survey by the American Public Transportation Association (Apta) of its members drew a 25% response. Virtually all respondents (92%) report increased ridership during the last three years. But the increase in fuel costs mean that fuel’s share of the operating budget has increased from 6% in 2004 to nearly 11% today.

This, coupled in some cases with reduced sales tax revenue, is forcing operators to take a variety of measures such as increasing fares, applying for increased local or state funding, postponing service improvements or capital investment projects, and even making cuts to services despite rising demand. Cutting services is the worst response possible to the current situation, and should be resisted at all costs. This is the time to expand services, not cut them.

Airlines are being badly affected by the steep rise in the cost of aviation fuel. Many are imposing surcharges in the short term, and plan to ground aircraft later in the year. Even Europe’s aggressive low-cost airlines are talking about service cuts after the summer holiday period. This of course is good news for intercity rail operators, and an excellent chance to entice airline passengers to take the train instead. But railways must be ready first to win air passengers over, and secondly to keep them travelling by rail.

While there is little sign yet that the credit crunch is affecting rail investment schemes, private funding of projects will certainly be more difficult in the future. However, this could be good news if it puts an end to some of the more dubious or risky public-private partnership (PPP) schemes. PPP projects are notoriously difficult and time-consuming to put together, often cost more than conventional borrowing or public funding, and sometimes end in failure because the revenue is insufficient to give the private investor a payback sufficiently quickly.

While rail transport will never be immune from the effects of rising fuel prices and tightening credit, it is better placed than other modes to withstand these shocks, and is even benefiting from the former. This is a time for rail not only to hold its nerve but to push for more investment to enable it to perform an even greater role in keeping the world moving.