PTC

January 22, 2016 |

Economic headwinds reinforce the need for balanced regulation

THE US economy is wrestling with the prospect of a tempered outlook for the first part of 2016, highlighting that while North America's freight railways might do well in good times, they assume huge risk when the economic tables turn.

A year ago, railfreight was carrying record levels of nearly all commodities. Now that is trailing downwards as some groups - including intermodal - have fallen off, indicative of a cooling economy. A year ago crude oil shipments were climbing as an essential element in US energy independence. Now oil volumes are declining as the global price of oil has fallen.

When the economy wanes, the railways are left with hundreds of millions of dollars in stranded assets no longer required by rail customers. The railways take the hit for the track and other infrastructure no longer in use - not the taxpayer. That's because unlike almost all other transport infrastructure, rail infrastructure is funded by private companies.

HambergerBy building and maintaining the coast-to-coast railfreight network, the railways ensure that the US economy functions efficiently and effectively and that millions of commuters have reliable transport where commuter trains access our networks.

But the nation's current economic plight - underscored by stranded rail assets - provides a sobering reminder for federal regulators keen on ensuring a robust freight rail network in 2016, even in tough times: if regulators want railways to continue to take financial risk and invest in infrastructure to support American industry and employment, the industry needs balanced regulations that do not impede the railways' ability to generate revenue.

In 2016 the rail industry will continue to press the Surface Transportation Board (STB) on several key issues. In a throwback to a long-lost era of government intervention in private industry, the STB is weighing proposals that would cap revenue and leave railways with much less money to expand and modernise the rail network.

A handful of interest groups and some companies want the STB to reverse years of success and interpret "revenue adequacy" as a directive to constrain railfreight revenues. They want the STB to cut their transport costs through direct government intervention at the expense of the greater good. They want the STB to institute price controls on freight railways.

The reason most economists, and policy makers for that matter, are sceptical about price controls is that they distort the allocation of resources. What that means for the rail industry is very simple: if rates are capped, revenue falls. That in turn will curtail the amount of funding railways can reinvest back into their networks, and these are huge sums, averaging about $US 25bn annually in recent years and $US 600bn cumulatively since 1980.

By misapplying the concept of "revenue adequacy" and cutting revenue, the STB would inhibit further modernisation of the 225,000km network to meet shipper demands as effectively as they can now.

Another ill-conceived proposal under consideration would require railways to provide competitors with access to their infrastructure. In 2016 the freight railways will argue that it's indefensible to force companies that have risked billions of dollars building, maintaining, and optimising their networks to open their infrastructure to competitors.

Moreover, the efficiency of the entire network will be compromised by forcing new, unpredictable shipping patterns that will disrupt operations. Ultimately, most shippers will be disadvantaged as the costs and disruptions of reciprocal shipping move through the system. A few politically connected shippers may benefit, but most others will not.

PTC a priority

Last year the industry worked to extend the federally-mandated deadline for the installation of positive train control (PTC). The end of 2015 was an unworkable deadline which didn't reflect the scale of this mammoth technological undertaking. The industry has been ringing the alarm bell for years on this.

The new deadline approved by Congress is one that the railfreight industry will assuredly meet: it calls for installation of PTC on 100% of our network by 2018, followed by two years of real-world testing and validation to ensure it works as advertised. The bottom line is that PTC will be fully implemented on Class 1 railways by 2020.

CSX Train ChemicalThe deadline change in no way reflects a lessening commitment to PTC. America's railways are committed to implementing a nationwide PTC system that will strengthen an already safe rail network.

Safety is always the first and highest priority of the railfreight industry in whatever is transported and nowhere is safety more of a focus in 2016 than in the transport of crude oil. The railways are setting the highest possible standards for oil transport safety. They have done top-to-bottom reviews and improved on some of their crude oil transport operations, while last year federal regulators issued new regulations on moving crude oil.

In announcing the new safety rules, transportation secretary Mr Anthony Foxx praised the safety record of the freight railways. "The truth is, 99.9% of these shipments reached their destination safely," he said.

If getting even closer to perfection is the quest, then a major goal in 2016 should be pressing for a fleet of the safest tank wagons money can buy.

Many industries, including railfreight, support a requirement for tank wagons to incorporate thermal insulation - ceramic jackets over the tank shell - sufficient to provide up to 800 minutes of protection. This type of technology is readily available in the commercial marketplace and is already in use on tank wagons carrying flammable gases.

The Federal Railroad Administration summed up the importance of a healthy railfreight network as something which is "essential to American businesses, households, and communities." It took decades to achieve that status and decades of massive investment by the industry in rail infrastructure. It also took carefully considered regulations and effective and thoughtful legislation to allow that steady flow of capital into the rail network.

If the railways are to make the investments necessary to ensure that the United States remains a global economic leader, the message to regulators and legislators in 2016 is that they must continue to take a balanced approach.

January 19, 2016 |

Will 2016 prove a turning point for rail?

THIS month we are forsaking our normal format to devote almost the entire issue to one subject: the railway in 2016. We invited a cross-section of railway leaders from around the world to give us their thoughts on the current state of the railway industry and its outlook for 2016, and their responses make fascinating reading.

Our coverage is set against the backdrop of some important recent developments which will shape the future of rail transport. These include:

  • the recent 11th-hour extension for the implementation of positive train control in North America which will yield a major improvement in safety
  • the imminent approval of the Fourth Railway Package in Europe which should finally resolve the horrendous delays in certifying new trains and pave the way for a new era in rail competition
  • the launch of Europe's Shift²Rail research initiative which aims to take rail technology to the next level to make rail more competitive
  • the COP21 agreement in Paris which, if governments stick to their commitments, will boost investment in rail significantly to enable it to play a greater role in cutting carbon emissions, and
  • the approval of India's first high-speed rail project heralding a revolution in rail travel in the sub-continent.

The prospects for rail transport have never been brighter, as Bombardier Transportation's new president Mr Laurent Troger observes: "The demand for rail services is at an all-time high for all segments."

The €1bn Shift²Rail programme will finally mark the end of a decline in railway research in Europe which has seen the demise of the UIC's own research centre and several national railway research divisions either through privatisation, as in the case of Britain, or following the transfer of rail vehicle design from railways to manufacturers. This was in complete contrast with North America and Asian countries where existing railway research organisations have flourished.

Efforts by the UIC's secretary general, Mr Jean-Pierre Loubinoux, during the last few years to get rail recognised by the United Nations as part of the solution to reducing greenhouse gas emissions finally paid off at COP21. Obtaining UN recognition is a considerable achievement which railways must quickly take advantage of to maintain the momentum.

Indeed, after decades of railways fighting for their very survival, we now have the rather unusual situation where political support for rail is steadily increasing. This is evidenced by the growing number of railway projects around the world as our snapshot of project highlights in 2016 illustrates.

While railways need to seize this opportunity, unfortunately this is not always evident. European transport commissioner Mrs Violeta Bulc warned recently that there will be no more EU funding for rail investment unless member states and railways embrace the Fourth Railway Package when it comes into force this year.

"We have invested a lot in rail, but I won't invest a single dime more if railways don't get involved," Bulc told delegates at the European Railway Agency s Moving Towards the Single European Rail Area conference in Luxembourg on November 23. "I want to see rail deliver a new business model. The Fourth Railway Package will deliver a 20% reduction to the cost of market entry for new operators and a 20% reduction in cost and time to introduce new rolling stock, which will produce a saving of €500m by 2025. We will support rail when it takes steps forward, but if you don't deliver there are other modes."

This is a clear wakeup call for railways, and not just in Europe, to step up to the plate and embrace change, be innovative, and make services more attractive to win new business. 2016 could prove a turning point if rail takes advantage of this golden opportunity.

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