Words of optimism—and caution

In opening remarks at the 45th Annual PSI Convention and Technical Conference in Chicago last month, TTX President and CEO Andrew F. Reardon said that many of the challenges facing the railroad industry offer opportunities--"a paradox that exists in two primary rail markets: energy and intermodal."

"The basic metrics of our nation's energy consumption does reveal an array of alternatives that provide some opportunity for relief, and within that array, the railroads and their suppliers have the opportunity of playing a significant role," said Reardon. "Given the vast resources of clean-burning low sulfur coal, an increased diversion toward coal from reliance on foreign energy is the most facile and expeditious alternative available. The railroads and the rail supply industry will embrace major opportunities. Additionally, the increased use of ethanol, which must be transported by rail rather than pipeline, has the potential of displacing a significant amount of imported petroleum."

With intermodal, "the energy challenge affords our industry unprecedented opportunities," said Reardon. "At TTX, we utilize a rule of thumb which allows that on an annual basis, for every 10-cent increase in the price of a gallon of diesel fuel, 50,000 loads will be diverted from the highway to the rails."
Two principal challenges lie ahead: the threat of re-regulation and a potential increase in truck size and weight. "Interestingly, those who seek re-regulation typically avoid the use of the 'R' word in favor of some euphemism," said Reardon. The railroads' present excellent condition "is solely the result of deregulation," and "the biggest winner in deregulation is the shipper. The railroad industry has responsibly managed deregulation better than any other industry. Those interests that seek re-regulation to control rail rates in effect, seek to prevent railroads from operating as they do--that is, pricing in accordance with supply and demand."

Then there's open access, "another Washington euphemism," Reardon noted. "I strongly suspect that, somewhere hidden deep in the bowels of our nation's capital, is a small, clandestine think tank whose sole mission is to create pleasant, appealing names for bad ideas. One is the 'Paperwork Reduction Act,' which created two new federal bureaucracies to keep track of other bureaucracies. And then we have 'Open Access.' It has that ring of fairness and equity--the notion that something should be available to one and all. When you scratch the surface, the 'something' is the investor's private capital in an asset, and 'the one and all' are the investor's competitors and customers." In an open-access environment, "we would not invest further in that appropriated asset. Nothing will devalue the railroad industry and the rail supply industry faster than re-regulation."

Relaxing current truck size and weight restrictions and legalizing operation of double and triple trailers nationwide could result in the loss of 60% to 70% of rail intermodal revenues, Reardon warned. "There are also some serious technical concerns that may not be fully understood, nor widely recognized. They pertain to container weights in doublestack railcars. At the current 80,000-pound federal limit, a container may have a maximum weight of 60,000 pounds. In the event of an increase to 97,000 pounds, container weight may approach 80,000 pounds. In a doublestack configuration, the total weight of two containers could then surpass a railcar's weight bearing capacity. Three things can happen; two of them are bad: One, the weight of two containers in a given load will fortuitously fall within the car's carrying capacity. Two, the intermodal yard will be required to weigh, then segregate, containers by weight and/or switch to standalone or drawbar connected well cars to obtain additional capacity, which would increase operating costs and sacrifice loads to be transported in specified train lengths. Third, heavy containers would be loaded in a single-level configuration, thus eviscerating the inherent economic advantage of the doublestack. These last two alternatives are costly, and would put substantial upward pressure on intermodal rail rates." Railroads told the shipping community last month that they're prepared to handle this fall's record traffic levels. Senior marketing and operating officers from each of the Class I's gave upbeat presentations at the third annual Association of American Railroads-sponsored customer forum.