Modernizing Freight Rail Regulation (2015) / Chapter Skim
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2 RECENT RATE TRENDS AND SERVICE AND CAPACITY ISSUES
2 RECENT RATE TRENDS AND SERVICE AND CAPACITY ISSUES
Pages 51-100
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From page 51... ...
In view of their relevance to the topics reviewed in this chapter, results from the Christensen Associates reports are discussed in several places. RECENT RATE TRENDS is section examines recent rail rate trends and patterns on an industrywide basis with regard to a selection of commodities and to shipments moved in common and contract carriage.
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From page 52... ...
e results yield insights relevant to the review of regulatory policies in subsequent chapters, such as trends in commodities moved in unregulated contract and regulated common carriage. Historical Trends in Industrywide Average Rates Figure 2-1 shows several indices presented in inflation-adjusted (real dollar)
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From page 53... ...
. During processing, additional information is paired with the sampled record such as details on the rail car (e.g., capacity, dimensions, and mechanical characteristics)
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From page 54... ...
URCS calculates a variable cost for each shipment on the basis of railroad accounting and operating data and cost apportionment methods that take into consideration characteristics of the shipment such as commodity, number of carloads, number of railroads involved, and rail car type. Because of the law's contract confidentiality restrictions, railroads do not submit the actual revenue data for waybills involving contract shipments.
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From page 55... ...
1989 19931991 1997 2001 20051995 1999 2003 2007 2009 20132011 110 100 90 80 70 60 50 40 FIGURE 2-1 Historical and recent trends in industrywide real average rate and unit input costs, 1989–2013. [Source: NAS rate data from CWS 2002–2013; STB rate index from STB 2009; Christensen rate index from Laurits R
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From page 56... ...
Recent Trends in Industrywide Average Rates Because the focus of this study is on recent developments, the remainder of the section focuses on post-2000 rate trends and patterns. As noted above, from 2001 to 2003 there was a break in the downward movement in real rates that had commenced in the 1980s.
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From page 57... ...
Since 2011, the industry has experienced relative stability in input costs and demand, which may have contributed to steady rates. Rates by Commodity and Selected Shipment Characteristics As shown in Table 2-1, more than three-fourths of shipments tendered in 2012 involved commodities and car types ruled exempt from 2002 = 100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 NAS (real rates)
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From page 58... ...
, and oilseeds 7 e discussion refers to traffic as having been ruled exempt from common carrier regulation as distinct from traffic that is temporarily exempt by virtue of contracting. e latter traffic is not ruled exempt because it reverts to common carrier regulatory status on expiration of the relevant contract.
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From page 59... ...
Nonexempt commodities moved by contract are included in the nonexempt category because they are not ruled exempt and can move in and out of common carriage over time. e average rate for all commodities, converted to an index and adjusted for inflation, is shown in Figure 2-4.
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From page 60... ...
2002 20042003 2006 2008 2013201220102005 2007 2009 2011 2002 = 100 160 150 140 130 120 110 100 90 Coal Grain–oilseeds Chemical Intermodal Food–kindred All other Total FIGURE 2-4 Index of trends in real rates by commodity, 2002–2013. [Source: CWS 2002–2013.
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From page 61... ...
T A B L E 2 -2 C h a n g es in C o a l T ra ff ic , 2 0 0 0 – 2 0 12 O ri g in Sh ip m en ts C a rl o ad s To n -M ile s (m ill io n s)
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From page 62... ...
is pattern is exhibited in both regions, but most dramatically in the East, where smaller shipments had been the norm. As discussed in more detail below, the consolidation of coal traffic occurred as most coal shippers were leaving common carrier service for contract service, which likely accelerated the pace of shipment consolidation.
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From page 63... ...
2002 20042003 2006 2008 2013201220102005 2007 2009 2011 0.05 0.045 0.04 0.035 0.03 0.025 0.02 0.015 <50 cars ≥50 cars RPTM ($) 35% 19% FIGURE 2-6 Average rates (nominal)
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From page 64... ...
It could be the result of many factors, such as differences in the propensity of private- and railroad-owned cars to be used in contract versus common carriage, for larger versus smaller shipments, and for longer versus shorter hauls. ese other factors, more than differences in equipment costs, may have contributed to the declining gap in average rates for service in private- and railroad-owned cars.
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From page 65... ...
For example, grain shippers can bid for future allotments of rail cars and locked-in tariff rates via auctions. Contract and Common Carriage Rates Prevalence of Contract Carriage More than 30 years after the Staggers Rail Act permitted railroads to negotiate confidential contracts with shippers, contract carriage
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From page 66... ...
T A B L E 2 -3 C h a n g es in C o rn , W h ea t, a n d O il se ed s N o n ex em p t Tr a ff ic , 2 0 0 0 – 2 0 12 C om m od it y Sh ip m en ts C a rl o ad s To n -M ile s (m ill io n s)
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From page 67... ...
Having started the century as the predominant means by which shippers of nonexempt commodities procured rail service, common carriage had become the minority means by 2012. 11 e CWS records do not state definitively whether a shipment was moved by contract or tariff.
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From page 68... ...
Contract carriage grew dramatically among coal and chemical shippers but barely changed among shippers of corn and wheat. As a consequence, grain has become the largest commodity grouping in common carrier service.
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From page 69... ...
Percent Contract Carriage In TonMiles In Contract Ton-Miles Coal ��� �� ��� �� �� ��� Chemicals (excluding hazardous materials) ��� �� ��� �� � ��� Hazardous materials �� �� ��� �� ��� ��� Corn �� �� �� �� −� �� Food and kindred products �� �� �� �� �� �� Lumber, wood products �� �� �� �� −�� −�� Wheat �� �� �� �� � −� Stone, clay, glass �� �� �� �� −�� �� Petroleum and coal products �� �� �� �� −�� ��� Oilseeds �� �� �� �� �� �� Metallic ores �� �� �� �� � ��� Minerals �� �� �� �� ��� ��� Waste, scrap �� �� �� �� � �� ����: Ton-miles are measured for movements made in nonexempt rail cars only; for example, ton-miles of hazardous materials transported in boxcars are not included in the tabulations.
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From page 70... ...
(a) Grain and oilseeds 33% Minerals, ores, stone 8% Lumber 6% Chemicals and hazmat 22% Food and kindred 17% Coal 11% Other 3% Grain and oilseeds 16% Minerals, ores, stone 6% Lumber 4% Chemicals and hazmat 18% Food and kindred 5% Coal 48% Other 3% FIGURE 2-8 Tariff ton-miles by major nonexempt commodities: (a)
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From page 71... ...
T A B L E 2 -6 T ra ff ic a n d S h ip m en t C h a ra ct er is ti cs o f N o n ex em p t C o m m o d it ie s M ov ed b y Ta ri ff a n d C o n tr a ct , 2 0 12 C o m m o d it y Sh ip m en ts C a rl o ad s To n -M ile s (m ill io n s)
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From page 72... ...
T A B L E 2 -6 ( co n ti n ue d )
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From page 73... ...
Summary of Recent Rate Trends During the 1990s, both railroad rates and input costs experienced a secular decline, which reflected dramatic improvements in railroad productivity. Although the railroad industry has been characterized by volatility in rates, input costs, and demand in recent years, real rates rose by more than 25 percent from 2002 (when real rates reached their low point)
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From page 74... ...
T A B L E 2 -7 A ve ra g e R P TM in C u rr en t D o lla rs f o r Se le ct N o n ex em p t C o m m o d it ie s Tr a n sp o rt ed b y C o n tr a ct a n d T a ri ff , 2 0 0 0 a n d 2 0 12 � � � � � � � � P er ce n t C h a n g e, � � � � – � � � � N a m e C o n tr ac t Ta ri ff A ll C o n tr ac t Ta ri ff A ll C o n tr ac t Ta ri ff A ll C o a l � .� � � � .� � � � .� � � � .� � � � .� � � � .� � � � � � � � � � G ra in � .� � � � .� � � � .� � � � .� � � � .� � � � .� � � � � � � � � C h em ic a ls ( n o n – h a za rd o u s m at er ia ls )
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From page 75... ...
e continued reliance by grain shippers on common carriage, which is the only form of rail transportation that remains subject to direct regulation, has implications for STB rate and service oversight responsibilities that are discussed in the next two chapters. SERVICE QUALITY ISSUES As the preceding section makes clear, there is substantial information on railroad traffic and revenues, much of it derived from STB's CWS.
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From page 76... ...
A review of comments in service-related hearings by STB and Congress, trade publication survey results, and statements by shippers invited to brief the committee indicates shipper desires that regulators do more to compel railroads to improve common carrier service.12 In late 2013 and early 2014, STB received many complaints from shippers, especially coal, grain, and automobile shippers, who reported widespread disturbances in rail service, including an inability to obtain service, lengthy delays in transit, and unusually long rail car cycle times.13 As a result of these problems, shippers reported significant inventory backlogs and shortages of materials, including fertilizer for crops and coal for electricity generation. Some also expressed concerns 12 See STB Ex Parte No.
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From page 77... ...
. e majority of secondary freight has traded at values of approximately $4,000 per car, equating to $1 per bushel.15 e late summer/fall and winter of 2013–2014 -- has proven to be one of the worst rail service meltdowns in modern history -- affecting all classes of traffic but especially the northern plains movements.16 Later in 2014, automobile manufacturers described rail service to a congressional committee: e greatest logistics problem faced by auto manufacturers is the carriers' failure to provide a sufficient supply of empty railcars to transport finished vehicles.
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From page 78... ...
724 -- United States Rail Service Issues. Petition of the Western Coal Traffic League for an Order Requiring BNSF Railway Company to Submit a Coal Service Recovery Plan, October 22, 2014.
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From page 79... ...
. • In 2004, during a period of rapid growth in container and other rail freight traffic, the Southern California seaports experienced severe congestion that was attributed to lack of rail capacity for the transportation of arriving containers as well as to port capacity constraints.
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From page 80... ...
Christensen Associates 2009a, 5-12–5-13, 18-30) : • A sense that service quality was declining but somewhat improved in 2008 compared with the 2004 congestion episode; • A belief that the variability in delivery times had increased, leading to larger shipper inventories, the need for more rail cars, and the need for more shipper personnel to manage shipping; • Claims that railroads having market dominance lacked motivation to provide good service and that shippers could not negotiate contracts with standards for service accountability; and • A view that tight capacity was a primary contributor to service problems and that disturbances arising at local chokepoints were a main cause of the disruptions propagating through railroad networks lacking slack capacity.
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From page 81... ...
rail freight traffic but are important in the Upper Midwest, where shippers described especially severe service disturbances. In responding to complaints that railroads are slow to invest in the capacity needed to forestall service disruptions, AAR presented data to the study committee showing how trends in rail carloads, excluding coal and grain, have aligned closely with trends in output from the U.S.
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From page 82... ...
Railroads also expect to hire more than 12,000 people in 2014.27 Railroads have emphasized the need to keep making such capacity investments to ensure adequate service availability and performance and have consistently claimed that regulatory interventions can make matters worse by suppressing capital spending. For example, in its comments to the April 2014 STB hearing on service quality, AAR stated:28 In order for railroads to continue to invest at levels necessary to meet increasing demand for rail service, a necessary predicate is a regulatory 27 AAR comments to STB Ex Parte No.
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From page 83... ...
In briefing the committee, AAR presented 2014 data indicating that railroads had increased their expenditures on roadway, structures, and equipment by 28 percent since the low point of the 2007–2009 recession.29 Whether the service expectations of shippers and railroads are the same is unclear. As discussed later in this report, the development of a common set of expectations about service quality, particularly for common carrier service, must start with improvements in data for assessing service levels and monitoring performance.
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From page 84... ...
An inspection of the 2013–2014 data does not immediately suggest service disturbances as described by shippers for the period and largely acknowledged by railroads to have been problematic.31 Average train speeds fluctuated by a few miles per hour from month to month, with a downward drift for all train types. e data are too coarse to make meaningful determinations about service quality.
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From page 85... ...
Christensen Associates (2009a, 17–19; 2009b, 2-31–2-34) reached the same conclusion: average train speed and dwell time data are too gross to offer more than a rough indication of service performance.
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From page 86... ...
34 STB Ex Parte No. 724-4: United States Rail Service Issues -- Performance Data Reporting, December 30, 2014.
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From page 87... ...
Furthermore, the proposed collection effort appears to be an ad hoc response to the disturbances of the previous winter; it does not appear to have been strategically devised in the sense of there being a plan for routine use of the information in monitoring performance. Summary of Service Quality Issues STB maintains a waybill sampling program that allows the monitoring of railroad traffic and rates at the shipment level.
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From page 88... ...
CONCERNS ABOUT LONG-TERM CAPACITY CONSTRAINTS e committee was asked to examine "the projected demand for freight transportation over the next two decades and the constraints limiting the railroads' ability to meet that demand." is section begins with a review of two long-range freight rail volume forecasts that are made regularly by the federal government and notes three studies undertaken in recent years to assess the potential effects of forecast freight growth on railroad capacity needs. Consideration is then given to economic factors tending to motivate railroads to supply capacity, which are typically neglected in studies that project freight volumes and predict capacity shortages.
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From page 89... ...
[Source: Freight Analysis Framework Data Tabulation Tool (http://faf.ornl.gov/fafweb/ Extraction1.aspx) , accessed February 5, 2015.]
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From page 90... ...
. EIA's NEMS model projects rail freight demand by multiplying projected industrial output for the individual commodities in each Census division by a set of constant ton-mile-per-dollar coefficients (EIA 2014b, 80)
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From page 91... ...
e results suggest that forecasts are heavily influenced by recent trends in traffic growth. Projections of Long-Range Capacity Shortages Freight output forecasts such as NEMS and FAF are sometimes used to inform studies of long-range transportation investment needs.
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From page 92... ...
. b Freight Analysis Framework Data Tabulation Tool (http://faf.ornl.gov/fafweb/Extraction�.aspx)
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From page 93... ...
Rail Capacity Supply Incentives A common shortcoming of studies assessing future rail capacity needs, as exemplified by those cited above, is that they seldom define what constitutes capacity. e capacity of a transportation network can be
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From page 94... ...
As discussed in Chapter 1, the ability of railroads to discriminate on the basis of price through contracting allows them to set rates that do not price profitable traffic out of the market and thus to avoid systematic underinvestment. Both the railroad and the shipper have an economic interest in reaching agreements ensuring that no profitable traffic goes unserved.37 In this regard, a qualitative definition of a rail capacity shortage might be a circumstance in which a shipper or group of shippers are paying, or willing to pay, a rate that generates revenue sufficient to cover the cost to the railroad of improving speed and reliability, but improvements, for whatever reason, are not forthcoming over some protracted period.
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From page 95... ...
Studies of future capacity needs are often accompanied by policy recommendations that would make investments in rail capacity more attractive to reduce
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From page 96... ...
While all of these programs play a minor role in overall rail freight capital funding, they are examples of public-sector efforts intended to guide rail freight investments toward perceived public interests.38 FRA, whose primary responsibility is to regulate railroad safety, also regards itself as responsible for promoting socially beneficial investments in rail freight transportation. For example, the FRA website states the following: "To meet the needs of the current and future freight rail industry and to maximize the benefits of public investments, FRA is committed to supporting current freight rail market share and growth and developing strategies to attract 50 percent of all shipments 500 miles or greater to intermodal rail."39 FRA's 2010 National Rail Plan 38 For example, the Obama administration's Fiscal Year 2015 federal surface transportation program reauthorization proposal called for $10 billion in spending over 4 years on road, rail, and port projects to relieve freight bottlenecks (http://www.whitehouse.gov/sites/default/files/ omb/budget/fy2015/assets/transportation.pdf)
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From page 97... ...
. As a rationale for its pursuit of these goals, FRA states that greater use of rail freight will bring about lower casualty rates, shipper cost savings, reductions in energy consumption and pollutant emissions, and reduced highway congestion and infrastructure costs.40 Summary of Long-Run Capacity Issues Railroads maintain that service disturbances do not indicate chronic underinvestment in capacity.
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From page 98... ...
Grain shippers continue to rely mostly on common carriage and represent the largest user group of this service. Shippers have repeatedly raised concerns about the reliability and general quality of freight rail service, particularly common carrier service.
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From page 99... ...
REFERENCES Abbreviations AAR Association of American Railroads AASHTO American Association of State Highway and Transportation Officials CBO Congressional Budget Office EIA Energy Information Administration FHWA Federal Highway Administration FRA Federal Railroad Administration GAO General Accounting Office NSTPRSC National Surface Transportation Policy and Revenue Study Commission STB Surface Transportation Board TRB Transportation Research Board AAR. Various years.
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From page 100... ...
Freight Railroad Industry. Madison, Wis., Jan.
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