Friday, January 16, 2009

Link of the Day: 1/16/09

I recently came across an excellent article in the Washington Monthly about reinvesting in America's rail infrastructure. I highly recommend you read it.

The Environmental Protection Agency calculates that for distances of more than
1,000 miles, a system in which trucks haul containers only as far as the nearest
railhead and then transfer them to a train produces a 65 percent reduction in
both fuel use and greenhouse gas emissions. As the volume of freight is expected
to increase by 57 percent between 2000 and 2020, the potential economic and
environmental benefits of such an intermodal system will go higher and higher.
Railroads are also potentially very labor efficient. Even in the days of the
object-lesson train, when brakes had to be set manually and firemen were needed
to stoke steam engines, a five-man crew could easily handle a fifty-car freight
train, doing the work of ten times as many modern long-haul truckers.

And another:

Why don’t the railroads just build the new tracks, tunnels, switchyards,
and other infrastructure they need? America’s major railroad companies are
publicly traded companies answerable to often mindless, or predatory, financial
Goliaths. While Wall Street was pouring the world’s savings into underwriting
credit cards and sub-prime mortgages on overvalued tract houses, America’s
railroads were pleading for the financing they needed to increase their
capacity. And for the most part, the answer that came back from Wall Street was
no, or worse. CSX, one of the nation’s largest railroads, spent much of last
year trying to fight off two hedge funds intent on gaining enough control of the
company to cut its spending on new track and equipment in order to maximize
short-term profits.

So the industry, though gaining in market share and profitability after
decades of decline, is starved for capital. While its return on investment
improved to a respectable 8 percent by the beginning of this decade, its cost of
capital outpaced it at around 10 percent—and that was before the credit crunch
arrived. This is no small problem, since railroads are capital intensive,
spending about five times more just to maintain remaining rail lines and
equipment than the average U.S. manufacturing industry does on plant and
equipment. Increased investment in railroad infrastructure would produce many
public goods, including fewer fatalities from truck crashes, which kill some
5,000 Americans a year. But public goods do not impress Wall Street. Nor does
the long-term potential for increased earnings that improved rail infrastructure
would bring, except in the eyes of Warren Buffett—who is bullish on
railroads—and a few other smart, patient investors.

The alternative is for the public to help pay for rail infrastructure.
Actually, it’s not much of a choice. Unlike private investors, the government
must either invest in shoring up the railroads’ overwhelmed infrastructure or
pay in other ways. Failing to rebuild rail infrastructure will simply further
move the burden of ever-increasing shipping demands onto the highways, the
expansion and maintenance of which does not come free. The American Association
of State Highway and Transportation Officials (hardly a shill for the rail
industry) estimates that without public investment in rail capacity 450 million
tons of freight will shift to highways, costing shippers $162 billion and
highway users $238 billion (in travel time, operating, and accident costs), and
adding $10 billion to highway costs over the next twenty years. "Inclusion of
costs for bridges, interchanges, etc., could double this estimate," their report

Anyway, despite it's length it offers a superb analysis of a gap in America's public policy.

1 comment:

Rob Pitingolo said...

Great article. Thanks for the link.