Conditions | Policy Options | Sources

Rail is a vital component in the nation's freight transportation system. Since deregulation of the railroad industry in the late 1970s and early 1980s, railroads have streamlined their operations to reduce costs and provide competitive service to shippers. If current trends continue, however, railroads will be unable to maintain the current network or to expand the network to meet the challenge of growing freight traffic while still maintaining profitability. The result will be increased shipping costs and the shift of freight to trucks traveling on already overburdened highways. This will lead to increased traffic congestion, increased highway and bridge maintenance costs, increased frequency of highway bridge and roadway replacement, leading to increased air pollution, fuel consumption and travel times for passengers and freight traffic.

The U.S. freight rail system is comprised of three groups of railroad companies: seven Class I freight railroad systems, defined as systems with annual operating revenue of about $272 million or more; 31 regional railroads, which are line-haul railroads operating at least 350 miles of road and that have annual revenues from $40 million to about $272 million; and more than 500 local railroads, line-haul railroads smaller than regional railroads. In 2000, these companies operated 220,000 miles of track held to high safety standards by the Federal Railroad Administration. Freight rail carried 40% of intercity ton-miles in 2000.

Railroads are capital-intensive businesses, with many infrastructure elements to be installed, maintained, inspected and secured to guarantee safe operation. Deregulation allowed railroads to reduce some of these costs by selling and discarding underutilized components. Railroads also have shifted infrastructure burdens to shippers, reducing the capacity of their freightcar fleet by 14% between 1990 and 2002, even while total freightcar capacity increased 20%. Class I railroads have streamlined businesses, cutting labor costs and shedding under-utilized track, decreasing the overall network by 39%.

Railroads have passed most of these savings on to shippers in an effort to remain competitive with other modes of transportation and maintain their market share in the freight industry. Rail freight rates have been cut by up to 2% per year on average in the past 20 years.

This trend cannot continue. Ton-miles carried have increased by 64% since 1980, and the U.S. Department of Transportation (DOT) estimates that rail tonnage will increase by well more than 50% by 2020. Capacity has already become a problem in some areas for the first time since World War II, especially at intermodal facilities that represent the fastest growing segment of rail traffic.

Since deregulation, railroads have spent $349 billion on capital improvements and maintenance of track and equipment. Capital expenditures have grown 56%, from $3.6 billion in 1990 to $5.7 billion in 2002, while the price level of railroad purchases of inputs rose only 38%. Expenditures on railroad and structures jumped 76%, from $2.6 billion in 1990 to $4.6 billion in 2002.

Class I railroads currently invest about $2 billion annually for improvements above and beyond repair and maintenance. Continued investment at this level will result in freight rail losing market share among freight shippers over the next 20 years as the industry will not be able to keep up with growing demand. Most within the railroad industry agree that even with these continued substantial investments by the railroad industry, it will be unable to generate the revenues needed to sufficiently maintain tracks and equipment. Short-line and regional railroads face major needs for track and bridge upgrades to carry the new industry standard 286,000 pound axle weight rail car. Without assistance, small railroads are unable to make upgrades and will cease to exist.

To simply maintain current share of freight carried, and anticipated increase in total freight carried, railroads would require $175 billion to $195 billion in investments over the next 20 years. The expenditures would break down like this: safety, $13.8 billion; short-line improvements, $11.8 billion; Class I infrastructure repair and maintenance, $4-$5 billion annually or $80 billion to $100 billion over 20 years; Class I infrastructure improvements (above and beyond repair and maintenance), $3.5 billion annually or $70 billion over 20 years.

The consequences of inadequate rail infrastructure investment will be borne by the public, not just by the rail industry. The American Association of State Highway and Transportation Officials (AASHTO) has estimated that shifting all freight currently carried by rail to trucks would cost shippers an additional $69 billion annually; this would mean higher prices for U.S. consumers. Increased truck traffic on the nation's highways will result in an additional $64 billion in highway funds over the next 20 years required to maintain the roads.

In addition to freight transportation, the nation's rail infrastructure supports intercity passenger operations. Intercity rail operations are currently provided over a 23,000 mile network serving more than 500 cities in 47 states, with a train service level of approximately 260 trains per day. Most of this service is a basic system operated by Amtrak, with 13 states providing support for selected train service. While Amtrak operates most of its network over rail lines owned by the freight-rail companies, it owns and operates approximately 600 miles of track in the northeast, including the Northeast Corridor, which has endured years of deferred maintenance and investment backlog on the Northeast Corridor. Amtrak and the DOT Inspector General have noted that this deficiency can no longer be ignored. Amtrak estimates the cost of infrastructure investment at more than $2 billion in the next 5 years, only a portion of an estimated backlog of $4 billion. Without this level of investment, Amtrak and the eight commuter railroads that use the Amtrak-owned infrastructure will be subject to increasing delays due to inspection-based slow orders or infrastructure problems. Beyond infrastructure renewal, the costs to expand the Corridor to support commuter and Amtrak service expansions necessary to support demand are estimated to exceed $6 billion.

In addition to Amtrak's existing intercity operations, there is considerable interest in the development of corridor (less than 500 miles) railroad services--both high speed and conventional railroad service. Investments have already been made in more than a half-dozen states in instituting corridor passenger rail service; a total of 36 states are actively planning to expand corridor rail service. Costs to develop the projected corridor needs are estimated by AASHTO to approach $60 billion--substantially less than the cost of adding equivalent highway capacity.

Amtrak and its funding partners provide vital transportation services in many parts of the country. For example, without regular intercity passenger rail service between Washington, DC and Boston, highways and airports would become even more crowded, and travel between these cities would be more cumbersome. Longer-distance trains add network connectivity and accessibility for many towns and cities in states that would otherwise not have access to transportation service.

Policy Options

Rail should be an important component in a national transportation infrastructure plan. While maintaining the freight-rail industry's right to operate as profitable businesses, there is a role for public involvement in expanding the rail network in critical areas.

Making appropriate cross-modal investments for a national network is a national planning issue that must be recognized and highlighted. ASCE supports the AASHTO recommendation to develop a national transportation plan. This will result in a cross-modal transportation plan and policy, including investment strategies to support the existing and growing need for investment in rail freight and passenger systems. From a national investment standpoint, a strong argument can be made that a role for public funding exists, as public benefits result.

In addition, ASCE supports the establishment of a federal capital budget to create a mechanism to help reduce the constant conflict between short-term and long-term needs. This conflict often results from a lack of clarity between simply replacing aged and underperforming assets and providing for needed expansion to support future transportation demand--both freight and passenger. The current federal budget process does not differentiate between expenditures for current consumption (asset replacement or renewal to perpetuate the existing level of service) and long-term investment (to add capacity and improve performance in travel time and service frequency). This causes major inefficiencies in the planning, design and construction process for long-term investments. A capital budget system would help to increase public awareness of the needs facing this country's physical infrastructure and help Congress to focus on programs devoted to long-term growth and productivity.