Archive for category Transportation
Looking over a CoBank report on the state of rail capacity in the West, I came across this astonishing graph:
The Staggers Act effectively deregulated the rail industry in this country, after almost a century of increasingly heavy-handed rules set out by the Interstate Commerce Commission (RIP). It took a few years for volume to rise, but contrary to the arguments of the regulators, rates fell, revenue fell, and productivity shot up almost overnight. As effects rippled through the economy, volume began to take off.
In recent years, as the cost of fuel has risen, and capacity constraints have become more evident, rates and revenue have started to rise, which accounts for the turnaround in railroad stocks.
What’s really striking is the stasis that the railroad industry was held in before 1980. The ICC set their rates, limited their service, and forced freight lines to continue to run unprofitable and largely unused passenger service, competing with bus lines that were getting significant federal help through the interstate highway system. How much of the overall economy’s stagnation and deterioration through the 60s and 70s was a result of this misguided paternalism can only be guessed at.
Harley Staggers, the author and chief sponsor of the Staggers Act, was no economic or political libertarian. He was a 16-term Democratic representative from West Virginia who tried to subpoena the footage from a CBS documentary on Watergate and filed an FCC complaint over the F-word in a song on a radio station. But he had enough sense to see that Appalachia’s coal industry needed a healthy railroad system to grow. He’s lucky that this act from his final term in office is what people remember him by.
Over at Complete Colorado, the Independence Institute’s Dennis Polhill writes in support of a proposal to devolve the lion’s share of the federal gas taxing authority back to the states, and remove federal restrictions on the states:
The Transportation Empowerment Act, introduced by U.S. Sen. Mike Lee, R-Utah, and Rep. Tom Graves, R-Ga., gradually would lower the federal gas tax from the current 18.4 cents to 3.7 cents per gallon over five years. The legislation also would lift federal restrictions on state departments of transportation.
Not only would devolving the federal gas tax to the states result in a major boon to Colorado roads and bridges, it also would honor a promise made to the American people more than 50 years ago. In 1956, Congress passed the National Defense Highway Act to construct the Interstate Highway system. The temporary federal gas tax was promised to expire when construction was completed.
For all practical purposes, interstate highway construction was finished in 1982. Unfortunately, taxes almost never go away, or get smaller. Nor do government agencies or programs. Coincidentally, 1982 marks the same year roads outside the interstate system became eligible for federal funding. By tripling eligible mileage, the U.S. Department of Transportation used road revenues to fund other things more aggressively. Increasing amounts of gas tax revenue were siphoned to fund non-road programs, and congressional earmarks mushroomed.
For Colorado voters, the salient point is that we’ve been shorted on the deal, sending five cents per gallon to Washington that we never see back. There was a time when federal development of large-scale road projects made sense, in order to avoid things like the Kansas Turnpike dead-ending in an Oklahoma field, because Oklahoma couldn’t get its act together:
But given that much of this money isn’t going to roads any more, anyway, putting an end to the Colorado-DC-Colorado round trip makes sense.
It’s certainly better than this monstrosity from Rep. Earl Blumenauer (D-OR) that would add 15 cents to the federal gas tax in order to make up for the money that they’re siphoning off to pet projects, a prospect he doesn’t want to admit to:
That doesn’t even include tens of millions more that states have contributed for additional investment in ports and high-speed passenger trains that’s boosted the nation’s freight railroads….
The public dollars have built new overpasses to separate trains from one another, as well as cars and trucks. They’ve replaced aging bridges, laid new track and upgraded signal systems. They’ve paid to enlarge tunnels and raise bridges so that shipping containers may be double-stacked. They’ve built new facilities where cargo containers can be transferred from trucks to trains, or vice versa.
Supporters say these public investments, combined with private capital, are model infrastructure partnerships that will help take trucks off crowded highways, reduce pollution and improve the flow of goods to and from the nation’s seaports.
And another $450 million by the states. If you add up the numbers in the story, the total cost of the projects is about $5.7 billion, so governments have picked up about 17.5% of the overall tab. That leaves $4.7 billion in cap ex by the railroads themselves. In a properly functioning economy, they wouldn’t need the extra $1 billion to get most of these off the drawing board. But when the money’s available, and when the banks are doing better by leaving their money on deposit rather than loaned out in the world, this is what happens.
I work in the trucking industry, and I can tell you that intermodal traffic – freight that gets delivered to and from ramps from truck, but is delivered cross-country by train – is one of our fastest-growing businesses. It’s that way because over a long route, rail takes less fuel than trucks, given that most of the infrastructure is already in place. Rail, of course, is much more capital-intensive that road. But the Class I rails are long-since paid-for except for maintenance, and the containers tend to be owned by the shipping companies rather than the railroads.
But this is telling:
For all the public money that freight railroads have received, they haven’t talked much about it. The industry spent years trying to free itself from government regulation, and it doesn’t want federal money with too many strings attached.
No kidding. This is largely how they got into their mess in the first place, with massive land grants that left the door open for massive regulation. Then trucks and trains spent several decades battling each other over regulatory hegemony rather than on price and efficiency.
I’ve never been as hostile to good infrastructure spending as some other conservatives, provided that it’s not disastrously pointless spending like high-speed rail. There’s a good argument to be made that the transcontinental railway was a national security project as much as an economic one. Walter Russell Mead points out that in the 19th Century, by ship, San Francisco was closer to London than it was to New York because Brazil juts so far out into the Atlantic. There was some concern that unless we actually cemented our claims to the West Coast with people, the British might set up shop there and raise the price, or carve out some sort of permanent presence there a la Hong Kong or Gibraltar.
And while there’s always waste, sometimes you put up with some of that to create platforms that everyone can use. In the case of the railways, the platform was the land grant. In the case of the interstates, it was the roads themselves. Also, in the case of multi-user facilities like ports or urban rail crossings, there are property rights issues that need civil authority of some sort to work out, and better beforehand than in the courts for years.
Still, it seems as though most of this has gone not to resolving legal tangles, but to actual CapEx, and to protect Amtrak’s hopelessly outdated interests. So even at the cost of 1/800th of the “stimulus,” we probably overpaid.
This past Saturday’s Wall Street JournalWeekend Interview was with Uber founder Travis Kalanick (“Travis Kalanick: The Transportation Trustbuster“). Uber allows a customer to summon an otherwise idle limo or SUV, on demand, through a smartphone app. The prices are competitive with town car service, and don’t require pre-arrangement. The article details, in part, Kalanick’s battles with various municipal regulatory authorities, who, often acting on behalf of established taxi interests, seek to keep his company from operating:
When I suggest to Mr. Kalanick that Uber, in the fine startup tradition, was using the “don’t ask for permission, beg for forgiveness” approach, he interrupts the question halfway through. “We don’t have to beg for forgiveness because we are legal,” he says. “But there’s been so much corruption and so much cronyism in the taxi industry and so much regulatory capture that if you ask for permission upfront for something that’s already legal, you’ll never get it. There’s no upside to them.”
Then, last year, came the clash with regulators in the city where they order red tape by the truckload: Washington, D.C. A month after Uber launched there, the D.C. taxi commissioner asserted in a public forum that Uber was violating the law.
This time Uber was ready with what it called Operation Rolling Thunder. The company put out a news release, alerted Uber customers by email and created a Twitter hashtag #UberDCLove. The result: Supporters sent 50,000 emails and 37,000 tweets. Mr. Kalanick says that Washington “has the most liberal, innovation-friendly laws in the country” regarding transportation, but “that doesn’t mean the regulators are the most innovative.” The taxi commission complained that the company was charging based on time and distance, Mr. Kalanick says. “It’s like saying a hotel can’t charge by the night. But there is a law on the books, black and white, that a sedan, a six-passenger-or-under, for-hire vehicle can charge based on time and distance.”
In July, the city tried to change the law—with what were actually called Uber Amendments—to set a floor on the company’s rates at five times those charged by taxis. “The rationale, in the frickin’ amendment, you can look it up, said ‘We need to keep the town-car business from competing with the taxi industry,’ ” Mr. Kalanick says. “It’s anticompetitive behavior. If a CEO did that kind of stuff—you’d be in jail.”
A determined PR campaign by Uber was able to derail DC’s efforts. By coincidence, this week, Uber posted on its Denver blog that the Colorado PUC is up to the same tricks:
Unfortunately, the Colorado Public Utilities Commission proposed rule changes this month which, if enacted, would shut UberDenver down. We need your help to prevent these regulations from taking effect! Sign the petition!!
Here’s a sampling of what’s being proposed (Proposed Rules Changes):
- Uber’s pricing model will be made illegal: Sedan companies will no longer be able to charge by distance (section 6301)
- This is akin to telling a hotel it is illegal to charge by the night.
- Uber’s partner-drivers will effectively be banned from Downtown — by making it illegal for an Uber car to be within 200 feet of a restaurant, bar, or hotel. (section 6309)
- This is TAXI protectionism at its finest. The intent is to make sure that only a TAXI can provide a quick pickup in Denver’s city center.
- Uber’s partner-drivers will be forced OUT OF BUSINESS — partnering with local sedan companies will be prohibited. (section 6001 (ff))
The PUC has run interference for the taxicab cartel here before, last year shutting down a popular airport ride sharing program. In 2011, they denied additional permits to Yellow and a proposed start-up, Liberty Taxi. And the Union Taxi Cooperative’s battle to begin service (eventually successful) was the stuff of legend. Their actions to the detriment of electricity ratepayers have been well-documented by Amy Oliver and Michael Sandoval over at the Independence Institute. But at least in those cases, they had the fig leaf of enforcing existing law. Here, as in DC, they’re actually proposing to change the rules in order to run the company out of town.
As a living, breathing example of regulatory capture, Colorado’s PUC is in a league of its own. Let’s hope that Uber’s supporters are able to persuade them to cease and desist their harassment of the company.
Transportation funding in Colorado has been a problem for, like, ever. Typically, capital spending is funded by what’s left over after the general fund expenses have been taken care of, but in recent years, to quote Geoffrey Rush from Shakespeare In Love, “There’s never any profits.” Which means that highway maintenance has been suffering. In 2005, the voters adopted Referendum C, but rejected Referendum D, which would have put a substantial pot of money at the disposal of the government for unspecified road projects.
So in 2009, the legislature passed FASTER. FASTER did a number of things, but primarily is raised vehicle fees in order to pay for bridge repair. Much of the debate at the time centered around the claim that fees are not taxes, and that this was simply a re-interpretation to get around TABOR’s requirement that tax increases be subject to a vote of the people.
The reality is a little more subtle than that, and it shows that when the state is bound and determined to get its hands on your money, there are almost no lengths to which it will not go, no manipulations in which it will not engage. (Just consider Obamacare’s fluctuating claims that the money you’ll have to pay is either a tax or a penalty, depending on the legal theory it happens to be operating under at the time.)
In fact, what the state did was to create a TABOR Enterprise, the Colorado Bridge Enterprise, which is exempt from a number of TABOR restrictions. It can, for instance, issue revenue bonds. Enterprises can also raise their fees-for-service without TABOR limits, but they can’t collect generalized taxes. They also must get less than 10% of their annual revenue from the state. This is how, for instance, the University of Colorado can continue to raise tuition year after year. So while the argument rested on a fee not being a tax, that was mostly because Enterprises can only collect fees, not taxes, and it was essential that the bridges be transferred to the Enterprise.
That 10% revenue limitation was also a problem, since in the first year, the bridges themselves would be the bulk of the Enterprise’s income. So the state depreciated all the bridges to $0. No salvage value, no remaining years of useful life, nothing. A claim that’s risible on the face of it, one that would get a private company and its auditors clapped in irons, but a dodge that the state felt perfectly comfortable resorting to.
The other details are equally unsavory. While the assets are supposed to be owned by the state, there is supposed to be an arms-length relationship between the state and the Enterprise. The members of the Enterprise Board are the members of the Colorado Transportation Commission. The fee itself is collected not by the Colorado Bridge Enterprise, but by the state Department of Revenue, which charges no fee for this service. And the revenue bonds are the Stimulus’s Build America Bonds, whose interest is subsidized by you, the federal taxpayer.
The difficulty is that since the Enterprise owns only bridges, the only fee that it can reasonably assess is for the use of those bridges. But since it’s not a toll, out-of-staters, and most trucks don’t pay the fee. And the fee is assessed as part of the vehicle registration, whether or not your vehicle is road-worthy and anywhere near any of the bridges in question. Suddenly this fee begins to look an awful lot like a tax, or at least a fee that the Bridge Enterprise doesn’t have the power to collect, since it’s not on bridge use, but on auto use.
That’s the basis for the lawsuit against FASTER. The plaintiffs are rural farmers who have vehicles that don’t go far from home, or even off the farm, and yet are charged a usage “fee” for a bridge they can’t even see, never mind drive over.
“How many legs does Cobalt have, if you call the tail a leg?”
“Four. Doesn’t matter what you call the tail, it’s not a leg.”
There’s a legitimate discussion to be had – and a vast literature – about the best way to fund roads. They do constitute a “system” from which all of us benefit. They’re the paradigm of platforms that government ought to be building, rather than products that try to dictate end results. As Rep. McNulty pointed out in the debate, roads lower the cost of commerce for everyone, save lives, and enhance freedom. To that extent, general fund money, or a vehicle fee, a gas tax, a mileage fee, a usage fee, a toll, or peak usage tolling – in order of increasing specificity – are all reasonable means. The economic effects of each are different, and they each make sense for different kinds of roads.
If the legislature had gone to the people and asked them for $31 a year, hell, even index it for inflation, in order to repair bridges that could become homicidal, they might well have voted for it. (Although the 2004 incident resulted from workers’ error, not the age of the bridge).
What’s clearly unfair is to creatively interpret the rules in order not to have to ask.
Bridges make great campaign backdrops, as President Obama tried to exploit the other week while introducing his jobs bill. Trumpeting the desperate shape of America’s bridges, Obama spoke in front of a bridge between John Boehner’s Ohio and Mitch McConnell’s Kentucky, (a bridge that, as was noted at the time, wouldn’t have been eligible for funding under his new spending spree). Listening to him – and to just about every other public-works-booster in the last 20 years – you’d think that it was only a matter of time, months perhaps, before we found ourselves trapped behind rivers and gorges, as our bridges collapsed into dust.
In fact, both as a percentage and in absolute terms, American bridges that are classified either Structurally Deficient or Functionally Obsolete has been falling for at least two decades. The percentage is aided by natural growth and new bridge-building. But that doesn’t account for the decline in absolute terms:
Over the last 19 years, we’ve added about 6% to our national bridge inventory, while the number of Obsolete bridges has declined by about 4% in absolute terms, and the number of Structurally Deficient bridges is down by over 40% in absolute terms:
Structurally Deficient means that the bridge’s actual structure has deteriorated, or the bridge is on a working road and has had to be taken out of service. Functionally Obsolete means that the bridge is now too narrow or too low for the highway system that it’s a part of. And under the FHWA’s 10-Year Rule, no bridge that’s been built or upgraded or repaired to spec in the last 10 years is either Deficient or Obsolete. If a bridge is both Deficient and Obsolete, it’s only classified as Deficient. On a percentage basis, the achievement is even more striking:
The percentage of Structurally Deficient bridges has declined from over 20% to just over 11%, and the number and percentage of Obsolete bridges has declined, even as the national highway system has been continuously upgraded and extended.
In Colorado, the percentages are better than the national average, and have been since 1998 (the first year I could find state-level records). Currently, they stand at 7% Deficient and 10% Obsolete, even as the number of bridges has grown by 8% since 1998.
It might also help to look at the highway spending numbers over the last 20 years. I suspect that some of the increase in the late 90s’ Obsolete totals is a result of upgrading the surrounding road system, and that the decline in Obsolescence in the last 10 years represents a shifting of priorities, even as the number of bridges continues to climb.
Notably, what you don’t see is any massive improvement in the numbers from 2009 to 2010, the Year Of the Shovel-Ready Project. There’s a slight improvement, but nothing out of line with historical trends, which suggests that all that ARRA money wasn’t really going where it was advertised.
It’s possible, I suppose, that we’re coming up on the end of the useful life of some large number of bridges sometime in the new few years, but I doubt it. We’ve been growing the system and doing maintenance since the 1950s, and this Bridge and Highway crisis is one I’ve been hearing about as long as I can remember. Once one of these memes makes it into the public discourse, it seems it’s almost impossible to get rid of, no matter how much progress has been made.
Over at Carpe Diem (if you’re not reading it, you should), Mark Perry is arguing against a double-dip recession, suggesting instead that continued sluggish growth, the sort of grey sludge economy we’ve had for a while now, is the mostly likely scenario. One of his indicators is rail intermodal traffic, which set a volume record last week:
By itself, this doesn’t seem to be too strong an indicator. We’re just about at the seasonal high for the year, and year-over-year, the increase isn’t all that impressive. Also, when I spoke with the head of UP’s media relations a few months ago, he agreed that intermodal generally moves finished goods, and is an indicator of consumption, while non-intermodal carloads are raw materials, and thus a better proxy for production. They’ve barely moved. So both sides seem to confirm what the other numbers are showing.
But up is better than down, and some of the weakness may be capacity. Railroads seem to be moving to deal with that problem, and railcar manufacturers in Virginia and Arkansas are hiring new workers to meet the demand. Most of this is coming from lighter, stronger coal cars, as well as chemical and petroleum cars.
I’m contracting at a major trucker based in Omaha, and they’ve been reluctant to increase capacity for a couple of reasons, including general uncertainty. There’s a shortage of long-haul drivers, and already a capacity constraint, and yet they and at least one other mid-sized truck company I’ve spoken to are still not expanding their fleets.
However, they seem to be the exception. Transport Topics (behind a paywall) is reporting that Class 8 truck sales – which include all tractor-trailers – are the highest since early 2007. Some of this may be in anticipation of new rules that will force companies to have more trucks on the road to deliver the same amount of goods. To that extent – if at all – the additional purchases are an inefficient allocation of capital. But they aren’t likely the entire source of growth. Companies are already short of inventory and capacity, and are simply expanding to meet perceived demand.
In theory, all these increased orders for trucks and railcars should be predicting continued economic growth. In practice, we could still get blindsided by Europe, or it could be an example of companies expanding into a contraction, like a classic business cycle.
Well, this is interesting. From Burlington Northern Santa Fe’s AAR reports from the last two years:
Coal, as you can see, makes up about half of car loadings, and that’s headed down. Just from the couple of years, it looks as though there may be some seasonality in Intermodal, falling off in the last quarter. I’ll know some more when I look at Union Pacific (back to 2002 and also mostly western) and CSX (back to 2006, but mostly the northeast and south). Intermodal has improved through this year, but coal has been dropping for about 6 months.
Since the beginning of the year, coal has decoupled – so to speak – from the rest of loadings, which have climbed slightly or stayed level, even as coal has dropped. We export a great deal of coal, and BNSF serves the western half of the country, Mexico, Canada, and the Gulf of Mexico. (The railyard north of downtown Denver is a BNSF railyard, although we have a fair number of UP lines through the state, too.) There have been reports that China’s been slowing down, and nobody really trusts – or should trust – the official numbers coming out of there. Is it possible that fewer coal loadings as a sign of slackening Chinese demand?
I’m not quite sure what to make of the stagnating carloads combined with the improving outlook for intermodal. We know that, over long distances, trains are more efficient than trucks. Intermodal will continue to grow as a percentage of both rail traffic and overall freight ton-miles. Is it possible that this is just more inefficiency being wrung out of the system? Any other ideas?
Funny thing about trains. They work well for people over short distances when the densities are high enough, but are terrible over long, wide-open spaces. They work well for freight over long distances, but lose those efficiencies over short distances.
In the first instance, Amtrak, with record ridership, is losing more money than ever. The northeast corridor is making money, but the long-haul trains through the sparsely populated Not Northeast gives it all back, and more. Amtrak’s argument for keeping routes like the California Zephyr is that they provide a service to people who have no other means of transportation. It’s exactly the same argument that led the ICC to require the Western Pacific to keep running this line even though they were hemmorhaging money.
How many people? Well, let’s take the segment that I often use, the part between Denver and Omaha. Now, people in Lincoln can drive to the Omaha airport. If we add up all the alightings and boardings between Lincoln and Denver for 2010, not including Lincoln and Denver, we get 13,295 people. That’s 13,295 people boarding and leaving the train at those four stations, for the whole year. About 36 people a day. Part of this is the time of night, but why do you think this part of the trip is overnight?
I love taking the train rather than flying. I like that it’s overnight, that it’s less hurried, that I can get up a little early or stay up a little late and work, and that I don’t have to subject myself to a cavity exam. But let’s not pretend this is an economical way to travel out here.
Freight is another matter. Ever since the ICC went away, rail freight as a percentage of total freight has been rising. In part, that’s because the lines have been able to invest a little in their operations, rather than being told that any profit is too much and being treated like utilities. And in the last year, intermodal traffic – a combination of rail and truck – grew 9% year-over-year, even as total rail traffic increased only 0.5%.
Steven Hayward has an interesting post about rail efficiency, and the fuel efficiency of engines:
In fact, the energy intensity of locomotives has improved substantially, with BTUs per freight mile falling by 65 percent since 1960. In other words, although total freight-rail miles have tripled since 1960, total railroad fuel consumption has remained about flat. If railroad locomotives had made no efficiency improvements since 1960, we’d have needed 9.2 billion gallons of fuel in 2009 instead of the 3.1 billion gallons actually consumed.
Passenger trains may have cafe cars, but freight trains have no CAFE standards of which I am aware.
Interestingly, one of the complaints that conservatives have about Atlas Shrugged is that the movie centers around a railroad. (McClatchy, too, but then, they’ll believe – or not – pretty much anything.) For some reason, they have a hard time believing that people will, or do, actually use railroads.
In fact, rail is increasingly important for freight, and has been on the upswing for a couple of decades now. Take a look at these following charts derived from Bureau of Transportation Statistics data. Overall Class I (major trunk line) ton-mileage stalled in the 70s, but started upward again with deregulation and the welcome death of the Interstate Commerce Commission:
And as a percentage of total US freight ton-miles, it’s been headed up since the mid-80s:
About a year and a half ago, the Federal Railroad Administration published a report indicating that over long distances, rail is between 2-5.5x more efficient than trucking (Hat Tip: Future Pundit). I work at a trucking company, and I can tell you that intermodal – combined truck-train for long-haul shipments – is growing by leaps and bounds. Given the massive investment necessary to lay new track and secure new rolling stock, trucks continue to be a better choice for short-haul. But the best coast-to-coast operational choice seems to be rounding up the freight onto a container by truck, getting it to the railhead, and letting the train do the long-haul work. Trucks can then do the local or regional delivery at the other end. I even heard on long-time trucker complaining about this trend in the company cafeteria a few weeks ago.
I can’t remember where I saw it, but someone also poke fun at the idea of transporting oil by train. Hadn’t these people ever heard of pipelines? Aside from the apparent permitting nightmare in getting new pipelines approved, I can also tell you that the idea isn’t necessarily as ridiculous as it sounds. When were were looking at a couple of different ethanol plays at the brokerage, the need for specialized railcars was one of the drivers we took into consideration.
I initially also had thought that maybe it would have been better to focus on some newer technology rather than trains, but having seen the film, I’ve no doubt they made the right choice. Trains are visible, tangible, and connect with something very American.
The interesting thing about O’Rourke’s suggestion – that maybe they would have been better off setting the film in the 1950s – is that instead of liberating the filmmakers, it would have firmly trapped the film in past, reducing its relevance even more. Because almost everything Rand projected about trains actually happened. Unable to compete with subsidized roads, regulated to death by the ICC, trains deferred more and more maintenance, until northeast corridor rail freight virtually collapsed in the late 60s, leading to an actual government takeover and the creation of Conrail and Amtrak.
Once railroads were able to set their own rates again, they consolidated and recovered. Conrail’s operations have since been privatized, and the graphs above show the results. Union Pacific has been profitable right through the recession.
Railroads, as mentioned, do have a problem with the large capital investment necessary to expand, making them less flexible compared to trucks, just as light rail or commuter rail is less flexible compared to buses. But the idea that the country neither needs nor uses railroads just isn’t true, and fuel costs – as indicated in the film – will just make them more relevant for long-haul trips.