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Challenge Paper:
Rail Issues in the Western States

Western Governors' Association Transportation Futures:
Rail Efficiency Workshop
August 5, 1998

Introduction

The recent consolidation of the western Class 1 rail systems under two companies makes this the right time to define a vision for what the western rail system should be within the next ten years. Resolving the current crises is highly important, but should be done in the context of how the future western rail system can enhance the West's economic competitiveness and standards of living. The challenge of this roundtable is to assist the Western Governors' to define that vision and to place the resolution of the current issues within that context.

A major challenge facing our nation is that the transportation system within the U.S., particularly rail freight and passenger air, have been stratifying rapidly. Major carriers have merged and focused on long distance services. Lesser attention is being devoted to regional and local markets. The western states can provide critically needed leadership by developing a rail system which serves all critical future freight needs.

Freight railroad issues have recently come to the forefront in the West. Service levels, equipment shortages, community livability issues, safety, and other concerns have been raised and are being addressed intensively in a number of forums by the railroads, shippers, and regulatory agencies. While the current situation and issues are presented as a starting point, this rail roundtable will focus on a longer term vision for rail in the West. The Western Governors' Association Transportation Futures Project poses the following questions:

  • What type of rail system is needed to support a stronger Western economy for ten years?
  • Who needs what types of services?
  • What ownership and operations approaches are appropriate for various levels of the system?
  • What kinds of partnerships can be formed and what kinds of cooperative actions can be taken to achieve the service levels envisioned?
  • Can the vision and actions meet the key needs of maintaining competition and needed levels of services to shippers (including not just the railroads' services)?

The emphasis of the workshop is on the future, and on identifying key actions that all parties can take towards achieving that vision. All ideas for improving the future rail system of the western states will be considered and none are precluded from discussion.

The goals of this roundtable are ambitious:

  • begin the dialogue;
  • frame the vision for the future; and
  • define short term actions in the long term context.Vision for the Rail Transportation System

The Governors' policy statement for the Transportation Futures Project was adopted in 1996:

"The Governors believe that high capacity, efficient and safe highway, rail, waterway, port, aviation and communication systems are critical to reducing the cost of products and services to the consumer, and are necessary to sustaining a competitive western economy in the global marketplace. A highly competitive western transportation system will yield efficiencies that will lower costs to transportation consumers. Increasing cost efficiencies in the transportation sector can also free resources to help alleviate the wear-and-tear of the transportation infrastructure and other negative impacts of high transportation system usage. The Governors challenge the transportation industry, federal, state and local officials and interested parties to identify innovative means for addressing these impacts, recognizing that government's role will often be as a provider of incentives and purchaser of services and not necessarily as the owner and operator of the transportation system infrastructure."

To begin the discussion some of the objectives of the Western rail system are that it be financially viable, integrated seamlessly with other modes and will help enhance the West's economic competitiveness and livability. A healthy system will require at least two major competing Class I railroads and several independent shortline carriers to operate successfully. Western carriers should be able to connect with their eastern counterparts to assure fast, integrated service. Capital investment should be sufficient to maintain highly efficient facilities, to assure adequate locomotives and cars, and to implement modern technologies. Competition among rail carriers and between rail and other modes should be robust, shippers should find the services they need available, based on service levels and reliability, costs, and speeds. Labor rules should not be restrictive but fair, and the available labor pool should have the training needed for assuring safe and high quality services.

The success of the Western Governors' Association Transportation Futures Project has been in establishing partnerships between public and private interests, oriented around both rail, intermodal, and other modes. Successful partnerships serve the needs of carriers, shippers, governments, and other interests. The Association is also interested in preserving the economic health of the rail industry and maintaining competition within the industry, all while assuring that prices paid by rail customers are competitive.

The first phase of the Western Governors' Association Transportation Futures Project looked at safety and community livability. These issues will impact both public and private actions and investments. Therefore, the role of the rail system in the economy must be framed not only in terms of service levels and quality but in terms of quality of life and safety. The livability and safety of impacted communities must be preserved as freight rail services are enhanced.

Issues Covered

This challenge paper identifies six major issue areas along with the potential actions to address those issues. These actions are intended to ensure that the Western rail freight transportation system fulfills the vision for its role in the economic future of the West. The issue areas include:

  • Rail Service Issues;
  • Availability of Rail Equipment;
  • Rail Efficiency and Competition Issues;
  • Rail Efficiency and Community Livability;
  • Labor Issues;
  • Technology; and
  • Implementation of Freight Partnerships.

In addressing these issues, the roundtable will focus on ways of moving from problems towards the vision. For example, in identifying the means to address each issue, particular solutions can be fed back into the vision statement.

Rail Service Issues

The congestion, equipment, infrastructure, labor, and other service issues on the Union Pacific/Southern Pacific (UP/SP) and to some extent the BNSF have been the subject recently of intense attention. The situation has been of concern to the railroads, shippers, industries, the western states, and the federal government. The immediate crisis has rippled throughout the U.S. economy, although focused primarily within the West and Gulf states.

Explanations differ as to causality. Labor rules, severe weather, bumper grain harvests, surges in plastics and petrochemicals demand, and the condition of the railroad infrastructure have all been cited as contributing factors. There also appears to be a shortage of locomotives, other equipment, and available trained labor to move the freight in a timely fashion. Thus, the current service issues are highly interrelated with other issues such as service standards, capital investments, equipment availability, labor pool and other labor issues, competition, and determination of rates and returns.

To some extent, investments in new technology may help avert similar service crises in the future. Positive train separation technology will increase capacity on lines and new tracking and dispatch systems (e.g., differential Loran) will improve service reliability. These types of actions were cited in the report of the first phase of the Transportation Futures Project. In addition, the railroads are making significant investments in new equipment and in upgrading infrastructure and trained employees.

Although the short term issues are associated with the UP/SP, service issues in general, including BNSF, shortlines, and other carriers, warrant continued long term attention. In particular, it will be important to examine and understand the underlying causes of current service problems so that western states can be assured of improving rather than deteriorating service levels in the future. These and the other issues also impact on highway usage and highway needs.

Availability of Rail Equipment

The first phase of the Western Governors' Association Transportation Futures Project documented the dependence of the western states on adequate rail and other freight services to serve export and domestic markets. The western economy is highly dependent on its competitive ability to ship products to and receive products from throughout the world. At the same time, freight traffic in general and rail traffic, specifically, is growing faster in the western states than in the nation as a whole.

Against the backdrop of these conditions, the shortage of grain cars to serve western states has been a chronic and recurring problem. Other types of commodities, such as coal and forest products, have also been impacted by shortages of cars and locomotives, as well as the slowness of turn around of cars in the system. The inability to ship in a timely and reliable fashion causes serious economic losses to western producers, particularly in the case of perishable commodities and in meeting "just in time" delivery schedules.

To avoid shortages of grain cars and other equipment, the equipment must not only be manufactured, it must be scheduled when and where needed, and it must be turned around. Cars diverted to storage functions, cars unused or handled less expeditiously because of their ownership, are not serving the functions for which they were originally purchased. There are already examples of public ownership of cars. Washington State, for example, owns rail cars under a program designed to ease the grain car shortage. The program has a positive cash flow, but has been somewhat controversial with respect to the state role as an owner of rolling stock.

Addressing grain car and other equipment shortages is an overall system management issue and not just a manufacturing or investment issue. Only a smoothly functioning partnership of interests can coordinate to assure that assets are both available and used to their fullest potential. This means that the mix of cars must meet the operating standards of the shortlines and that switching between roads be handled efficiently and timely.

Competition Issues

Mergers and acquisitions have resulted in consolidation of the western railroads into two major and many shortline carriers. About 90 percent of the traffic west of the Mississippi is served by either the UP/SP or the Burlington Northern/Santa FE (BNSF). Eastern railroads are also about to be consolidated into two major and many smaller carriers. Deregulation under the Staggers Rail Act of 1980 has fundamentally changed relationships between carriers and other parties. The rail industry has become financially more healthy over the last two decades. Fundamental tradeoffs between the number of carriers and the level of competition must be balanced. Certainly, consolidation that leads to inadequate competition, with little regulation of rates and services, would not be in the best interests of industries, shippers, or the western states.

Major issues that need to be addressed include, but are not limited to:

  • How to protect shippers and assure reasonable rates when adequate competition may not exist? Shippers who are captive to one company need some type of protection (such as application of the 2 to 1 rule).
  • How to assure that competitive rate pressures do not result in a situation in which needed capital investment is foregone, as has happened with both the rail and airline systems under deregulation? Railroads do need the ability to make investments. [It is noted that both the Union Pacific and Burlington Northern railroads, as individual systems, did make massive capital investments following deregulation. This does not appear to be true for other western railroads, many of which have been acquired by either the Union Pacific or Burlington Northern railroads.]
  • How to assure fair and reasonable profits for railroads and others in the transportation industry? This is an issue of balance. Monopolies could allow captive shippers to be overcharged or divert them to less desirable modes. Over-competition can, however, result in profits that are too low.
  • How to assure that adequate rail competition continues to exist in the West? Maybe having just two major carriers has already reduced competition to too low a level. Having only one major rail carrier in the West could threaten the balance among the interests.

Rail Efficiency and Community Livability

The Western Governors' Association created the "Working Group on Railroad Efficiency and Community Livability" to assess the impact of growing rail traffic on community livability. This group canvassed communities on western rail lines, state and local officials involved in rail planning and regulation, and railroad personnel in the major, regional and short line railroads. One hundred and twenty six communities participated in this effort, which was 64% of the communities contacted. The major issues they identified were:

  • Poor communications between the railroads and community officials
  • Environmental impacts (noise, property maintenance, air quality) caused by rail in the communities
  • Obstruction and safety at grade crossings
  • Inadequate funding for rail related projects to improve community safety and livabilityThe report of this working group will be distributed to roundtable participants.

Labor Issues

Labor issues appear to have been an exacerbating factor in recent rail service and congestion problems and could continue to have a negative impact on the quality of rail service in the West. Part of the problem stems from the cutback in railroad personnel in recent years, leaving railroads with relatively lean staffing levels, and unable to field extra crews to meet peak demand.

Also contributing to the problem are the inconsistent and inflexible work rules that railroads must work under. These rules are the result of years of mergers, in which the labor agreements of the acquired railroads are carried over into the newly-merged entity. Rules change based on locations. The resulting hodgepodge of rules dictates which employees can work on which lines and precludes the flexibility that might avert staffing and congestion crises.

The age mix of the rail labor force is also an issue. Not enough younger personnel are in the labor force to assure adequate experience levels when current senior personnel retire. Training programs are needed to address these problems.

Implementation of Freight Partnerships

WGA Resolution 96-001 called for a "Western Freight Partnership which can become a self-sufficient forum for resolving key shipper and intermodal transportation issues." While the western states have had very good experience with multi-state cooperation and with public/private partnerships, opportunities remain to address significant issues in rail service. Partnerships can be developed to help resolve major rail and freight issues, and therefore to enhance the performance of the transportation system. Partnerships are one potential solution which can be applied in addressing issues such as rail levels-of-service, rail car availability, community livability, and safety. All parties must bring something to the table and cooperate.

A key element of designing and developing the partnership is to determine which issues such a partnership can address, and how the partnership will tackle these issues. Another key issues is to develop guidance on the implementation of metropolitan area and state freight partnerships.

Potential Recommendations/Discussion Issues

The intent of the potential recommendations and discussion areas is to open discussion and debate over the vision of the future Western rail system and the specific issue areas. The vision is meant to frame the issues and the recommendations, and in turn to be framed by the specific issues it addresses.

Vision Issues

  • What should the vision specify about services to shippers and consumers?
  • What should the vision specify about the efficiency and financial sustainability of the rail industry in the West?
  • What issues should the vision address and what statements should be in the vision in the issue areas of availability of rail equipment, rail services, competition, community livability and safety, labor, technology, and implementation of freight partnerships?
  • How will the vision be implemented and revised as appropriate?

Rail Service Issues

  • Railroads, shippers, federal agencies, and the western states should enter into freight partnerships to address service and investment issues and to assure that all interests are working together to improve rail services in the western states.
  • An overall Western Freight Partnership, including representation of the Governors, should be formed to address progress towards the vision for rail transportation in the western states.
  • In conjunction with the above-cited general partnerships, partnerships should be created to focus on specific issues, such as grain car shortages, and to develop comprehensive, long-term solutions that will assure the competitiveness of the western states in world markets.
  • The long term goals for rail service should include reduced travel times and costs while maintaining competition. Specific goals should include the reduction of travel times in major corridors and the enhancement of the range of services available to all shippers, including those captive to a single railroad.
  • Rail efficiency with community livability could be enhanced by dedicating the 3.5 cent fuel tax to a trust fund for safety and community improvements.

Availability of Rail Equipment

  • An assessment should be made of how equipment shortages or misallocations of equipment which impact economies of the western states can be eliminated or minimized.
  • An assessment should be made and shared of the actual usage patterns of grain cars and other equipment in short supply to determine which management and operational actions would enhance the usage of existing equipment.
  • An assessment should be made of the capital planning and modernization process for rail, including public as well as private roles.An assessment should be made of the adequacy of the manufacturing capacity and industry to supply locomotives and cars in North America.
  • Actions that would preclude or limit the use of equipment owned by parties other than the operating railroad should not be taken.
  • Inventories should be taken and shared with partnership members of grain cars and other equipment which has been in short supply.
  • Total current needs should be roughly estimated and future needs projected.The locomotives and other equipment determined to be necessary to supply high quality rail services to the western states should be put in service as soon as possible and maintained to a high standard to assure quality service.
  • An action program for alleviating the grain and timber car shortages should be initiated by partnership groups with the goal of eliminating shortages within a five to ten year period.

Competition Issues

The Western Governors' Association favors strong and viable competition among rail carriers and other modes in the western states, with the implications that:

  • There should be at least two competitive Class I western railroads;
  • There should be many strong and viable shortline railroads with efficient interconnections to major railroads;
  • Public and/or third party ownership and operation of rights-of-way should be considered as an option to enhance competition in specific corridors and at selected terminals;
  • Rates should take account of how competitive the market for a particular shipment is, and should consider the balance between returns to rail operators and rates charged for similar types of movements elsewhere.

Community Livability and Safety

A separate report on this topic will be transmitted under a separate cover.

Labor Issues

  • A study should be made of the extent and severity of labor shortages within the freight rail industry and potential sources for future employees and training programs.
  • Further inquiries should be made about the time periods in which inconsistent work rules will remain in effect for the merged Class 1 railroads.

Technology Issues

  • Since new technologies can represent significant opportunities for implementing the vision of the Western rail system, technologies should be assessed, evaluated, and rapidly implemented whenever they foster the vision.
  • An assessment should be made of the potential benefits of new technologies and what steps can be taken in the West to realize those benefits.
  • An assessment should be made of linkage opportunities between telecommunications and railroad information systems.

Implementation of Freight Partnerships

The desirability of developing partnerships to address major issues was highlighted above. The implementation of partnerships is more difficult and time consuming than some might prefer, but have yielded high levels of results in other areas. Major actions to assure successful partnerships can include:

  • A Western Freight Partnership should be established.
  • State departments of transportation should establish partnerships and channels of communication with the major railroads operating as a forum for raising and addressing specific safety and livability concerns.
  • Public agency planners should be kept abreast of major planned changes in rail service so that they may anticipate potential new safety and livability issues.
  • Railroads should participate in the process of prioritizing grade separation and grade crossing safety improvement projects.
  • Clear agreements should be reached in each partnership on a vision of the future and the issues with which each partnership will deal; and
  • Clear understandings should be reached in each partnership of investment opportunities and rules under which investments will be made.
  • Incentives should be developed for implementing freight partnerships.
  • The partnerships should follow up on and assist on addressing issues in the Surface Transportation Board's ruling of April 17, 1998.

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