AASHTO Standing Committee on Rail Transportation

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A New Vision for U.S. Infrastructure
AASHTO Standing Committee on Rail Transportation
August 19, 2008
Matthew K. Rose Chairman, President and CEO
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Presentation Overview

• Future transportation demand and funding
  implications
• Impact of future demand on freight rail
• Overall Commission recommendations
• Commission freight recommendations

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Transportation at the crossroads
2020 Growth Projections
Source Global Insights, AASHTO, FHWA
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The results over the past 25 years
1980-2005

• Route Miles Growth
• Rail (39) 65 GTM
• Highway 7 96 VMTs
• Ports N/A 400 TEUs

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What is this costing the economy?
Cost of highway congestion
Billion
?
Source Texas Transportation Institute and U.S.
DOT
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What is the cost to the supply chain?
What is the cost to the supply chain?
U.S. Logistics Costs as a Percent of GDP
Transportation costs increased 9.4 over 2005
Rail 6.7 of U.S. Transportation Spend
Inventory and administrative costs increased 13
over 2005
Total Logistics Costs
Transportation Costs
Inventory /Admin. Costs
Source Annual State of Logistics Report,
Council of Supply Chain Management Professionals
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National funding gap
600
Cost toImprove
500
Cost toMaintain
Revenue
400
Year-of-Expenditure Dollars (in Billions)
Gap to Improve 107 Billion per year (through
2015)
Gap to Maintain 50 Billion per year (through
2015)
300
200
100
2006
2009
2012
2015
2018
2021
2024
2027
2030
Year
Source U.S. Chamber of Commerce
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Focus on Rail- passenger and freight
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Majority of current routes are operating below
practical capacity levels
Current Corridor Volumes Compared to Current
Corridor Capacity
Source National Rail Freight Infrastructure
Capacity and Investment Study September 2007
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Without capacity improvements, congestion would
affect nearly every region of the country
Future Corridor Volumes Compared to Current
Corridor Capacity 2035 Without Improvements
Source National Rail Freight Infrastructure
Capacity and Investment Study September 2007
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But with the right investments, rail can
accommodate future demand
Future Corridor Volumes Compared to Future
Corridor Capacity 2035 with Improvements
Source National Rail Freight Infrastructure
Capacity and Investment Study September 2007
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Railroad Capacity AAR/Cambridge Study
Class 1 capital investments needed to meet 2035
volume demand

• Assessed long-term capacity needs of primary rail
  freight corridors
• Assumed no shift in modal tonnage shares among
  rail, truck and water beyond those projected by
  U.S. DOT
• 39 billion shortfall will occur without a
  stimulus to bring investments up sooner in their
  cycle

135 B
Shortfall
39 B
26 B
Productivity
70 B
Growth
Source National Rail Freight Infrastructure
Capacity and Investment Study September 2007
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Railroad Capacity AAR/Cambridge Study-Growing
Freight Rail Market Share

• Investment Needed to Grow Market Share

• Investment Needed to Grow Market Share

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Overview of Commission Findings

• REFORM
• Outcome-driven (not political) funding
• Programmatic reform - streamline 108 federal
  programs to 10
• Project delivery - savings and performance
• REBUILD
• Achieve a state of good repair
• Mode Neutral Expand freight rail infrastructure
  provide passenger options as well
• REVENUES
• Increased funding from all sources - federal,
  local, state and private to meet 225 - 349
  billion a year in needs

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What does this mean for rail?

• Rational regulation is necessary
• An investment tax credit will help expand freight
  rail capacity to meet coming demand, and grow
  market share market share
• A National Freight Program?
• Passenger rail in key corridors (not at the
  expense of freight capacity) separated right of
  way
• Freight rail - part of meeting Environmental
  stewardship and Energy security program goals

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Rational regulatory policy prevails

• This principle applies to economic regulation,
  but also safety, security and pre-emption
• Ensuring the necessary free flow of capital into
  the rail industry and other private sector
  providers of transportation requires that
  regulatory policies promote efficient operations
  and encourage investment. National networks
  require uniform and national regulatory
  structures to further commerce.

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An ITC will expand private freight rail investment

• Leverages and makes the most of strong private
  investment levels
• Tax incentives bridge the funding gap between
  demand and available private funding in the
  coming years in a way that could offset the cost
  of the tax incentive.
• Expansion tax credit, with immediate expensing of
  remaining 75 of capital investment, would reduce
  expansion project costs by approximately 30. The
  net effect is that project return would increase
  by 3 - 4, making the expansion investment more
  likely.
• Will not incent unnecessary projects incentive
  only enough to pull forward good projects, sooner

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Developing a freight program

• Any national freight program should facilitate
  public investment in crucial, high cost
  transportation infrastructure public-private
  projects that have potential national and
  regional benefits, including facilitating
  international trade and relieving congestion.
  E.g.,
• Rail corridor development
• Intermodal connectors
• Key sections of interstate highways, such as
  those near port facilities
• Strategic national rail bridges where cost of
  construction exceeds return on private invested
  capital
• Implementation of train control technology
• Development of green intermodal facilities and
  operations, and on/near dock facilities.

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Role of Public Private Partnerships

• Standardize public benefit ROI methodology for
  evaluating and negotiating PPPs between
  railroads, state, local and federal interests to
  ensure that the public and private sectors pay
  for their own benefits.
• Ensure no misallocation of public funding to
  projects which would require non-economic private
  investment.
• Ensure that grants/loans/public financing for
  rail-related projects does not supplant or
  diminish private investment.

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A National Freight Fee

• If a freight fee is considered
• Link and dedicate as directly as possible to use
• Predictable, dedicated and sustained, and
  pay-as-you-go
• Do not discriminate in favor of any particular
  transportation mode or port of entry
• Designed in such a way that that the ultimate
  consumer bears the cost
• Nationally coordinated to ensure that such fees
  do not proliferate locally, imposing a burden on
  commerce
• A portion of the Customs fee provides appropriate
  revenue

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Environment and Energy

• If there is GHG regulation, freight and passenger
  rail should be a beneficiary
• There should be additional programmatic
  opportunities to transition to greener rail
  operations

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Intercity Passenger Rail (ICPR)

• The public must pay for capacity to facilitate
  passenger rail
• The Commission affirmed that freight
  capacity/operations must not be injured by
  passenger rail
• Focus on corridors of 500 miles or less
  comparable to world-class systems Cost benefit
  analysis
• Track access and cost of present and future
  capacity requirements negotiated by freight and
  passenger rail interests (See MKR supplemental
  statement)
• Performance measures developed in consultation
  with freight railroad, investment scoped to meet
  service criteria
• Rights of way to be developed to allow for
  separate passenger and freight operations

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Warnings ahead

• Public will not accept higher fuel taxes or other
  fees if the system is not overhauled
• Shippers will not accept user fees unless
  principles around investment are fair and
  transparent, i.e. intermodal shippers should
  not pay for coal capacity and vice versa
• Railroads will not accept public funds with
  obligations not central to the investment if
  strings are attached
• The lack of action will result in a further
  degradation of our transportation efficiency and
  ultimately our global competitiveness

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