ARR: Class 1s could lose revenue if NITL proposal is adopted

America's privately owned Class 1 freight railroads could lose revenue up to 80 percent of their entire annual capital budgets if a forced competition scheme proposed by the National Industrial Transportation League (NITL) was adopted, the Association of American Railroads (AAR) said in comments filed with the Surface Transportation Board (STB).

Based on 2010 data supplied by the STB, AAR reports that an annual revenue loss of up to $7.8 billion could result from rate reductions NITL is advocating. Without this income, the freight rail industry could no longer invest the billions of private dollars needed to maintain and expand the nation’s 140,000-mile rail network, said AAR. Since 2000, freight railroads have invested more than $110 billion in privately financed capital improvements to their networks. The industry’s capital expenditures in 2010 were $9.77 billion.

“NITL would like the railroad industry and users of the rail network to assume enormous risk to benefit a few powerful shipping groups,” said AAR President and CEO Edward Hamberger. “This is an attempt to favor a few Fortune 500 companies at the expense of the many American businesses that rely on freight rail.

“Dramatically curtailing capital spending by the railroads on infrastructure, as the NITL proposal would do, is clearly not in the public interest. The railroads’ financial viability not only makes possible the billions of dollars they invest each year so taxpayers don’t have to, but is key to maintaining a rail network that is this country’s supply chain powerhouse. Take away the continued ability of the railroad industry to fund capital improvements to infrastructure and equipment and you cause irreparable harm to a critical national asset.”

In its comments, AAR also pointed to the fact that the NITL forced switching proposal requires far more railcar switching and handling to move the same amount of goods and could affect an estimated 7.5 million carloads annually, each having an estimated revenue loss to the railroads of $1,044 per carload according to NITL’s own calculation.

Besides the revenue impacts, AAR says mandatory switching can also lead to local service disruptions, degraded rail service throughout the system and a decline in rail productivity. Railroads would ultimately require more resources to move the same amount of freight, reintroducing many of the network inefficiencies that have been eliminated over the last three decades.

“The fact that NITL does not recognize that its proposal for mandated switching would add inefficiency to the U.S. rail network should give the STB serious pause,” said Hamberger. “The STB should be concerned about promoting, not degrading, conduct that enhances the rail efficiency that makes our customers competitive in world markets and goods affordable for all Americans. NITL’s proposal would seriously jeopardize the U.S. rail network’s operational efficiencies and productivity improvements that took more than three decades of hard work, investment and innovation to sharpen and refine.”