Four thoughts on rail service and its relationship to the renaissance:
1. Consistent rail service is central to the “rail renaissance” idea and is part of the unofficial bargain made between rails, shippers and regulators — improved volumes and rates and returns will yield more capital expenditures, capacity and improving service. This bargain held true essentially through good times and bad from 2005-2013.
2. Outside efforts to fix rail congestion would be counterproductive. In these trying times for all modes (and all infrastructure), some have conflated service issues with aged arguments about rails’ market and pricing power. It is critical to understand what is needed not only to fix the current fluidity issues but to ensure future capacity availability even as other modes struggle with … investment — in network, employees and power. To ensure investment, one must have the opportunity to have a return (ROI); as ROI has improved, rail capital spending has been breaking records on an annual basis … that model has and will work.
3. Rail efforts to fix congestion problems are well underway — rails are spending at a rate of roughly 20 percent of revenue, and increased hiring and training. The solution takes time, and often initially hurts capacity. But help is on the way: for example, BNSF just announced a $6 billion capex plan for 2015, up 20 percent.
4. Demand for rail services remains strong, despite the current service levels. Shippers may be disappointed, but they also want to increase their rail share. Rails have all of the incentive they need; on the one hand, they have terrific growth prospects; on the other, the need to recover to regain the initiative in productivity and efficiency and assuage anger from not just shippers and regulators but also from shareholder/owners, who see the opportunities in revenue and cost from achieving reliable service and adding capacity — under the current regulatory environment.
Anthony B. Hatch, Principal, ABH Consulting