May 13, 2011
Modest Proposal To Expand Railroad Usage
When Warren Buffett decided to buy the Burlington Northern Santa Fe (BNSF) railroad my reaction was that Warren must see rail as a great Peak Oil bet. Rail is a few times more energy efficient that trucks per ton-mile. He's certainly willing to invest to expand rail capacity. So my modest proposal: Warren should buy all the US railroads. Imagine the results. Warren would shift more freight to rail on a massive scale. That would cut oil usage, make highways safer and less crowded, and he'd earn a lot of money doing it. All this he'd do without taxpayer subsidies.
Burlington Chief Executive Officer Matthew K. Rose is determined to take advantage of the industry's improved climate and the flexibility he gets by having only one shareholder—Buffett. This year, Rose is boosting capital spending by 31 percent, triple the increase of other major rails. He's buying about 200 locomotives and building more huge transfer facilities where rail freight containers are switched to and from trucks before and after their transport by train. Rose's goal: to bolster the second-largest U.S. railroad's competitiveness relative to long-haul truckers.
Increasing the number of places that truck loads can be moved onto rail cars will cut the distance freight will need to travel via truck. More freight moved by rail will cut total oil usage.
As the price of oil goes higher in the coming years rail will take more freight traffic from trucks. But if the price of oil goes up too fast and pushes the US into a recession then total freight volume will drop faster than freight shifts to rails. I would be very curious to know how Buffett weighs these possibilities.
The US had large portions of its total amount of track under the control of a single person or group in the past. It turned out to be a good way to earn huge profits and many of Americas first billionaires were in the railroad business, but it didn't offer the most efficient service or the best rates to customers. If the goal is to move as much freight as possible off the roads and onto more efficient railroads, a monopoly might not be the best way to do it. That said, rail is the most efficient to move freight overland and certainly looks like a good investment given the amount of easily extractable oil that's left. In Australia we are attempting to build terminals were trucks can be loaded onto trains. This cuts out a lot of loading and unloading that would otherwise be necessary, saving time and money.
A single In-Place Liquidation Value Tax coupled with a citizen's dividend. Let Buffet charge his monopoly rates. Let Gates charge his monopoly rates. Blow the pseudo-libertarians to kingdom come along with the Keynesians.
With the current administration in D.C., such rationality would be of no avail. The unionized truck drivers would whine and the plan would be shelved——American economy be damned.
The same applies to the tax system. Of course it could be rationalized in many ways, but the tax attorneys, accountants, etc., would pressure D.C. to block any such legislation and to continue making the tax code even more abstruse.
As far as I know, none of those new 200 locomotives are using NG or NG/Diesel even though NSF did have some NG locomotives running 10-15 years ago.
I'd wait to see if Buffet does anything like promise to change all locomotives to NG or dual fuel before I would give him a monopoly.
Buffett's companies were some of the bigget beneficiaries of the TARP Bailout. He takes care of himself first.
But "Atlas Shrugged" isn't relevant because railroads...
You know, the Italian "Futurists" all ended up as fascists.
Godwin and all, no names named, and you're certainly not serious. Right?
Because "having the right guy in charge" doesn't sound the voice of the future to me.
FWIW, union truck drivers mostly pick up the load from the terminal and deliver it locally. Over-the-road drivers are mostly non-union, or owner-operators. They do vote, though. There is that.
Buffet is the last human standing upright on two legs who deserves to be called a free-market capitalist. The man is the poster-boy for crony capitalism and for getting the government to slap it's clumsy fat finger on the fairness scales in the American marketplace.
All sounds very good and I agree with the author's statistics. Allow me to add one more, however, Outside of most metro areas, one finds the largest single job category (shading out police and school teachers) is "truck drivers." Makes you wonder what kind of jobs all these out of work truckers are going to find......maybe doing the concrete work, yard work, restaurant scullery and so forth now done by immigrant latinos.
Also, as population moves to concentrate in metro areas, something liberals like because they are more easily controlled and feel more dependent on government in a gulag instead of in a small town of self sufficient hardy people, trying to serve remaining countryside with rail is not economically feasible. Many, many, large areas of the country, remote or not, hardly - now - are able to support a small truck line with their business. Certainly, trying to force railroads to serve such small-lot customers spread over a wide geographical area, would destroy their efficiency for the long haul.
The present set up - maybe modified a bit - perhaps should be maintained and viewed as a welfare program for truckers and truck owners.
At least they are producing something of value. Unlike the post office - running billions of losses now and 80% of their costs are labor and their unions recently got 3% plus COLA plus enhanced retirement plans.............guess who pays for that?
Bull. Trains are more efficient than trucks, but not by much if the whole system is taken into account. We take a hit in efficiency, and gain enormous advantages in flexibility, redundancy, and convenience.
Buffett's "investment" is a harbinger. If money is being thrown out of helicopters, you can count on good ol' Warren to be out with the biggest bucket he can find. When there were massive subsidies for building windmills, Buffet was a promoter of wind power; now that we have enough experience to see that bird-slicers aren't going to contribute much to the energy budget, Buffet is long gone. All his involvement says is that a lot of money is about to be thrown at the "problem", and he means to get as much of it as he can grab. It's what he does.
We seem intent on spending billions getting a few new high speed rail lines that when done will be slower than rail service in the glory years of rail decades past. What's up with that? (Relatively) ancient rail service was faster than modern technology's high speed rail? It seems that the vast bulk of added at-grade rail crossings over the years combined with safety laws involving at-grade crossings has resulted in slower rail service. Why not spend the billions in creating separating the crossings for existing rail lines instead of building new lines? We'll get faster rail across the country, instead of a bare handful of lightly used lines.
This is encouraging because Westport is the company building LNG tractor trucks (like UPS just bought):
"A group of Canadian companies is working to develop a new liquefied natural gas (LNG) engine technology for locomotives.
Gaz Métro Transportation Solutions, Westport Innovations and CN are partnering on the project, which Gaz Métro said is a Canadian first. The venture, which aims to demonstrate the technical, economic and environmental viability of the technology, will receive $2.3-million in funding from Sustainable Development Technology Canada, an arm’s-length, not-for-profit federal corporation.
The consortium will develop a new LNG system for locomotives, said Gaz Métro Transportation Solutions. The initial stages of the project will involve designing and testing an LNG system for powering a locomotive. Gaz Métro Transportation Solutions will provide its LNG expertise during the tests and will be responsible for the fuel supply logistics.
“This demonstration project is important for developing the natural gas market a cleaner and less expensive fuel,” said the company’s general manager, Jean-Pierre Noël. “We salute the initiative of our partners, which will ultimately lead to locomotives running on LNG.”
The consortium expects an LNG-powered locomotive prototype to be in operation in 2013."
The comments above seem to display an alarming ignorance about railroads.
1) North American railroads comprise a unified network of about 200,000 route miles. It's almost all privately owned.
2) This network carries freight. Passenger service is minor or nonexistent on most routes.
3) Freight service is provided by private companies, and they make money. Investment needs of the network are financed with private capital.
4) In terms of net ton miles (one ton of freight moved one mile) railroads move more traffic than trucks in North America.
So we're already doing pretty well with our railroad network. How can we get it to carry even more freight? Privatize (and toll) the entire Interstate system. Let the users of highways pay for the resources they consume, just as railroads do, and let the trucks pay their fair share of the damage they cause to public infrastructure.
As for natural gas fuel for locomotives, Burlington Northern experimented with it in the late 1980s. Nothing new here. If the price of natural gas (on a per BTU basis) continues to be much less than the cost of oil, we'll see more gas use. It works just fine as fuel for large railroad diesels. It is very expensive, however, to convert the diesels in trucks to burn LNG. One more reason to shift freight to railroads.
The best way to increase rail freight traffic would be to bring railroad customer service out of the 19th century. Further, the assumption that large amounts of freight would transition to rail in direct proportion to the cost of diesel fuel is not correct. Rail sidings are scarce and JIT logistics at small to medium sized manufacturing companies is not well supported by rail. Then of course there are the political barriers to expanding the rail network. What I think Buffet sees is an underperforming asset with a captive market, not the potential for significant increases I'm market size or share.
The big advantage of Truck transport is flexibility. Roads built for other purposes can be used by Trucks (for which they pay taxes via gas/diesel taxes).
The big target of that flexibility is corrupt cities. Trucks provide an opportunity for a business to locate outside the corrupt city. Trains can't get rail down so quickly, and so a greenfield business will have to start with trucks.
The rail right of way may come later, but usually requires enough grease so that to get a rail right of way the local city has to become corrupt. When that happens, the productive business has a choice: Pay up, or move again.
I currently live about 100 yards from Vernon CA, a corrupt small city that forbids night watchmen to sleep, as they might become eligible to vote. Everyone that lives in the city has a family member who works for the city. Most of the factories in town have a railroad spur.
The key to the success of Vernon is its corruption takes a smaller bite than nearby Los Angeles or Bell. It provides services that are competitive, it has no local school, it has a lower local share of property tax. Though corrupt, the town is "well run" compared to cesspools like Los Angeles, or Bell. LA has a particular problem with its local redevelopment agency which takes over productive businesses with public money and imminent domain, then presides over the ruin for a few years to set the bar low for taxes. Then it sells the property, and any increase in taxes from the artificially low level goes to the redevelopment agency in near perpetuity. The schools, state, and local governments which actually provide services get to bump along at the artificially low tax level set by the property as a ruin.
Nearby "City of Commerce" has a similar business model, with a railhead that supplements the port of Long Beach by accepting truck loads of goods to be loaned onto trains, or removed from trains, and loaded onto trucks for shipment to the port of Long Beach. The number of ISO containers running up and down the Interstate 710 is amazing, and an overpass gives full view of the trains loaded with ISO containers.
The US rail system is indeed very efficient and well-run. However, times are changing and one can make a reasonable bet, as Mr. Buffet seems to done, that circumstances will change enough that rail can pickup market share in the future. The free market system is continually re-optimizing its operations and capital structure.
Currently, rail runs mostly large terminal to large terminal. Sit in downtown Flagstaff and watch freight trains every ten minutes between the harbor in Long Beach, CA and the freight yards of Chicago, mostly hauling containers that will go onto trucks for more local delivery.
Another big market are the unit coal trains from mine to power plant. A large coal unit (1 GWe) needs 100 cars of coal every 30 hours.
I can certainly see more nodes on the freight network as more places for containers to go on and off rail and trucks. Individual plant sidings, as when businesses ordered goods "by the car load," not so much although some positive increment might happen.
As to natural gas fueled locomotives. diesel oil still has an efficiency advantage over methane and certainly has advantages in distribution network but a sufficient price differential will change that.
BTW, as a conservative Republican, I should put in a good word for Amtrak. 87% of costs come from fares, MUCH better than most government owned transit schemes. Here in San Jose, our Valley Transport Authority only gets 10% of operating costs from the fare box.
The problems are much more complex. Most long haul trains both North/South and East/West route through one hub in this country. This is located in and around Chicago, Illinois. This presents major delays in transport and opportunities in the switching yards for "inventory shrinkage". Increasing rail traffic mainly goes to benefit the residents of one State and our current President is coincidentally from that one State.
Rough order of magnitude rail costs are about one tenth the cost of trucking. Unfortunately not every big box superstore has a loading dock that backs up to a rail freight yard. As a result cargo arrives by ship from China by the union dock workers at the Port of Los Angeles and loaded onto trucks. From the trucks, the cargo can either go straight to the destination distribution point or be trucked to a warehouse where the cargo sits until a train car can be set up to take the cargo to the destination rail head. At the destination rail head, the cargo then needs to be picked up by truck and delivered to its final destination. Even with those huge steel shipping containers this is horribly slow and inefficient. The way to make rail a better solution is to increase rail track mileage but people do not want rail right of ways in their suburbs. Scaremonger hazard material shipping and a railroad will never get a permit through the suburban landscape.
Attempts to increase passenger rail fail because of the need to share track with freight trains. If you think that the United States road infrastructure is old and decaying, then you should compare it to the United States rail infrastructure. Most railroad expansion ended right as Eisenhower started building the modern interstate highway system. This means that aside from maintenance, most of the newest railroad infrastructure is older than the oldest parts of the interstate highways.
The management fad of just in time inventory and the shift from manufacturing to information, has resulted in a decline in the need for as large a rail capacity as the United States had at the end of World War II. The case study in unlocking the hidden value in railroad ownership is in the old MCI telephone company. MCI leased right of ways from the railroads to run microwave repeaters and then later high capacity fiber-optic cable to cherry pick long distance telephone trunking from the old AT&T. IMHO the future of railroads is more about leasing their right of ways for other uses, such as: high power electrical transmission, fiber-optics, oil and natural gas pipelines, and specialized hazard materials shipment than it will again be the mover the of industry.
Folks ship large quantities of big and small things over long distances by rail and small quantities of small things by truck over long and short distances. For example, US Foodservice or Sysco warehouses receive loads of their goods by rail -- pallets of #10 cans of tomato puree or green beans are pretty heavy. They deliver their goods to restaurants, hotels, schools, etc. by truck.
Rail IT systems have proven capable of handling bulk orders and the complexity of route –planning / traffic management, but have nowhere near other levels of complexity and the flexibility of a FedEx or UPS system that typically deal in small quantities and literally millions of locations.
Mainline trucking companies and independent truckers fill in the gaps offering service and pricing flexibility as a function of quantity shipped over short and long distances.
Freight forwarding outfits earn their fees by meeting customers’ needs for speed, cost, and convenience and can use whatever transportation mode fits.
"it didn't offer the most efficient service or the best rates to customers"
Those railroads in the past with near-monopolies were so beholden to their congressional benefactors that political factors forced prices higher than would have been the case. A single owner, in and of itself, is no cause for worry.
If railroad freight were SO much cheaper (and better) than truck, don't you think companies would already be using it?
Railroads only go and stop certain places. Trucks on the other hand can go and stop literally everywhere wealth is being created.
Railroads have trouble with smaller shipments, and their costs increase dramatically when box cars are partially loaded/unloaded.
So NO, if a dictator decided that EVERYTHING would go by rail, costs would INCREASE and quality of service would DECREASE.
However, on those routes where rail is available, an increase in fuel costs will shift the breakeven point towards rail, but not all the way.
So Warren Buffet is allowing his wholly owned railroad to make big capital investments in intermodal transfer yards using large cranes or other devices? Mr. Buffet would do well to read the collected writings of John Kneiling.
John Kneiling wrote the "Professional Iconoclast" column for Trains Magazine where as an industrial engineer and transportation consultant 1) offered his critique of the 19'th century level of customer service offered by U.S. railroads as mentioned in an earlier post on this thread, 2) discussed particular tech that he thought could address those problems.
Trains Magazine is not written for the railroad industry but rather for the railroad hobbyist, the sort of person who would rather wait at a crossing to let the train go by in order to see the type of locomotive and count the number of freight cars. I get the sense that the editors of Trains by the 1960's were observing that the US railroad industry was in freefall, not only for dwindling passenger trains but for its core freight traffic. Their idea was Something Had to be Done or there would be no more trains for which to wait at a crossing to see the type of locomotive and count freight cars at the rate things were going. They gave a monthly column to John Kneiling on the idea that his off-the-wall ideas might keep the trains around. Kalmbach, the publisher of Trains Magazine, also published Integral Train Systems, Mr. Kneiling's treatise on a new generation of more efficient and customer-friendly trains.
Mr. Kneiling's column ended about 20 years ago, maybe not on the most friendly terms with the editors of Trains Magazine, and perhaps a new Pharoh Arose in the Land of Egypt who knew not Joseph -- that is, a newer generation of editors weren't as enamored with Mr. Kneiling's ideas as the earlier one, and his equal-opportunity scolding of labor as being as much at fault for the sad state of the railroads as management, a view that would put him in the company of the Tea Party take on the GM bailout some years later, those ideas rubbed the readership of Trains Magazine the wrong way, many of whom were railroad workers or people who knew railroad workers. Mr. Kneiling then upped and quit, never to be heard from again, and no one in the rail fan community of trains readers knew what happened to him since.
For non-bulk general merchandise, John Kneiling was a proponent of containerization and not piggyback where you had to carry the whole truck trailer on the railroad car, with its attendant transfer problems, extra weight, and fuel-robbing air drag. John was fond of a particular side-transfer system marketed by the Hyster Corporation, maker of fork lifts and other transfer equipment including the ubituitous Dumpster (Dumpster is a trade name of Hyster and not a generic name for an industrial garbage bin).
Consider the Dumpster. Most of us think of the Dumpster as a big garbage receptical where many of us have placed garbage -- oh, just stick that in the Dumpster out back. The Dumpster is a complete material handling system. Have you ever watched the truck that comes and picks up a full Dumpster or deposits a fresh, empty Dumpster at a dump site? Did you over notice that the equipment to pick up and deposit the Dumpster is integral with the truck chasis and can be operated by just the truck driver without helpers? According to Kneiling, the Hyster Corporation made a similar "side transfer system" for containers that is integral with a truck chasis. He compared it with expensive top-transfer cranes or the front-loading Piggypacker device, requiring many helpers in the form of spotters because the operator of the Piggypacker cannot see past the container/truck trailer load.
Like John Kneiling, the Hyster side transfer rig is mostly forgotten. John Kneiling thought it would/could revolutionize railroading by drastically reducing costs and increasing the just-in-time aspect of the train/truck interface, perhaps in the same way the Dumpster has revolutionized garbage that we talk about "the Dumpster out back of the store" without giving it much thought. Please Mr. Buffet, before your BNSF company invests massively in centralized intermodal facilities, read the back issues of Trains Magazine or get a copy of Integral Train Systems to learn of this lower cost, decentralized, any-trucker-owner-operator-in-the-intermodal-business, more customer-friendly alternative.
And my modest proposal to encourage the use of passenger rail is to require the President to use passenger rail for at least half his domestic travel ...
The loaded weight of any single railcar exceeds the 48 state weight limit of a tractor trailer rig by a factor of 2 - 4 times. A 130 car train loaded with low sulphur Powder River Basin coal will pull 16,000 tons to electric utility plants located only a couple of hundred miles from Kentucky's mines. (Say thanks to the EPA and our politicians for this arrangement). Hauling the same load by trucks filled to the legal limit would require about 470 trucks, drivers and a small ocean of additional fuel. The train crew of two persons will be changed out every 200 miles or so. Does anyone care to discuss productivity? Likewise, grains, chemicals, plastics stock, steel, automobiles, etc. are also similarly advantaged over trucks. Does Warren Buffet believe that we all have to eat, light our homes, run our cars, etc? Yes. Do you believe the choo choo will deliver your I Pad to your door?
About 25 years ago General Accounting Office did a study about trucks and highway wear and tear. It was found that the passing of one legally loaded (80,000 pounds gross) truck put as much wear and tear on an interstate quality highway as did the passage of approx. 9600 cars and light trucks. This ignored the extra cost to build such a route in the first place so that I could carry 80K trucks.
So, do trucks pay 9600 times the road use tax that cars do? You can answer your own question there.
They should be forced to pay for the roads they use up (owner operators, truck line owners, whatever). Then let them price their transport accordingly and let the market sort out what freight moves by what transport mode and how far.
Trucking interests sure don't want to hear such things.
Their spokespeeps will even get angry and attack you personally if you reveal their achillies heel! Of course they first usually say that study is flawed.
Lot's of ill informed comment here. Rail is not significantly cheaper than truck. In fact, rail carriers have quoted me rates higher than trcuk for cross country moves, and that doesn't get it to my door. They are quite smug about their "green" impact, but the fact is they can't get time sensitive freight to market as efficiently as trucks can. Are you willing to buy wilted lettuce and rotten tomatoes just so you can be "green"? I doubt it. And as for the taxes trucks pay, remember they pay far more than cars do per ton mile. And railroads don't pay any road tax, except in a few states, and they bleat like sheep to the slaughter when they do. There is a place for rail and there is a place for trucks. our ability to move farm products quickly, safely and cheaply to market is what makes America great. One last comment - the railroads aren't really interested in a single carload shipment. They are much more dependant on unti train moves of commodities including containers.
hah! Captive rail shipper has a point. Years ago the Railroads convinced the Washington State Onion Growers to ship by rail and not by truck. The railroad had no idea how to handle onions. Onions prespire, and the cars were not only not adequately vented they weren't cooled either. Add to that the fact that the cars were allowed to sit in a siding for a day or two; (they lost track of the cars). The end result; 300,000 pounds of rotted onions arrriving in New York. And much higher rates by the truckers who lost out on revenue.
As to th G.A.O study of highway wear: the Interstate Highway System was originally envisioned as two seperate road systems. One for trucks, tha other for cars. Rather than build two road systems, they were combined. The build specs for the Interstate system was the the road was to carry 250,000 pounds in a 40' span per lane. They could also be used as runways in case of war (the idea being that existing airports would be targeted). H8ighways are crumbling due to the fact they were underbuilt, and incapable of carrying the weight.
For the record, ask a trucker what all of those stickers are on the side of his tractor, and how much he pays for them in addition to fuel tax. I guarantee you'll get an education on costs. And if you realy want to know about Govt. regulation, find out about the regs for driving and transport he has to put up with. If the average driver had to deal with what they do,there wouldn't be a cop left on the road.
"The energy-efficiency of both rail and truck transportation is very much dependent on the commodity hauled. Low density goods, similar to people in trains, are not very energy-efficient to haul if we are measuring such efficiency in say ton-miles per gallon (or tonne-kilometers per liter). There are many sites on the Internet that mislead the viewers by claiming that rail freight is a few times (or even several times) more energy-efficient than truck. While it's true that the estimates show rail to be much more energy efficient overall, such a comparison is misleading since rail and trucks haul quite different good. Rail is mostly hauling the heavy goods that are inherently more efficient to haul, while the trucks are mostly carrying the lighter goods that are inherently less efficient to haul. Thus comparing rail hauling heavy goods to trucks hauling lighter goods is like comparing apples to oranges. A fairer comparison would compare rail and trucks for each commodity."
"The main downside to rail is the lack of timely transport, a near non-starter for companies that demand just-in-time logistics. Further, as Don Baldwin from Michelin Tires noted at RMI's recent Trucking Summit, "the need to put things in storage makes rail particularly difficult for perishables." Perhaps this is why 43.8 percent of rail transit is comprised of coal while only 7.8 percent comes from farm products. This, from the Association of American Railroads."
Plus, as the first article points out, most coal cars come back empty since no one ships coal to coal mines.
American manufacturing is actually doing ok now. With the decline in the dollar, the US is the low cost developed country for manufacturing, and in some cases is beating China.
A friend of mine, who knows Buffett, says he plans to changeover locomotives to burn plentiful natural gas, so buying a railroad is part of his master plan to make natural gas the Next Big Thing in the energy race.
A friend of mine, who knows Buffett, says he plans to changeover locomotives to burn plentiful natural gas, so buying a railroad is part of his master plan to make natural gas the Next Big Thing in the energy race.