USA railroads in search of public funding

July 31, 2012

Free Market Foundation

USA railroad executives have until recently been reluctant to accept money from the government. But that may be changing. For example, Norfolk Southern Corp. is asking the state of Virginia to help pay a projected $900 million to add a second track to its mostly single-track route that parallels Interstate Highway 81. The railroad argues that it would then be able to handle much of the freight
that now travels by truck on the highway, easing traffic and putting off an expensive highway widening project.

Experts say this new attitude stems from railroads’ massive capital needs – and the fact they have spent so much of their money buying each other. Railroads are cheaper and quicker to build than highways. But they are less reliable at delivering the goods than trucks, studies show.

Applying the Norfolk Southern example above, it would cost $1 million to $2 million per mile to add track along Interstate Highway 81 – compared to $10 million per mile to add a highway lane in each direction.

The track could be laid in four years – versus 20 years for highway construction.

Freight rates from Dallas to northern New Jersey, for example, are roughly 50 percent higher for the same size shipment by truck than by rail.

But the reliability of shipment by rail runs between 80 and 90 percent versus 95-plus percent by truck.

Typically, railroads are competitive with highways when freight is moving at distances of more than 700 miles. Although officials at the Virginia Department of Transportation are looking at the Norfolk Southern proposal, officials of some
other railroads think the company is asking for trouble. Mark Hallman at Canadian National Railway Co. warns that accepting public funds “allows other parties to have a say in your core business,” and adds, “we’re opposed to that.” Canadian National was, until recent years, owned by the Canadian government.

Source: NCPA Policy Digest/Daniel Machalaba, “Railroads Learn to Like Public Funding,” Wall Street Journal, May 1, 2000.

For text (WSJ subscription) http://interactive.wsj.com/article/SB957063856674592478.htm

For more on Highways & Mass Transit http://www.ncpa.org/pd/budget/budget-7.html

RSA note:
South Africa could save considerably by privatising its railway services and allowing real rates to prevail. However, roads would also have to be privatised to ensure that trucks pay the real cost of road usage. But that is not the end of the story. Taxes on fuel would have to be removed so that real fuel costs are paid. A great deal of untangling would therefore have to occur to establish true competition and the most efficient method of moving freight.

Eustace Davie, FMF.