Railroad Industry Subsidies of/by Amtrak

Vincent wrote:Using numbers provided in "Source":

In 2006, Class I freight revenue was $50.3 billion and the number of carloads originated was 32.11 million, so the average revenue generated per car origination works out to about $1566 per car. The average distance traveled per carload is 905 miles, which is almost equal to SEA-EMY, so I'll make some comparisons. If UP sends a mixed freight train from Seattle to the Bay Area with 50 "average" cars they'll be generating about $78,300 in revenue or $86.23 per train mile. At $4.20 per mile, Amtrak will pay UP (and BNSF) about $3813 for hosting the Coast Starlight between SEA and EMY.

I just lost a post to the internet void, along with all relevant links, but one central point was the CN's fuel surcharge is available online, and it suggests that fuel is at least 20% of the freight fees.

I also outlined some of the costs of loading and unloading freight - capital costs to maintain yards, employees to operate the loading equipment, motive power to move cars. These are some of the vast expenses that have to be covered out of that per train freight fee that is being talked about.

I don't know whether I'd go so far as Mr. Gilbert, saying that "maybe Amtrak is paying its way" ... but I think it's pretty clear that there is a complex calculation, and that the simple calculations offered to suggest Amtrak isn't paying its way don't really get close to answering the question.

icgsteve wrote:In agreeing to the deal that is the National Rail Passenger Corporation the railroads agreed that in exchange for allowed NRPC trains to run on their system for a nominal charge they would be relieved of all passenger train losses as well as their pension obligations for passenger employees. The difference between what Amtrak pays and what the frights profits for freight traffic is in no way shape or form a subsidy. It is the price of the deal.

It however is likely that if amtrak were to be ever abolished without a legal grounding that allowed future passenger trains the same access as Amtrak enjoys that a profit per train mile similar to what freight earns is what would be the payment expected by the freights.

If the freights had a problem with the terms of the deal they should not have signed the deal. I am sure that they are now kicking themselves that they did not demand a sunset on nominal fee access, but had they done that maybe we as a nation would have gone with a different plan.

To some degree this is right, particularly for existing trains.

But as shown by the reluctance, but ultimate agreement to add trains in Illinois, the question of whether the freights are getting a decent deal is very relevant to any thoughts of expansion.

I'd suggest that as shown by the fact that not only did Illinois add trains, but they've been extended beyond the original test year, that at least those three freights (mostly BNSF to Quincy, mostly UP to St. Louis and mostly CN to Carbondale) believe they're getting a fair deal.

That suggests that the whining from the freights about not getting enough is mostly just a negotiating posture, sometimes abetted by people who want passenger rail, don't understand the finances, and think Amtrak should be willing to pay more than it is. In that setting, it's all too easy for some freight-friendly staffer or politico to figure out a way to up the fee, knowing that at least some pro-rail voters will defend what should be indefensible.

I don't believe that there was anything in the deal about nominal fee access only applying to the routes and trains that the NRPC decided to run on A-day. The railroads have demanded and largely gotten agreement that any substantial increase in passenger service will necessitate a large investment in the standing infrastructure by the public sector, but this is all outside of the original deal to relieve the railroads of passenger trains.

The K street boys and the PR people working for the RR's take positions that assume Americas inability to exercise long term memory. Their version of the NRPC deal is very unlike anything that was written at the time of the deal, and is not supported by the actual words of the original legislation. In any case the railroads have been partly successful in getting the laws relating to Amtrak rewritten in their favor. It is doubtful that Amtrak could force the RR's to honor the terms of the original deal if their Washington masters were to ever allow the NRPC to pursue its rights in the courts.

As I recall,

RPSA 70 had a 25 year sunset. The original Act called for "the former level of utility" for passenger trains moving along the line.

When ARAA came along, that language was superceded as I recall. Amtrak was given a certain level in their grant to fund fees. Problem is, it wasn't enough compared to what UPS or China Shipping was willing to pay for the container train, or Nissan/Toyota for the auto rack train.

Add in that UP absorbed a ribbon of rust in D&RGW/SP (anyone else remember the Weekly Velocity bulletins UP had to submit to STB in 1998 or so?) and we get part of the problem. Factor in that Conrail was probably the best run and best-performing of CR/NS/CSXT, and yet it was the firm absorbed, and ....

Finally, railroads are intrusions in many, many cities and towns. That's how the public thinks of them. They aren't a part of their lives anymore, except for inconvenience when trains tie up the crossing gates.

My thoughts here.

icgsteve wrote:If the freights had a problem with the terms of the deal they should not have signed the deal. I am sure that they are now kicking themselves that they did not demand a sunset on nominal fee access, but had they done that maybe we as a nation would have gone with a different plan.

Steve, as I've noted here many times before, even from my 'gofer flunky' spot in railroad management on A-Day, I can safely report that if those persons representing the railroads who were party to the May 1, 1971 Agreement ever foresaw a future with LD trains around thirty eight years after the fact, I think roads beyond the D&RGW, SRY, and CRIP would have 'thought twice'.

Good or bad, I guess that depends upon where you stand in matters regarding need for passenger trains, especially LD's.

But as Mr. Grossman once noted around here, likely contemporary railroad management considers Amtrak LD trains to simply be a "nuisance' and that there are many more issues on the political landscape, such as any rereg initiatives, that are of far greater consequence to the industry's interests.

Two thought here:
1) Opportunity cost is only an issue when a railroad is running at capacity and has to forego running a freight train to run an Amtrak train. How often is this actually the case?

2) As far as I can tell, railroads even early in the last century made little money on passenger service. (They didn't lose money in carload lots, either, as they did after WWII.) But they looked at running passenger trains as providing good advertising (their shippers rode their trains) and good publicity and politics (their regulators rode their trains.)

I doubt if a short, light passeger train costs a railroad much in maintenance, so in that sense, comparing an Amtrak train mile to a coal train mile isn't realistic.

It may well be that railroads that aren't maxed out make a small profit running Amtrak, since they have no direct costs except for maintenance--and Amtrak trains no longer run faster than freight trains on many roads.

So, running Amtrak trains could provide host railroads with some good publicity, some advertising and some political benefit--and still provide a small net income.

Vincent wrote:In another thread a poster asked how many train miles are run on host property. The answer, according to Amtrak.com, is over 22,000,000 annual train miles. The Monthly Performance Report shows a budget line "Payments To Host Railroad" and in FY 2007 Amtrak forked over about $92,401,000 to the hosts. So, using those figures I will assume that Amtrak is paying less than $4.20 per train mile for using the freight lines' property and services. I'll leave it to others to decide if that's a subsidy or not.

do we have any way to see if payments to various hosts vary substantially?

Gilbert B Norman wrote:, I can safely report that if those persons representing the railroads who were party to the May 1, 1971 Agreement ever foresaw a future with LD trains around thirty eight years after the fact, I think roads beyond the D&RGW, SRY, and CRIP would have 'thought twice'.
.

We don't have a lot of documentation on what the RR's were thinking, but we do know that for almost ten years their focus had been on one thing, eliminating to drain of passenger service on the bottom line. We also know that they were intimately aware of the last fifty years of financials for passenger service, which showed that they were globally increasingly losing pricing power and because they demand so much labor there was no way to get the cost of service down. From the rear view mirror it looked like passenger rail was on the way out. They I am sure figured that they had little risk of facing a passenger rail revival.

This all changed of course with the energy shocks soon after, the rest of the world took another look at rail and with-in a decade was seriously interested in following the japanese example and going to next generation rail. With-in 15 years of a-day the rest of the world was investing heavily into passenger rail.

To my mind the railroads made an assumption, a bet, which like just about every other assumption they have made over the course of my lifetime has proven to be wrong. There are consequences to habitually being wrong, you make deals that turn out to be not good for you.

Indeed, passenger trains cost a lot because - as run by the railroads - they took a lot of labor. That shouldn't have been - and should not now be the case.

Remember the competition, private automobile, has zero labor cost.

Amtrak has demonstrated that passenger trains can be run with a lot less staff (and eliminating tickets could reduce that still).

But the fight wasn't worth it to freight railroads. It might have been possible to reduce the losses and keep more (many more) passenger trains around (at least while they still had the post office contracts) - but we are still talking about a marginal business. The fight would have jeopardized the much more profitable freight business.

I think the unwillingness of freight railroads to fight with their unions was a real mistake. One that affected a lot more than just passenger service. But it was a decision made to avoid risk, which means a business decision.

Okay, this is a complicated subject, but it's one I know a bit about, since I helped Conrail win a compensation case against Amtrak in 1996.

At the time, Amtrak paid less than $1 per *train mile* for track maintenance. THere were other payments for dispatching, plus incentives in some contracts. But let's leave those aside for the moment.

Amtrak argued that they should pay CR only $.030 per train mile for track maintenance. My cost model indicated Amtrak should owe about $1.15. The ICC accepted my conclusion.

Now, railroads generally pay each other a car mile fee for trackage rights, and it's typically around 40 cents a car mile, which suggests that an eight car Amtrak train should pay about $3.20 per TRAIN mile if they are to pay what freight railroads pay each other. Based on Mr. Norman's calculation, I'd guess that's about what they do pay (the difference is probably dispatching cost).

Now, is there an "opportunity cost" to handle Amtrak? Yes, I'd say so, since most of the freight network (certainly where Amtrak runs) is at or near capacity. So Amtrak should probably yield railroads about the same revenue they get from freights, less the costs of loco maintenance, fuel, and crews. Based on some work I've done in the past, I'll opine that track costs are about a quarter of the full direct cost of train operations. So you can work out from there what Amtrak might pay.

I think, at this point, that Amtrak is paying approximately a market rate for access, possibly not including the opportunity cost.

This thread points out the need for a rail network that is dedicated to passenger train use. If Congress and the state legislatures were really serious about transportation planning, they'd be willing to plan for construction of such a network---and then exercise the fiscal discipline needed to pay for it.

One of the underappreciated aspects of all of this is that the railroads, in many cases, received their original rights to build their lines *on the condition* that they ran passenger service -- sometimes in *perpetuity*.

It's *always* been a loss leader.

(This continues. The political assistance the freight railroads need to get new rights-of-way, widen old ones, etc., often comes with the condition of passenger service.)

Amtrak got its right to run on the freight lines as an exchange: relieving them of their obligations to run passenger service. Accordingly, if the Amtrak running rights were removed, it would only be equitable to return a large number of the lines to the original municipalities and states which granted *conditional* building permission.

Given the incredible value of some of those lines, Amtrak is a spectacular bargain for the freight railroads. The mere *existence* of Amtrak is a subsidy for the freight railroads.

I have a feeling that the freight railroads "make money" on Amtrak when you subtract the incremental maintenance costs incurred by running Amtrak trains over their routes from the money paid to the railroads by Amtrak. However, this money is such a pittance compared to freight revenue that some railroad probably consider it "not worth the hassle".

Here in the northeast, Amtrak runs the Downeaster with several daily frequencies on the rails of a nortoriously parsimonius railroad, which apparently considers the Amtrak money "worth it" since the Downeaster has one of the best on-time percentages.

It's *always* been a loss leader.

Looking at old annual reports indicates otherwise. It is often stated here that passenger operations have always lost money. Please explain your reasoning.

It seams to me that the PRR had a net operating margin of 20% on their passenger operations in 1897.

http://www.library.upenn.edu/collection ... il1897.pdf

Page 9

Well if the line is under capacity any figure above $1-2/mile is profit. If were to fully allocate the costs based on trainmiles then it would be about $65,000/(365 x Number Trains a day per track mile). So $6/mile or so for your average mainline. If we were to fully allocate the costs per car mile we would have a lot less per trainmile for an Amtrak train versus a freight train.

Anyway, I think the ultimate solution is higher speed lines with mixed (single level containers or trailers) freight intermodal and passenger trains. Keep the axle loads low, maybe 0.75 degree curves. They would be open access but subsidizied either in capital or ownership from the transportation trust fund just as interstate highways are. See my post in High Speed Rail for the rest.