Railroad Industry Subsidies of/by Amtrak

First let's note any topic discussion can 'blow two ways", but the question is who, if either, indirectly subsidizes the other?

I have my thoughts on this matter (disclaimer; positions in BNI and NSC, both S&P "outperform" YTD) and previously expressed them at this and other Forums.

But how say we play a little Bridge right now; I'm North so who wants to be West?

I'm going to kibbutz, thanks

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.

Mr Vincent:

If the average cost of moving a train-mile of coal, an auto-rack, or a 53 foot container is less than $4.20, then Amtrak is subsidizing the railroad.

OTOH, if that cost is greater than $4.20 per train mile, the railroad is subsidizing Amtrak.

I would assume the railroads need more than $4.20/mile for an stack-priority train. Wouldn't they welcome Amtrak if the 4.20/mile was good money? The cold reception tells me Amtrak's payments aren't good enough, thus the freight lines are subsidizing Amtrak.

It's really interesting when you remember that SP used Amtrak's fees to meet payroll towards the end - it shows how rough SP was for a while. Definitely not Ben Heinemen's busy SP of the 1970's.

Mr. Dunville

Ben Biaggini (SP) vice Ben Heineman (C&NW)

Source data from the AAR

From these 2006 'stats':
1772T Ton-Miles
3163 Tons per Train
$50.3B Freight Revenue

Therefore (check my math volks) 1772T/3163=560,227,631 Train Miles

$50.3B Freight Revenue

Therefore (check my math) $50.3B/560,227,631= $8.97 revenue per train mile.

This would certainly suggest that there is a 2.13:1 or better (8.97/4.20) direct subsidy by the railroad industry to Amtrak for each train mile they operate over "freight" railroad property.

But somehow I think the indirect subsidy arising from the opportunity cost, i.e. the net "cookie jar' revenue lost, from any train a railroad could not operate because of their lawful obligation to handle the Amtrak train on a priority basis, is much higher than this arithmetical calculation would suggest.

Lets not forget there is bonuses avaliable to the railroads for ontime performance that they arent capable of earning. possibly these would bring it up to the $ 8 mark . Also an extra $ 100 million granted to amtrak would allow them to do so .
Bu tthen whats a $ 100 million to the railroads on a total revenue of $ 50 billion .
They should simply wear it as a pr gesture / social donation , and run the trains ontime .

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.

Am I missing something here? I see these figures for revenue but what about expenses and earnings? To what extent is that $4.20/mile figure pure profit for the railroads? I assume a good chunk of it is. Maybe the best comparison is to look at pre-tax earnings per mile on moving freight versus what Amtrak is paying.

The 4.20 per train mile is what Amtrak apparently pays to a Class I to move its train over the road, there are no direct costs associated with that as Amtrak pays for fuel crew wages etc.

The 8.97 per train mile I noted is the revenue per train mile from which the costs to operate such must be deducted, However, Mr. Vincent notes that the revenue of a loaded train with highly rated freight (containers) will earn revenue of $86.23 per train mile, from the direct expenses must be deducted.

No matter how one chooses to look at this matter, Amtrak is getting a bargain, yet there are advocacy groups pushing to have the Amtrak train treated day in day out as if it were that container train.

But I think the real "subsidy' comes when, because of the contractual obligations to Amtrak, a Class I has turned away a train that could generate that $86.23 per mile, and that one folks is quite difficult to measure.

Gilbert B Norman wrote:Source data from the AAR

From these 2006 'stats':
1772T Ton-Miles
3163 Tons per Train
$50.3B Freight Revenue

Therefore (check my math volks) 1772T/3163=560,227,631 Train Miles

$50.3B Freight Revenue

Therefore (check my math) $50.3B/560,227,631= $8.97 revenue per train mile.

This would certainly suggest that there is a 2.13:1 or better (8.97/4.20) direct subsidy by the railroad industry to Amtrak for each train mile they operate over "freight" railroad property.

But somehow I think the indirect subsidy arising from the opportunity cost, i.e. the net "cookie jar' revenue lost, from any train a railroad could not operate because of their lawful obligation to handle the Amtrak train on a priority basis, is much higher than this arithmetical calculation would suggest.

First, some of the basis of the cost is related to maintenance, and there's no reason to think a passenger train moving at relatively high speeds does the same damage to track that slow heavy freight does.

As to opportunity cost, there are two major problems with this. First, the marginal price that would be paid for freight that isn't currently shipped is likely to be lower, not higher, than the average price. Second, there are areas where the track isn't in significant demand, and there is essentially NO marginal price that could be asked for any additional freight.

Bottom line, there's ample reason to think that even aside from the track improvement projects undertaken (which you've handily left out of your summation), that Amtrak might be pretty close to the marginal costs.

Or to put it another way, you've left so much out of the picture that we simply don't know. Certainly your analysis doesn't bear the weight of your conclusion.

The other thing that we can easily learn from other interactions of business with government is that there is substantial money to be made in weaseling. Look at major league sports, where they can almost always portray their bottom line in a way designed to weasel governments out of a little more. That makes it extremely dangerous to extrapolate from "CN says they don't want a passenger train on that track" to "CN doesn't want a passenger train on that track". Something that seems so straightforward may be utterly false.

MudLake wrote:Am I missing something here? I see these figures for revenue but what about expenses and earnings? To what extent is that $4.20/mile figure pure profit for the railroads? I assume a good chunk of it is. Maybe the best comparison is to look at pre-tax earnings per mile on moving freight versus what Amtrak is paying.

Thank you. I realized after posting that I hadn't even begun to plumb the fatuousness of the calculation given, which had handily left out in addition to the things I mentioned above, all the costs that the freights have to cover out of their freight revenue, which Amtrak covers on passenger trains while also paying the host road a fee.

If Mr. Norman is saying that for $8 or so per train mile, BNSF would be willing not only to host, but also to provide motive power and the cars, then I imagine he's got hisself, BNSF and Amtrak a great deal!

But since that's not the case, I'd guess it's just another way in which he's using faulty figures to belittle Amtrak's contribution.

Well volks, it looks as if some interesting discussion is developing on this topic. When I originated it, I think I noted that I didn't have all the answers, and for that matter someone else could be, as in the first trick of a hand of Bridge, "West'.

Who knows, there may be a consensus here that Amtrak is paying its way and the the Class I's had best accept their existing remuneration.

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.