Railroads Must Keep Pace With the Economy | The American Spectator

Transportation is never sexy, but it is an integral part of our economy. In 2024 transportation accounted for nearly $1.7 trillion or around 6 percent of U.S. GDP. While most of us do not realize it, transportation costs are imbedded in everything we buy.

America’s railroads are a big part of the transportation equation, delivering over 1.5 billion tons of freight each year. But, like every other segment of our economy, railroads need to constantly increase productivity and lower operating costs to keep up with the competition: trucking, air cargo, water transport, and pipelines. More importantly our railroad system needs to be world class to keep U.S. companies competitive and help deliver higher living standards for all Americans. As America tries to “reshore” manufacturing railroads will play an even bigger part in the U.S. economy. But, will public policy allow railroads to keep up with an ever-changing economy?

As a networked industry with massive investment in track, railbed, and other infrastructure, railroads rely on huge amounts of freight from various segments of the economy to make their systems run. Railroads invest around $23 billion dollars annually to maintain and expand track, railyards and equipment. Thus, chemical shippers are reliant on coal movements, and agricultural shippers are reliant on those moving construction materials to generate enough revenue to continuously reinvest. Accounting for around 25 percent of railroad revenues, all railroad customers, especially those shipping bulk commodities, rely on intermodal movements to help keep railroads viable financially.

Intermodal movements can easily be diverted to truck. In fact, all intermodal movements will end up on our roads and highways for pick-up, final delivery or both. Railroads provide just the linehaul portion — movements of hundreds or sometimes thousands of uninterrupted miles that are railroad’s bread and butter. But, if it begins or ends on the highway, it can easily be diverted to all highway if the price is right.

Unfortunately, these intermodal shipments and other railroad freight are at risk of being diverted to all truck highway movements within the next few years. Trucking, particularly the linehaul segment, is about to experience a revolution in how trucks can be operated that will take billions in cost out of the trucking system. Currently, drivers are the costliest component in the long-haul trucking equation, accounting for around 44 percent of total costs. But, autonomous vehicle technology is so advanced that there are already tractor trailer trucks being tested on highways in Texas, New Mexico, and Arizona.

At the very time truckers are on the verge of adopting driverless technology, Class I railroads, our nation’s largest railroads, are saddled with the Federal requirement that all trains must operate with two person crews. The requirement was passed by the Federal Railroad Administration (FRA) in April 2024, despite there being no evidence correlating crew size with railroad safety. Prior to implementation of the two-person rule, crew sizes were determined by the railroads in conjunction railroad labor unions. As one might expect, crew sizes declined from five in the 1950’s as railroad technology advanced.

So, the railroads biggest competitor will soon potentially see a 44 percent reduction in costs from the introduction of autonomous vehicles while railroads are Federally frozen in time with two person crews.  Studies have shown that reductions in trucking cost can easily divert railroad traffic. In fact, one analysis from 2020 showed that a 34 percent reduction in truck costs would reduce intermodal traffic by over 50 percent. One can expect a similar impact from the operation of autonomous trucks if railroads do not have the flexibility to rationalize crew sizes.

What can the railroads do? A good place to start would be passage of the Train Crew Choice Act (H.R. 5135) introduced by Rep. Eric Burlison (R-MO). The legislation would repeal FRA’s two crew requirement and allow railroads’ flexibility to determine train staffing levels.

Additionally, the Surface Transportation Board should approve the proposed merger between the Union Pacific and Norfolk Southern railroads. The UP-NS merger is projected to eliminate one million carload interchanges each year, saving an average of two days of useless time in rail yards, allowing for better service and reduced costs.

American shippers buy transportation as part of the manufacturing process and to deliver goods to American and international customers. No one really cares how your widget of choice ends up at its destination. Cost and service reliability are what matter. Eliminating the two-person crew requirement and allowing the UP-NS merger to go through will help increase railroad productivity and allow the railroad system to keep up in an ever more competitive world.

READ MORE from David Ozgo:

Childhood Nicotine Poisoning and Public Policy

READ MORE:

The New H-1B Tax: An Exercise in Crony Capitalism

America’s Turn Toward Ad Hoc State Capitalism

David M. Ozgo is Executive Director of the Center for Transportation Advancement and President of Advocacy Analytics LLC. He can be reached at [email protected].