US Congress offers tax breaks to entice traffic to rail

Vehicle-miles have doubled but new highways have not been built MARTIN RUSHMERE Los Angeles, USA WHEN TAX relief in the United States is offered to anyone other than rich Republicans, weapons manufacturers or oil companies, then you know the authorities are serious. Congress is considering a 25% tax credit for any business investing in new rail track, intermodal facilities, rail yards, locomotives or other rail infrastructure expansion projects. Railways, ports, shippers, trucking companies and other transportation-related businesses would be eligible. As the country's insatiable import demand keeps climbing, (imports through Los Angeles this year are expected to be 11% more than 2005), it is clear that an intermodal crunch is looming within the next couple of years. Political pressure group, the American Association of Railroads, says that it is time to move away from road freight and expand the railway share of inter-city traffic beyond its current 42%. The association says that since 1980 total highway vehicle-miles have almost doubled but new highways have not been built. This is largely because the construction cost per mile is $10 million and takes nearly 10 years, compared with a maximum cost of $3 million per mile of rail and very little time for construction. The association wants the Federal government to bear some of the cost of extending the national rail network of 141 000 miles. The two main railway companies, Union Pacific and Burlington Northern Santa Fe, wholeheartedly endorse this – an abrupt turnaround from the early 1990s when the government was shunned because of possible interference in railway operations. Both companies have been spending like mad on intermodal yards, with the new emphasis on towns outside the main port areas. Their problem is, however, that the cost of capital is outstripping the return on investment, with a gap of between three and five percentage points. At the moment the balance sheets are healthy, with Burlington notching up a record 32% increase in earnings per share for the latest three months over the same period last year, while Union Pacific did even better with a 64% increase to achieve record operating revenue of $3.9 billion. Each of them is spending about 8% of capital on expansion this year, partly to cope with an anticipated increase of at least 6% this year in intermodal traffic. Latest figures for all rail freight show that for the 32 weeks to the middle of August, intermodal freight was up 6.4% over last year, to 7.4 million containers and trailers, while domestic wagon loads carried were up 1.5 percent to 10.7 million. But while the railways are keen to tell you how much volumes are growing and how much they are increasing capacity, mostly through twin tracking plus double stacking on wagons, they are silent on a crucial fact. Train speeds are unchanged at a dismal 10-year average of 30 to 35 miles an hour, 20% slower than Europe and 40% less than Japan and China. Safety considerations are part of the reason, which can also be seen as fear of lawsuits and government interference should there be a serious accident. The trade unions seem to be part of the problem as well, although their involvement is uncertain. What is known is that the unions would demand immediate pay rises if average speeds were to rise. And they would also be unhappy because with trains getting to destinations quicker, fewer trains would be needed along with fewer drivers and crews. The solution to the industry's problems is simple but the means of getting there is complicated.