(The following article by Don Phillips was posted on the International Herald Tribune website on September 21.)
NEW YORK — The railroads of North America and the railroads of Europe seem to have only one thing in common: They both run on rails.
Beyond that, there is little that would seem even similar.
North American railroads are basically freight railroads designed to haul long, heavy trains. Passenger trains in North America are little more than an annoyance for private-enterprise freight railroads, something forced onto their tracks by government pressure.
In Europe, however, almost all railroads are government-owned to some degree, and their main purpose is passenger traffic. Freight movement is little more than an afterthought in most countries.
But just as U.S. railroads have come to make room for passenger and commuter trains, the European Union is taking steps to force European railroads to make space for more and more freight. The idea is that highways are terribly overcrowded and only railroads can handle the growing crush of heavy freight traffic.
Among other things, the EU has forced railroads to make space on their tracks for competing private freight haulers. This must be done by the end of the year, but the French railroads had to do so earlier in a deal that allowed a one-time large government payment to shore up the freight system.
So far, it is unclear whether that pressure will be enough in the long run to awaken a free-enterprise spirit in the European rail system.
James McClellan has an unusually clear view of what happened in America and what Europe now faces if it wants a truly effective freight rail transportation system.
He was at the heart of the American freight revolution in the 1970s, 1980s and 1990s, including deregulation of the railroads, the last major round of mergers and a rekindling of a competitive spirit among U.S. railroads. He is widely recognized as one of the people whose ideas were at the heart of the railroad rebirth in America. Now he has put a lot of thought into what is happening in Europe.
McClellan is now retired as executive vice president of Norfolk Southern, widely recognized as the best-run railroad in North America.
But even before retirement, he turned his attention to Europe. What he sees is a repeat of the railroad experience in the United States in the 1970s, when railroads were gaining the power to set their own priorities with minimal government control but were confused about what to do with their new power.
McClellan, who will address a European freight railroad summit meeting in Brussels on Oct. 10-11, has one major piece of advice for European railroads: If you’re going to be a competitive, free-enterprise segment of the European economy, don’t wait for the government to debate your future.
“Just do it,” he said.
European railroads are in much the same position as U.S. railroads in the confusing 1960s and 1970s, he said, waiting for governments to decide their fate.
But there are things European railroads could, and should, decide for themselves, and quickly.
Things to decide include almost everything commercial, like what traffic to compete for or whether a new line or a new yard should be built to go after certain business.
Despite varying degrees of government ownership, there is a great deal of independence to make in-house decision, McClellan said. The thing holding them back is the traditional system of seeking consensus rather than having a chief executive decide.
“Things change fast today,” he said. “You can’t wait for government consensus.”
The best argument for McClellan’s position is the success of U.S. railroads today. Freight traffic is growing so fast that railroads are having a hard time keeping up with the demand.
All six North American railroads had their busiest period in history in the April-June quarter this year, with no indication that demand will slack off soon.
Earnings were up remarkably from the previous year in that quarter. Union Pacific’s earnings shot up 48 percent, CSX’s soared 38 percent, Burlington Northern Santa Fe’s rose 37 percent, and Canadian National’s earnings rose 28 percent. Other railroads’ profits rose at somewhat lower rates, but they rose nonetheless.
U.S. railroads are hiring train crew employees at the fastest rate possible, yet there are still chronic shortages of engineers.
There will always be up-and-down business cycles, but the underlying reason for this boom goes beyond the business cycle. Trucking is getting more expensive at a far faster rate than railroads. On top of that, add highway congestion and an ongoing improvement in railroad service.
Such a success story would stun European railroads. In fact, it is doubtful they could handle such strong traffic growth today without billions of euros in investment, almost all of it from private sources. U.S. railroads are having a hard enough time keeping up, even with billions of dollars in new, mostly private investment every year in new locomotives, cars and track improvements.
North America, Russia and China are the biggest rail freight haulers in the world today, not only because of their size but also because they share a level of dedication that is lacking in Europe. The question now is whether Europe will join them.