(Reuters circulated the following story by Nick Carey on August 2.)
CHICAGO — U.S. railroads are lobbying Congress to back tax-credit legislation aimed at boosting rail investment, citing the need for an injection of cash to help lay fresh track.
“This country needs to boost its rail infrastructure,” said Wick Moorman, Chief Executive of railroad Norfolk Southern Corp., “and we can only justify adding new rail capacity if we get a sufficient return on our investments.”
The Freight Rail Infrastructure Capacity Expansion Act of 2007 – for a 25 percent tax credit on track expansion – was introduced into both houses of Congress in the spring with some bipartisan support and the backing of some industry groups.
But some customers argue the tax credit should be linked to changes in oversight for the rail industry, especially as the major railroads are seeking federal handouts at a time when they are raking in record profits.
“This country needs to improve its rail infrastructure, but the railroads need to plow some of those profits back into capacity,” said Jack Gerard, president of the American Chemistry Council (ACC). “The system is broken and needs to be fixed before we talk about a tax credit.”
Industry groups like the ACC say they want taxpayer money for new rail track to focus on domestic U.S. industries rather than benefiting imports from developing nations like China.
That has some railroad officials expressing concern Congress may attach unwelcome conditions to their bill.
“Time will show how many strings are attached (to the bill),” said Jim Young, CEO of No. 1 U.S. railroad Union Pacific Corp.
THRIVING INDUSTRY
In the past quarter century, the major U.S. railroads have gone from bust to boom.
After deregulation in 1980, the industry underwent a number of bankruptcies and mergers leaving four major railroads – Union Pacific, Burlington Northern Santa Fe Corp., CSX Corp. and Norfolk Southern – a few regional rail companies, plus several hundred small “short-line” railroads. The two major Canadian railroads – Canadian Pacific Railway Ltd. and Canadian National Railway – also own hefty chunks of the U.S. network.
In the past few years the railroads have seen a jump in business, due largely to rising demand for coal from utilities and soaring U.S. imports from countries such as China.
Despite slower U.S. economic growth and lower rail freight volumes this year, the railroads have maintained pricing discipline that has boosted profits.
Prosperity for the rails has been accompanied by hefty investments in new track to handle more freight and ease network bottlenecks, but the railroads say more is needed.
The four major U.S. railroads plan to spend more than $7 billion in 2007, with the majority going on existing track.
“The rail industry is one of the most capital intensive industries out there,” said Erik Autor, vice president of lobby group the National Retail Federation (NRF), which backs the tax credit bill. “The railroads are putting a lot more money into expansion, but it’s not enough.”
BOTTLENECKS
The NRF, in particular, wants to see rail bottlenecks removed on lines from the U.S. West Coast ports – where the overwhelming majority of consumer goods arrive from Asia. A list of backers for the rail tax credit bill provided by the Association of American Railroads, includes a number of ports plus firms like Hewlett-Packard and Nike Inc. that import products or components made in Asia.
According to a July report from the American Association of State Highway and Transportation Officials, U.S. truck freight will double by 2035 and rail freight will rise 60 percent. Rail intermodal freight will double by 2040. Intermodal services use standardized containers that can move by truck, ship or train and usually hold consumer goods.
Moving more freight from road to rail “will reduce truck traffic on the highways,” and cut congestion, the report said.
The U.S. interstate highway system costs around $80 billion annually to maintain and the last U.S. highway bill in 2005 was “not adequate to maintain the highway system,” said Tom Mentzer, a logistics expert at the University of Tennessee.
“Truck congestion raises public safety issues and makes a compelling reason to invest in rail freight,” he added.
Railroads say their expansion must have sufficient returns or Wall Street will punish them.
“If the railroads took out huge loans for expansion, their stocks would probably take a beating.” agreed NRF’s Autor.
But customer groups representing some utilities and the chemical industry have legislation pending in Congress aimed at improving government oversight and preventing railroads from gouging customers. After their complaints are dealt with, they say, they will be ready to back the rail tax credit. But only under certain conditions.
“This bill would need some requirements to ensure that it supports our domestic economy,” ACC president Gerard said,” not simply add capacity to support Chinese imports.”