1. U.S. Freight Railroad Infrastructure: Current and Future Issues Craig F. Rockey Vice President - Policy and Economics Association of American Railroads Washington DC March 17, 2004

2. The U.S. Rail Network

3. U.S. Freight Intercity Modal Market Share: 2001 “Other” for ton-miles is less than 0.5%. Source: Eno Transportation Foundation RRs 42% Trucks 28% Water 13% Pipeline 17% Trucks 80% RRs 10% Ton-Miles Revenue Water 1% Other 7% Pipeline 2%

4. Freight Rail Provides Major Public Benefits  Fuel efficient  Less pollution  Reduced congestion  Safer Railroad Fuel Efficiency (Ton-Miles Per Gallon of Fuel Consumed)

5.  Fuel efficient  Less pollution  Reduced congestion  Safer The EPA estimates that for every ton-mile, trucks emit roughly three times more nitrogen oxides and particulates than locomotives. Other studies suggest trucks emit 6 to 12 times more. Freight Rail Provides Major Public Benefits, cont.

6.  Fuel efficient  Less pollution  Reduced congestion  Safer Costs of U.S. Highway Congestion (Billions of Constant 2001 Dollars) Source: Texas Transportation Institute Freight Rail Provides Major Public Benefits, cont.

7.  Fuel efficient  Less pollution  Reduced congestion  Safer Freight Rail Provides Major Public Benefits, cont. Truck vs. Railroad Hazmat Incidents Source: AAR analysis of data from FHWA, FRA, RSPA, and STB.

8. Today’s Freight Rail Environment  Vast majority privately-owned.  Essentially no government funding.  Separate freight & passenger operations.  Access privately negotiated, voluntary.  Generally owner and operator.

9. Economic Fundamentals of Freight Railroading  Railroads are networks with virtually unlimited origin-destination pairs — what happens in one place affects many others.  High fixed and sunk costs — infrastructure can’t easily be picked up and moved.  Substantial economies of scale and scope.  Huge differences in customer demands and options.

10. Freight Rail Traffic Density (Millions of Class I Ton-Miles Per Mile of Road Owned) Source: AAR

11. RRs Have Far Higher Capital Expenditures Than Other Industries

12. Source: AAR Class I RR Spending on Roadway and Structures ($ Billions)

13.  Transport Demand: U.S. DOT says freight traffic will increase nearly 70% by 2020; international higher.  Service Quality: Reliability, speed, frequency  Price  Highway Congestion: Pressure to reduce congestion, emissions, fuel use, and enhance safety.  Passenger: Demands for freight-owned track. Drivers of Railroad Demand

14. But Because Railroads Do Not Earn Their Cost of Capital… Source: Surface Transportation Board Cost of Capital Return on Investment Class I Cost of Capital vs. Return on Investment

15. …They Cannot Make All Desired Investments

16.  Best used for projects whose main purpose is to meet public needs.  RRs pay for their benefits and public pays for public benefits.  Not “subsidy” to RRs Public-Private Partnerships Can Help “Relatively small public investments in the nation’s freight railroads can be leveraged into relatively large benefits for the nation’s highway infrastructure, highway users, and freight shippers.” --AASHTO

17. Railroads Providing Better Service  Alliances with other RRs, other modes, customers, suppliers, others  Technological applications  Innovations in locomotive operations, staffing, asset utilization, scheduling  Better equipment and infrastructure  New offerings

18. Other Challenges Facing RRs Reregulation Environmental Truck Size and Weights Economic Growth Fuel Tax Safety Passenger Rail P Security Staffing TEA-21 New Technology 3

19.  Daunting growth forecast.  Infrastructure is preeminent issue.  Don’t restrict rail earnings through reregulation  Tap public/private partnerships.  Continued focus on meeting customer needs Summary