Logistics News and Analysis: Norfolk Southern CEO calls for increased railroad infrastructure investment
Jeff Berman, Group News Editor -- Logistics Management, 8/1/2009
WASHINGTON — Even with the high level of infrastructure spending railroads have made towards their networks in past years, more capital is needed to meet the future projected demand in capacity when the economy rebounds, said Wick Moorman, CEO of Class I railroad carrier Norfolk Southern.
Testifying before the House Ways and Means Subcommittee on Select Revenue Measures on behalf of the Association of American Railroads (AAR) last month, Moorman explained that freight railroad infrastructure tax incentives make sense for the country at this stage in the game. “America needs more transportation capacity and needs it now,” said Moorman. “Railroads are the most affordable and environmentally responsible way to meet this [expected increase in railroad freight] demand, and that is why tax incentives for rail capacity would be good public policy.”
In recent years, the case for expanded rail capacity has been well-documented in various studies, including:
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a 2007 report from the AAR and Cambridge Systematics that determined approximately $148 billion needs to be invested in the nation’s freight railroad infrastructure by 2037 to ensure that adequate rail capacity is in placed to meet the expected demand;
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a report from the American Association of State Highway and Transportation officials that predicts by 2020 the U.S. rail system will carry an additional 888 million tons, an increase of more than 40 percent from current levels; and
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a Department of Transportation analysis predicting an 88 percent increase in railroad freight tonnage by 2035.
While these statistics portend a significant future economic rebound, it’s likely that the current recession will push back the Department of Transportation’s trajectory by a few years, according to William J. Rennicke, director of Oliver Wyman, a Boston-based management consultancy.
And even though freight railroad infrastructure tax incentives would be welcomed by Class I and short-line railroads, Rennicke said the odds of a tax incentive being implemented anytime soon are unlikely.
“Right now, with everything else Congress has pressing, and the fact that railroads have been earning a sufficient rate of return in the past four or five years to invest in their property, it may be that they are taking the position not to fix something that is not broken,” said Rennicke.
Despite the fact that railroad volumes are down significantly in 2009, that hasn’t quelled the industry’s continued investment into freight rail infrastructure. Class I railroad capital expenditures in 2008 were $10.2 billion according to AAR data, and this investment has hit $8.5 billion in 2006 and $9.2 billion in 2007, respectively.
In recent years, bills have been introduced in the House and Senate to expand rail capacity and help prepare for the future surge in traffic and freight demand.
At the heart of these bills is a 25 percent tax credit for businesses that make investments in new rail infrastructure. The tax credit would be available to any shipper or carrier that makes a “qualified” expenditure. Examples of qualifying expenditures in this legislation includes: track, grading, tunnels, signals, certain locomotives, bridges, yards, terminals, and intermodal transfer, and transload facilities.
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