Freight rail bill offers potential for future infrastructure investments to meet projected freight increases

Jeff Berman, Senior Editor -- Logistics Management, 6/22/2007

WASHINGTON—In a continued push to expand railroad infrastructure to meet projected rail freight growth of up to 70 percent by 2020, four bi-partisan members of Congress held a press conference yesterday to tout legislation designed to augment railroad freight infrastructure and better meet the growing transportation challenges in the United States.

At the press conference U.S. representatives Kendrick B. Meek (D-Fla.), Eric Cantor (R-Va.), Corrine Brown (D-Fla.) and Kevin Brady (R-Texas) explained the various public benefits of rail shipping such as reduced highway congestion, cleaner air, conserving fuel, and energy reduction.

And a piece of legislation introduced in May by Meek and Cantor—H.R. 2116, The Freight Rail Infrastructure Act of 2007—promises to let not only railroads, but all businesses, earn a tax credit for various investments in the railroad network’s infrastructure.

This legislation is a companion piece to legislation—S. 1125, Freight Rail Infrastructure Capacity Infrastructure Act of 2007—introduced by Senators Trent Lott (R-Miss.) and Kent Conrad (D-N.D.)—which, similarly to H.R. 2116—would provide a 25 percent tax credit for businesses making investments in new rail infrastructure.

And this tax credit would, in turn, be available to any shipper or carrier that makes a “qualified” expenditure, such as track, grading, tunnels, signals, certain locomotives, bridges, yards, terminals, and intermodal transfer and transload facilities.

“Legislation that establishes incentives for increased investment in freight rail infrastructure, allowing more freight to be shipped by train, will ultimately ease traffic congestion and help our environment since freight trains move a ton of freight an average of 423 miles on a single gallon of diesel fuel," Meek told Logistics Management. “This is legislation that benefits our country, improves our economy and helps our environment.”
   
When this legislation was initially introduced in Congress last September, Brooks Bentz, a partner in Accenture’s Supply Chain Practice told LM that if the bill passed, it could have myriad benefits for shippers through additional capacity.

“Adding capacity will help to take out a sizable chunk of service variability and should improve reliability and costs over the long haul, said Bentz. “This will give shippers more options and more opportunity to use rail.”

Association of American Railroads (AAR) President and CEO Edward R. Hamberger pointed out in a statement that U.S. Class I railroads are continually making significant investments into infrastructure improvements, capacity enhancements, and other forms of capital expenditures, as evidenced by a $9.4 billion investment in 2007, topping 2006’s total which came in at more than $8 billion.

But it is clear that increased investment into railroad infrastructure alone will not solve all the problems that shippers face on the railroads on a daily basis. This much was made clear at a Surface Transportation Board (STB) hearing held in April for Ex Parte No. 671 Rail Capacity and Infrastructure Requirements, which was held to provide a forum for views and information concerning freight traffic forecasts, capacity constraints, and the infrastructure investment needed to ensure the freight rail system will be efficient and reliable enough to handle the projected influx in rail freight between now and 2020.

It was apparent at the hearing that shippers are more than dissatisfied with what they feel is a limited railroad infrastructure that is hindering the quality of rail service they are receiving.

In his testimony, William M. Mohl, vice president of commercial services for Entergy Services, opined that it is imperative that railroads be required to build appropriate infrastructure to competitively and reliably serve the needs of shippers both now and in the future at reasonable rates and with reasonable service guarantees and appropriate oversight.

If the tax credit is approved, it could be key in improving railroad capacity, infrastructure, and service, according to Tom O’Connor, vice president of Snavely King Majoros O’Connor & Lee Inc., an economic and management consultancy.

“The railroads could do themselves a favor by acting with more moderation in their price increases and price setting,” said O’Connor. “There is not an infusion of new highway capacity coming in to meet the projected freight increases, and rail is the only other alternative in place that can reach population centers across the country 12 months out of the year. This is what makes the case for these types of railroad [capacity] investments.”