AAR’s top executive talks traffic and service at RailTrends 2014

Even with the well-documented service issues freight railroads have experienced over the last several months, there is a lot to be excited about when looking at the industry, according to Ed Hamberger, president and CEO of the Association of American Railroads (AAR).

Speaking at the recent RailTrends conference in New York hosted by Progressive Railroading and independent railroad analyst Tony Hatch, the AAR’s top executive provided his perspective on different aspects of the market.

Hamberger said that the current situation is a good news/bad news story, with the good news being that the economy is coming back, with current traffic levels ahead of pre-recession levels. As an example, he noted for the first ten months of 2014, total intermodal units at 24.3 billion are the most since 2007 and carloads close to 17 million.

“We are moving a lot of domestic energy and not only is that good for us and the economy, it is really good for manufacturing as we are now producing more oil than we are importing for the first time in more than 20 years,” he said.

As for the bad news, Hamberger said that even with demand at high levels, the industry has not been able to meet that level of demand as well as it should be.

Train velocity has been down, terminal dwell times have been up, and various utilities have said their stockpiles for commodities like coal and grain have not been where they need to be with winter here.

On top of that, he said that the STB has asked the industry for service-related metrics, and politicians are also clamoring for related effort to see service improvements, which Hamberger noted is not all bad, as the industry is focused on it as well.

In addressing how service came to become such a major issue, Hamberger cited major changes in traffic commodity mix, with two record grain markets and gains in domestic intermodal, too.

“What it takes [to meet demand] is investment, hiring, putting steel on the ground and buying locomotives, which is what we are doing,” he said. “The hard work that the industry is putting in is paying dividends in service improvements, but there is still a long way to go.”

He added that the industry is doing a lot of work in Chicago, which is the epicenter of the nation’s rail network, and that area will have a much higher level of network management in place, which he expects to lead to future service improvements.

And the high level of investments railroads are making into their networks needs to continue, noting that the sector has invested a cumulative $525 billion on service-related efforts going back to 1980, with $25 billion invested in 2013 and $26 billion in 2014. What’s more over the last three years the industry has hired 45,000 people, with 10,000 of those hired having served in U.S. armed forces.

For these levels of investment and hiring to continue, Hamberger said regulatory interference needs to be kept to a minimum.

One front where this needs to be the case, he explained, is the National Industrial Transportation League’s (NITL) reciprocal switching proposal, which would require a Class I rail carrier to enter into a competitive switching arrangement whenever a shipper—or group of shippers—demonstrates that certain objective operating conditions exist within 30 miles of a terminal.

Hamberger noted that NITL maintains this proposal would only affect about 1.5 million carloads and save about a $1,000 per carload or $1.5 billion. But an AAR study concluded it would actually affect 7.5 billion carloads at $1,000 per carload or $7.5 billion.

That increase would lead to additional costs of 4.5 times higher for the industry through more switches and inefficiencies and more locomotive time in yards and more crews needed to handle the switches and increased transit times, too.

“In March, the STB held its first hearing on service,” he said. “The people there said ‘we need better service and to tell the railroads to invest and hire more people for better service.’ Well, you cannot have it both ways, which is why the industry needs to be allowed to continue to earn revenue to continue to reinvest. That lesson is becoming clearer in that we are not the highway system. We are privately-owned and maintained and invested and hopefully that will continue to carry the day as the STB and Congress continue to wrestle with those issues.”