The United States manufacturing sector employs over 12 million people and contributes almost $2 trillion in goods and services to the Nation’s economy annually. The Nation’s agriculture industry employs over 16 million people and contributes nearly 750 billion dollars to the Nation’s annual gross domestic product. Taken together, the manufacturing and agriculture industries represent almost one-fifth of the annual gross domestic product. Both of these industries rely intrinsically on a highly functioning, efficient, and safe freight transportation network. For manufacturing and agriculture businesses to be successful and remain competitive with international competitors, we must maintain and improve our infrastructure to keep pace with growth in these sectors.
Comparing the costs of transporting soybeans to China from the United States and to China from Brazil illustrates the critical role that the Nation’s freight system plays in the global competitiveness of American industry. Currently, it costs $85.19 to transport one metric ton of soybeans from Davenport, Iowa, to Shanghai, China. It costs $141.73 to transport the same amount of soybeans approximately the same distance to Shanghai from North Mato Grosso in Brazil. The United States currently enjoys a competitive advantage because the Nation’s freight system is more efficient and cost effective than Brazil’s system. However, Brazil is planning to invest $26 billion to modernize its freight facilities.
How the Manufacturing Industry Relies on the Freight System. The manufacturing industry relies on all modes of transportation in a variety of ways. Manufacturers rely on the freight system to deliver the raw materials and parts necessary to produce goods as well as to deliver the finished goods to market. Manufacturers often have unique freight transportation needs depending on the particularities of the goods being produced. Some manufacturers produce goods that must remain at a specific, constant temperature, some produce goods that are extremely heavy and oversized, some produce goods that are volatile or hazardous in nature, and some produce goods that must be consumed within a limited window of time.
How the Agriculture Industry Relies on the Freight System . The Nation’s agriculture industry depends on all modes of the freight transportation system to deliver goods and food products to urban centers, export facilities, and other consumer regions, most of which are a significant distance from the area where the food is grown and produced. Farmers require an efficient transportation network to deliver equipment, feed for livestock, seeds, and fertilizer so that they can produce the foodstuffs that will then enter the stream of commerce along the Nation’s roads, rail, and waterways. Raw agricultural products must also be transported to processing facilities before being repackaged and shipped to another destination. The agricultural sector is the largest single user of the Nation’s freight transportation system, accounting for approximately one-third of all ton-miles.
Aside from the general issues related to a supply and demand market for agricultural commodities, transportation costs are the most significant factor impacting the bottom line for farmers and other participants in the agriculture industry. Due to the time-sensitive nature of the harvest period, farmers rely on a high level of efficiency and capacity in the Nation’s freight system so that they can get their goods to market quickly.
The purpose of today’s hearing is to hear from those who are actually producing and growing the goods that are shipped on the Nation’s freight transportation system. The manufacturing and agriculture industries represent almost one-fifth of the Nation’s annual gross domestic product. Freight transportation measured by tonnage expected to increase by 88 percent by 2035. I hope the irony is not lost on my colleagues that these witnesses are testifying about the importance of the Federal Government in the middle of a Republican Government shutdown. These witnesses discuss the importance of the Army Corps of Engineers and the Service Transportation Board while those agencies are now shutting down because of the Republican leadership’s insistence on stopping the Affordable Care Act at the expense of everything else.
TOM KADIEN, SENIOR VP, CONSUMER PACKAGING, IP ASIA & IP INDIA, INTERNATIONAL PAPER
IP is the largest paper and packaging company in the world. We have 70,000 employees around the world, and here in the United States, we have 38,000 employees who work at over 300 facilities in 43 States.
I want to be clear that although I will not touch on rail issues today, International Paper is also a significant user of rail and moving our products by rail remains a critical part of our supply chain. International Paper is the rail industry’s largest U.S. box car customer, shipping more than 140,000 carloads by rail in 2012. We are also the third largest waterborne exporter of containers from U.S. ports by volume. In 2012, International Paper shipped more than 2 million tons in containers equating to 160,000 TEU’s – the standard maritime industry measurement for containers – as well as over 1 million tons of breakbulk cargo from U.S. ports. Trucking is also critical for International Paper. We sent products from our U.S. facilities to customers over more than 155,000,000 miles by truck in 2012.
While we are a significant player in all of these transportation modes, International Paper has identified an opportunity to increase trucking efficiency by 20% for 300,000 of our trucks trips each year while still maintaining safety standards. International Paper strongly supports the Safe and Efficient Transportation Act (SETA), HR 612, which allows each state to permit six-axle trucks loaded to weights of up to 97,000 pounds to operate on the state’s Interstate Highway system.
Our average rail shipment from our mills is over 800 miles, while our average truck shipment from the mills is approximately 400 miles.
International Paper ships 70% of our exports out of the Ports of Charleston, South Carolina and Savannah, Georgia. Both ports are working tirelessly to move forward on projects that will increase their harbor depths to handle the larger vessels, which will ensure their global competitiveness and improve the flow of American goods to global customers. If the Ports of Charleston and Savannah cannot handle the larger ships in 2015, International Paper we will be forced to redirect our exports to other U.S. ports that can accommodate the larger ships, or sharply reduce our exports. That would be counterproductive to current national efforts to grow U.S. exports and wreak havoc on our company’s business plans and logistical operations. If we are forced to identify new ports because Charleston or Savannah cannot receive the larger ships, International Paper would potentially have to export this tonnage out of Norfolk, Virginia or Miami, Florida. You can appreciate the additional miles that our products would have to travel by truck and rail to get to those ports. Every extra mile raises our costs, which hurts our global competitiveness, and adds to the strain on our nation’s infrastructure.
Implementation of both of these port projects is important not just for International Paper, but also critical for the health of the U.S. economy and the nation’s movement of goods. We understand that the total economic impact of Georgia’s deepwater ports is $67 billion, plus $4.5 billion in federal taxes. According to a South Carolina State Ports Authority Economic Impact Study report, the Port of Charleston facilitates over $44.8 billion in total economic output, annually, of which $11.8 billion is paid in wages to 260,800 employees in South Carolina. I urge the Freight Movement Panel to support the funding of these types of critical harbor deepening projects so that they can be turned into realities.
IP is a leader in—of major consumer of freight and logistics here in North America. We spend about $2 billion. We are the number one shipper of boxcars on the rail system. We export almost 4 million tons of product outside of North America. Two million tons goes out in containers and over a million goes out breakbulk.
Ports are very important to us. And we also ship products over 155 million miles around the North America system by truck. So we are here to ask for your help in addressing the freight transportation needs here in North America. I am going to cover two areas of competitiveness for truck and ports.
Paper is heavy. Our trucks typically weigh out before we cube out. And with 300,000 trucks going over the road, it does not make a lot of sense to us to ship trucks with 10 feet of empty space when there are safe alternatives to increased truck—truck weight here in the United States. So we are here to—I am here to talk about SETA, the Safe and Efficient Transportation Act, which would allow trucks with a sixth axle and braking system to increase the truck weight up to 97,000 pounds at the option of the States on interstate highways. That would enable us to take about 20 percent of our trucks off of the road as well as make us more competitive. If the Oklahoma DOT opted in, we could reduce our truck trips by over 5,000 trucks a year, reduce vehicle miles by 1.8 million miles,
So we are very much in favor of this. It is not a rail-versus-truck issue. Those are two different fact patterns. Trucks are for, in our case, under 400 miles; rail averages over 800 miles. So we simply want to make trucking more competitive.
We ship 70 percent of our exports out of the ports of Charleston and Savannah. And in 2015, the Panama Canal will be reopened and be able to handle wider ships. And both of these harbors have to be dredged to accommodate the draft of the larger ships, they have to pick up an extra 3 to 7 feet. Both are important to us, with over 2 million tons. If we cannot use these harbors, we are going to have to put product on rail and truck and ship further, either to Miami in the south or Norfolk in the north.
Harbor deepening is important to the health of the U.S. economy as well as the movement of goods. And it is important to industry who wants to export out of the United States. So we urge the panel to support the harbor dredging projects at those ports.
Mr. NADLER. Mr. Kadien, in your testimony, you advocate for dramatic increase in truck weights to 97,000 pounds. Now, we know that interstate bridges cannot withstand the stress that 97,000 pounds will cause, even with the addition of a sixth axle. These trucks will accelerate the depreciation of and further worsen the condition of our Nation’s bridges.
Your written testimony mentions a mill in Valliant, Oklahoma. I would like to recall comments made at a field hearing in 2011 by Oklahoma DOT Secretary Ridley and former Oklahoma Secretary McCaleb. They each made the point that we must proceed with caution in higher truck weights because the potential damage to bridges. To quote Secretary McCaleb, ‘‘No matter how many axles you put under that essential point, loading will increase the stress repetition and the rate of stress repetition and will reduce the life of the bridge. I am an advocate of heavier loads,’’ he said, ‘‘but you have to design for those heavier loads. You can’t just superimpose those heavier loads on a system that wasn’t designed for them.’’ According to the Federal Highway Administration, Oklahoma has 5,382 bridges that are structurally deficient. Do you dispute the fact that heavier trucks will cause accelerated damage to bridges?
Mr. KADIEN. Absolutely don’t dispute that. And that is why this is really a States rights issue. It is for the States to decide which roads and which bridges will handle the 97,000 pounds.
Mr. NADLER. I find it very difficult to accept that any of these questions are primarily States issues, given the fact the Federal Government paid 90 percent of the cost of the construction of the interstates and pays a very large proportion of the ongoing maintenance costs of the interstate. It is certainly a Federal as well as a State’s issue. So you think that the 97,000-pound truck should only be allowed on bridges specifically designed for 97,000-pound trucks?
Mr. KADIEN. Yes.
Mr. NADLER. What percent of the bridges in the United States were specifically designed for 97,000-pound trucks?
Mr. KADIEN. I don’t know the answer to that question
Mr. NADLER. It is rather small.
Mr. KADIEN. Fifteen States allow the heavyweight trucks right now.
Mr. NADLER. But the fact that a State follows a foolish policy doesn’t mean that we should. In the truck study in Vermont it was determined that a fully loaded 80,000-pound, 5-axle combination truck incurs 21.5 cents of pavement cost per mile on the interstate system and 32.9 cents per mile on other highways. A typical 99,000-pound, 6-axle vehicle requires pavement expenditures of 34.5 cents per mile of travel on the interstate system compared to 21.5 cents for 80,000 pounds, and about 53.6 cents per mile of travel on non-interstate roads.
This is 63% more per vehicle mile and 32% more per ton-mile than a fully loaded 5-axle vehicle. Do you think that the 97,000-pound truck should pay 63-percent more tax than an 80,000-pound vehicle? And if not, why not?
Mr. KADIEN. I am not familiar with the study. But, no, I don’t think so.
Ms. BROWN. Mr. Kadien, what do you mean by States rights when the Federal Government pays 90% of building and maintaining the bridge and the State put up 10 percent? [On top of that], in 2012, 6,749 bridges were rated as structurally deficient.
Mr. KADIEN. What I mean by States rights is to allow the State to decide based on the traffic and the industry in that State, and the studies of their own departments of transportation is to choose which State highways that they would allow the 97,000-pound, six- axle truck to travel on.
Ms. BROWN. So you don’t think the Federal Government should play a part in deciding?
Mr. KADIEN. I think the States are in the best position to decide which roads and bridges should or should not be part of the program.
Mr. Edmond Johnston from DuPont
DuPont operates more than 70 manufacturing facilities in the United States, and employs thousands of Americans while purchasing $550 million in transportation services each year.
I would like to address three critical freight transportation issues. First, funding for infrastructure. Much of our transportation infrastructure is old. If America’s manufacturers are to continue to move goods safely and reliably over the country’s freight infrastructure, upgrades are sorely needed.
Mr. William Roberson from Nucor Steel
Nucor Corporation is the Nation’s largest steel manufacturer and recycler, operating 23 scrap-based steel mills. Nucor has the capacity to produce more than 27 million tons of steel annually. Last year, our company recycled more than 19 million tons of scrap steel.
The freight transportation system is vitally important to Nucor’s success. We rely on water, rail, and truck transportation to move millions of tons of scrap steel and other raw materials to our steel mills and finished products to market. For this reason, disruptions in the freight transportation system can have significant negative economic impacts on our business. Waterways play a particularly important role for a number of our Nucor divisions. We have several steel mills located on rivers, and some of these mills bring in more than 90 percent of their raw materials by river. Nucor scraps steel business, the David J. Joseph Company, transports approximately 3,500 barges per year of scrap steel. When assessing our waterways system, we believe that more frequent maintenance dredging is needed to maintain adequate drafts. Unfortunately, inadequate drafts levels are becoming an all too common occurrence. For every 1 inch decrease in draft, you lose 17 tons of cargo on a barge. This forces companies like ours to use more costly alternatives.
Barges are a safe, efficient, environmentally friendly, and cost-effective way to move goods. Each barge moves 15 to 1700 tons of cargo compared to 80 to 100 tons on railcars or 20 to 22 tons on trucks. Considering the importance of our waterways system, we are encouraged to see both Houses in Congress advance the Water Resources Development Act. Nucor supports this legislation, particularly dedicating more revenue in the Harbor Maintenance Trust Fund for the purpose of maintaining our Federal navigation channels.
We hope that Congress will also strengthen revenues for the Inland Waterways Trust Fund to make necessary investments in this critical component of our U.S. supply chain by advancing the industry-supported user fee increase. Like our waterways, our roads and bridges are in serious need of investment. The Interstate Highway System, built after World War II, is aging, and we need a new, long-term commitment to invest in our roads and bridges. The gas tax is not providing adequate revenue to further this goal. We need to look for new alternatives, including more public-private partnerships. Also enacting legislation giving States the option to increase the weight of six-axle trucks operating on select Federal interstates would allow more cargo to be moved safely and efficiently over our Nation’s railways.
In recent years, the rail industry has seen significant private investment. However, these investments are often passed on to the rail industry’s customer base, resulting in higher premiums and costs for our captive shippers who are still without the ability to choose which rail carrier we use.
We cannot pass these increased costs on to our customers. We have to absorb them because we compete in a steel market that is being flooded with illegally subsidized foreign products that are often already sold below cost. While it is true that we have the ability to use less costly modes of transportation, it is not always feasible logistically.
As the National Association of Manufacturers recently noted, manufacturing produces 12 percent of America’s GDP, but the U.S. is only investing about 1.7 percent of our GDP back in infrastructure. Many of the countries we compete against are investing between 5 to 10 percent of GDP in their infrastructure. In short, others are modernizing while we are struggling to maintain a failing system that is decades old.
Bill J. Reed Vice President, Public Affairs Riceland Foods, Inc.
Mid-South farmers plant about half of the nation’s rice crop on 1.5 million acres and produce around 240 million bushels, or 10.8 billion pounds, of rough rice with the hull intact.
Our farmers also produce soybeans, and many grow com and winter wheat which are marketed by the cooperative. In total, we market annually 100 to 125 million bushels of grain.
Besides our rice business, we crush soybeans grown by our farmer-members to produce high protein soybean meal for the region’s poultry and aquaculture industries. We refine crude vegetable oils to produce a line of frying and cooking oils for foodservice and ingredient customers. Soybeans in excess of our crush capacity generally are sold down the Mississippi River and into export markets. We do not process wheat or com, but sell them to feed mills or to the export market. Transportation is a key part of what we do every day as we move to market the products and grains our farmers produce. In our most recent fiscal year, completed July 31, our transportation team accounted for moving more than nine billion pounds of products, supplies and commodities. That does not include transportation of the seed, fertilizer, equipment and other inputs required for our farmers to grow their crops.
The largest share of our freight is transported on highways. Last year we accounted for nearly 140,000 truck and intermodal shipments in the domestic market for which we pay the freight or handle the logistics. We counted 6,300 rail shipments; well over a thousand export containers and break bulk loads; and more than 200 river barge loads of products. With the nation’s focus on a fresh, safe food supply and just-in-time manufacturing and shipping, it is imperative that products move within a narrow time frame. To accomplish this economically requires a reliable and efficient transportation system.
U.S. rice is produced in three primary areas: California; the Texas and Louisiana Gulf Coast; and the Midsouth, which includes parts of Arkansas, Missouri, Mississippi, and Louisiana.
Each fall, Riceland members harvest their crops and deliver them to local grain elevators, where the crops are dried and stored until transported to processing facilities for milling and packaging. Storage facilities are scattered throughout the region, as are our processing facilities,
Riceland is the largest rice miller and marketer. The co-op also markets soybeans, corn, and winter wheat that our farmers produce. Each year we handle 100 to 125 million bushels of grain.
Our rice products are sold across the country in retail and club stores and to food service establishments and food companies. Riceland is a direct exporter, selling rice to 50 foreign destinations. In our last fiscal year, we moved more than 9 billion pounds of products, commodities, and supplies. We did this with nearly 140,000 truck and intermodal shipments, 6,300 rail shipments, more than 1,000 export containers, and more than 200 river barge loads.
With the Nation’s focus on a fresh, safe, and abundant food supply, we must have a reliable and efficient transportation system.
In 2011, Arkansas voters supported a $575 million bond program for interstate improvements. And in 2012, they approved a half cent sales tax to fund $1.8 billion in additional highway improvements. Of course, these efforts aren’t enough. It was reported in September that 156 bridges in Arkansas had been found structurally deficient. Many are in east Arkansas where our Riceland farmers grow food. Railroads focus on long hauls now, and they are certainly important to us. We ship railcar loads of rice all over the country and unit trains of wheat to Mexico. River transportation is critical to our export business.
Our New Madrid, Missouri, facility, on a good day, can receive rice from our farmers, mill the rice, and convey it directly to a barge for shipping down the Mississippi River. In 2011, however, flood waters on the Mississippi made it impossible to load barges.
In fact, water was within a foot of entering the processing facility. In 2012, and again this year, it is a whole different story. With silt naturally flowing into the harbor and displacing water, we can load less rice into each barge.
The harbor now looks more like a mud puddle than a harbor. The New Madrid harbor is not scheduled to be dredged this year. We expect low water levels in the harbor next summer to eliminate practically all of the economic benefit of using the facility for bulk barge shipments.
As corn harvest was underway in early August last year, we had thirty 18-wheelers carrying corn scheduled to unload directly into barges at the Port of Yellow Bend, Arkansas. Then we learned that silt had filled the harbor, making it unusable. The dredge was heading from upriver at Rosedale, Mississippi, down to Lake Providence, Louisiana, without stopping at Yellow Bend, Arkansas. Building temporary corn storage and forfeiting sales contracts would have cost our Riceland farmers at least $1 million. As many as 200 farm families would have been impacted, 15 port employees would have lost their jobs, and the port would lose $500,000 in revenue. Thanks to Congressman Rick Crawford and Senators John Boozman and Mark Pryor of Arkansas, the Army Corps of Engineers redirected the dredge to Yellow Bend. In just a few days, the harbor was open and those corn barges were filled.
I share these examples to illustrate the importance of keeping all segments of our transportation system, highway, railroads, and rivers operating in efficient and effective manner. The U.S. transportation system is critical to U.S. competitive advantage in moving agricultural and food products across the country and around the world. It benefits every American.
We export a fourth to a third of our rice production every year at Riceland. For the U.S. industry as a whole, about half of the crop is exported each year to about 75 countries. Rice is a staple for at least half of the world’s population. They eat it every day if they have it. We have all seen the numbers of population growth. By 2050 we may expect about 9 billion people, which are a lot of mouths to feed, and rice does that very efficiently. So we have seen a period of several years here of good prices for agricultural commodities really across the board. We certainly hope that continues. But there is always competition from other countries. Asia, for instance, had been deficit of rice. Now, many of the Asian countries are exporting rice. In fact, when I started with the co-op we were the number one exporter, we as in the U.S. were the number one exporter of rice. Today that spot would be filled by India, and followed by Vietnam and Thailand and other southeast Asian countries which have picked that up. Many of those are moving rice around the world at heavily subsidized prices, which makes it very difficult to compete. And, again, our transportation infrastructure is one thing that keeps us in the hunt for some of that business, especially the higher valued business.
We are seeing rice from Asia moving into this hemisphere, into Central America, the Caribbean, even into the United States. And that is a concern because of their lower cost of production. We are also watching South America. If those fellows had the opportunity to have the type of delivery system that we have in the U.S., American agriculture would be in trouble. Production in Brazil is just amazing. Where we have the advantage is in our transportation system. But we are going to have to continually improve to stay competitive and keep our farmers in business
Much of the transportation system was built to move products to market. In fact, our facilities were located on rail lines, and at one time the crops were actually railed to processing facilities from the grain storage facilities out in the countryside. None of that is done today because of the emphasis on the long hauls. As far as our largest concern, we have learned to cope with trucking grain from the farm to our facilities. Our farmers are responsible for doing that. It is fast, and that is important for them during harvest when they are facing weather issues. We move products in all forms. But I would say our biggest concern is those harbor situations where we just cannot load barges to move rice into the export market. That is done by barge down the Mississippi River to New Orleans and then put on the large oceangoing freighters, but we have got to get the product out of the port. In the case of our New Madrid facility, which is the only processing facility we have on a river, we have no storage for a processed product.
Mr. DUNCAN. Just out of curiosity, you know, I meet with people all the time from every business, every industry. I met, I guess last week or a couple of weeks ago, with some car dealers from Tennessee, and they said that while they are doing good business right now, it all seems to be pent-up demand, that people are driving cars now 100,000, 200,000 miles, not trading as often, and that they went for several years during the downturn without trading in a car. In other words, they are saying they don’t think the economy is as strong as current sales might indicate. And I read all these business some articles saying that things are going pretty good. You can find many that say they are not going pretty good. Our unemployment is too high. Our underemployment is much, much higher. Mr. Kadien, what about International Paper? How are you doing? What do you see in the near term for your company and the overall economy?
Mr. KADIEN. We are in several lines of businesses that are pretty good barometers of economic activity. We are the largest producer of corrugated packaging that moves goods, consumables, durables around the country, and typically runs about half of the GDP rate of the country. And right now we would say that the economic activity is pretty underwhelming, that, you know, we are looking at 0.5 to 1% growth rates across the industry, and that is really not reaching our potential. I have got a consumer packaging business, and food processors are seeing flat to no growth. We are a big supplier to restaurants. They are seeing slow traffic compared to prior years. I would say, it feels like we are moving sideways right now instead of gaining any momentum.
Edmond Johnston, III Transportation Policy Leader DuPont
The industry ships a wide range of materials from plastic pellets to commodity chemicals that are used to produce more than 96% of all manufactured goods. ACC represents the nation’s leading companies in the business of chemistry, a $770 billion industry and one of America’s most significant manufacturing industries. It is one of the largest exporting sectors in the United States, accounting for 12% of U.S. exports.
The Nation depends on the chemical industry every day for the building blocks that are necessary for safe drinking water, life-saving medications and medical devices, and a safe and plentiful food supply.
Chemical producers are the second largest customer of the nation’s freight rail system and rely on railroads to deliver chemicals efficiently and safely to where they are needed – from water treatment plants to farms and factories. Infrastructure Funding American families enjoy the necessities and luxuries of life only to the extent that goods move safely and reliably over the Nation’s transportation infrastructure.
Much of our transportation infrastructure is old and requires attention. Highways, bridges, ports, locks and dams are in need of repair, improvement or replacement. This includes dredging to maintain the use of ports and navigable waterways to keep these vital routes open for business.
For example, the Mississippi River is a critical national transportation artery, on which hundreds of millions of tons of essential commodities are shipped, such as com, wheat, oilseeds, coal, petroleum and chemicals. The historic low-water levels of the Mississippi River last year jeopardized the shipment of these essential goods threatening to disrupt manufacturing industries and power generation and put thousands of jobs at risk. This potential crisis demonstrated the important role of the U.S. Army Corps of Engineers in keeping goods flowing through our waterways.
Rob Roberson Nucor Corporation
Waterways playa particularly important role for a number of Nucor Divisions. We have several steel mills located on rivers and some of these mills bring in more than 90 percent of their raw materials by river. Nucor’s scrap steel business – The David J. Joseph Company – transports approximately 3,500 scrap barges per year. When assessing our waterways system, we believe that more frequent maintenance dredging is needed to maintain adequate drafts. Unfortunately, inadequate draft levels are becoming an all too common occurrence. For every one inch decrease in draft, you lose 17 tons of cargo On a barge. This forces companies like ours to use more costly alternatives. Barges are a safe, efficient, environmentally friendly and cost-effective way to move goods. Each barge moves 1500 to 1700 net tons of cargo, compared to 80 to 100 tons for railcars and 20 to 22 tons for trucks.
Like our waterways, our roads and bridges are in serious need of investments. The interstate highway system built after World War II is aging and we need a new, longterm commitment to invest in our roads and bridges. The gas tax is not providing adequate revenue to further this goal. We need to look for new alternatives, including more public-private partnerships. Also, enacting legislation giving states the option to increase the weight of six-axle trucks operating on select federal interstates,
With regard to our nation’s rail system, the biggest challenge that we face is that we are served by a single major railroad. Several Nucor facilities are “captive” shippers in that they pay a premium to move their products because of the lack of rail competition. In recent years, the rail industry has seen significant private investment. However, these investments are often passed onto the rail industry’s customer base, resulting in higher premiums and costs for captive shippers who are still without the ability to choose which rail carrier they use. We cannot pass these increased costs onto our customers. We have to absorb them because we compete in a steel market that is being flooded with illegally subsidized foreign products that are often already sold below cost. While it is true that we have the ability to use less costly modes of transportation, it is not always feasible logistically. Given these circumstances, we support action to address the need for more competition for rail service in many parts of the country. The creation of this special panel acknowledges that our freight infrastructure works collectively as one system. We cannot look at each in isolation. Businesses across the country rely on all modes of transportation operating together to get products to market.
Edward R. Hamberger President and Chief Executive Officer, Association of American Railroads
“Agriculture and Railroads: Maintaining a Track Record of Success.” The study, which was commissioned by the Soy Transportation Coalition, stated: U.S. freight railroads are essential to the viability and profitability of the U.S. soybean industry. Most of the leading soybean producing states even those with river access – significantly depend on the rail industry to satisfy customer demands. As more soybean production occurs in western states and as export terminals at Pacific Northwest ports increasingly position themselves to address growing demand from Asia, the dependence on rail will likely become more pronounced.
Our nation’s freight railroads do a remarkable job in meeting the needs of an extremely diverse set of shippers. On any given day, hundreds of thousands of rail cars are moving to and from thousands of origins and destinations. The vast majority of these shipments arrive on time, in good condition, with reasonable levels of service, and at rates which shippers elsewhere in the world envy. Today, America has the safest, most efficient and cost-effective freight railroad industry in the world.
Toward this end, policymakers should retain the existing balanced regulatory structure at the Surface Transportation Board (STB) that protects rail shippers against anticompetitive railroad conduct and unreasonable railroad pricing while allowing railroads to determine the most efficient routes to use and what services to offer, and to set prices that reflect the marketplace.
Of related importance in maintaining a world class freight rail system, AAR believes that policymakers should fully consider the impacts and costs of operating heavier trucks on the nation’s highways and bridges before considering any changes to those limits. Premature congressional support for trucks weighing as much as 97,000 pounds holds the potential to exacerbate damage to our roads and bridges, while diverting freight cargo away from railroads and adding to highway congestion and pollution. Most importantly, increasing truck weights without a commensurate increase in highway user fees would place railroads, which are investing record levels of private capital into their networks, at a competitive disadvantage.
AAR Perspective on the Need for Balanced Regulation
Today’s balanced regulations work extremely well- for railroads, their customers, and the country at large. After decades of decline, attributable in large measure to overregulation for much of the 20th century, enactment of the Staggers Rail Act of 1980 ushered in a new era. By passing Staggers, Congress recognized that America’s freight railroads the vast majority of which are private companies that operate on infrastructure that they own, build, maintain, and pay for themselves face intense competition for most of their traffic, but excessive regulation had prevented them from competing effectively. To survive, railroads needed a common-sense regulatory system that would allow them to act like most other businesses in terms of managing their assets and pricing their services. The Staggers Rail Act has been a tremendous success. Since it passed into law, average rail rates have fallen 42%, railroads are far safer than ever before, rail traffic volume has nearly doubled, and railroads have reinvested $525 billion in private funds, not government money growing and modernizing this country’s rail network. That’s more than 40 cents out of every rail revenue dollar. Indeed, railroads have heeded President Obama’s call for U.S. companies to “get off the sidelines and invest.” In 2012 alone, the Class I railroads invested a record $25.5 billion back into a world class rail network that keeps our economy moving. Railroads are projecting similar investment levels in 2013. As America’s economy grows, the need to move more people and goods will grow too. Recent forecasts reported by the Federal Highway Administration found that total U.S. freight shipments will rise from an estimated 17.6 billion tons in 2011 to 28.5 billion tons in 2040 a 62% increase. Railroads are getting ready today to meet this challenge. They will continue to reinvest huge amounts back into their systems, but if the United States is to have the optimal amount of rail capacity for the nation’s economy, keeping reasonable regulations must be part of the mix.
At a time when the pressure to reduce government spending on just about everything including transportation infrastructure is enormous, it would make no sense to enact public policies that discourage private investment in rail infrastructure that boost our economy and enhance our competitiveness. Punitive regulatory changes at the STB would have the effect of reducing railroad earnings and cutting return on investment, leading to disinvestment in the railroads’ networks, reduced capacity and less reliable service. In the end, these changes would cause the rail sector to either shrink or to seek government subsidies.
The huge public benefits associated with moving more freight by rail are clear. Because railroads, on average, are four times more fuel efficient than trucks, less fuel is consumed. Reduced fuel consumption means less pollution. And because a single train can carry the freight of several hundred trucks, carrying freight by rail means less congestion on the nation’s highways and fewer public dollars needed to build and maintain those highways.
Preemptive Attack on Study of Impacts and Costs of Heavier Trucks
Notwithstanding the critical importance of a world class freight rail system to its business, one witness at the hearing testified in favor of preempting a congressionally required study of the impacts and costs of operating heavier trucks on the nation’s highways and bridges. In particular, Mr. Kadien called upon the Panel to include a recommendation raising truck weights to 97,000 pounds in its upcoming report to the full House Committee on Transportation and Infrastructure.
AAR Perspective on Truck Weight Issues
The International Paper proposal would increase maximum truck weights by more than 20 percent. Doing so would likely cause far more damage to our nation’s already overburdened roads and bridges. As it is, the fuel and other taxes and fees devoted to highway construction and maintenance that heavy trucks pay fail to cover the costs of the highway damage caused by trucks. Previous studies have found that trucks only pay for about 80 percent of the damage they cause to our highways. The shortfall estimated at $2 billion or more per year has to be covered by other taxpayers. Allowing heavier trucks on our highways would make this disparity even more egregious and force taxpayers to reach even deeper into their pockets. The massive economic toll of heavier trucks would likely extend to communities and commerce as well. Roads and bridges are built to sustain existing vehicle weights, and many are crumbling even under current circumstances. One in every four U.S. bridges is already structurally deficient or functionally obsolete, according to the Federal Highway Administration. Repairing these structures would cost nearly $200 billion, without accounting for the added extensive damage brought on by even heavier trucks. The additional cost of repairing bridge damage caused by raising truck weights to 97,000 pounds could be as much as $65 billion, according to the Department of Transportation. Raising truck weights to 97,000 pounds could also result in eight million additional truckloads on U.S. highways, academic studies show. Our roads key arteries of our national infrastructure cannot weather this sort of damage.
Another aspect that should not be overlooked is the potential for increased truck weight limits to financially cripple many of the over 500 short line freight railroads across our country. These smaller, Class III freight carriers provide a critical “first – mile, lastOctober 16, 2013 Page 5 mile” connectivity between many rural (and often agriculturally focused) areas of our country and the national rail freight network. It has been well demonstrated, both in actual practice in states that have increased truck weight limits on local highways and in rigorous modal diversion studies, that heavier trucks do indeed divert shipments off of short line railroads and onto our highway network. Loss of shipments and revenues to these smaller rail operators could financially cripple them, and lead to a loss of rail services to areas dependent upon these lines. For these reasons, we believe that at this time neither the Panel on 21st Century Freight Transportation nor individual Members of Congress should endorse longer or heavier trucks.
America’s freight railroads and their 140,000-mile network serve nearly every industrial, wholesale, retail, and resource-based sector of our economy. In fact, our railroads carry just about everything. Railroads carry more coal than any other single commodity. Historically, coal has generated much more electricity than any other fuel source, and most coal is delivered to power plants by rail. But railroads also carry enormous amounts of corn, wheat, and soybeans; fertilizers, plastic resins, and a vast array of other chemicals; cement, sand, and crushed stone to build our highways; lumber and drywall to build our homes; animal feed, canned goods, corn syrup, frozen chickens, beer, and countless other food products; steel and other metal products; crude oil, liquefied gases, and many other petroleum products; newsprint, recycled paper and other paper products; autos and auto parts; iron ore for steelmaking; wind turbines, airplane fuselages, machinery and other industrial equipment; and much more. Rail intermodal- the transport of shipping containers and truck trailers on railroad flatcars has grown tremendously over the past 25 years. Today, just about everything you find on a retailer’s shelves may have traveled on an intermodal train. Increasing amounts of industrial goods are transported by intermodal trains as well. Given the volume of rail freight (close to two billion tons and 30 million carloads in a typical year) and the long distances that freight moves by rail (nearly 1,000 miles, on average), it’s hard to overstate freight railroads’ role in our economy. The rail share of freight ton-miles is about 40 percent, more than any other transportation mode. But freight rail’s contribution to our nation extends far beyond that:
Thanks to competitive rail rates 44 percent lower, on average, in 2012 than in 19801 and the lowest among major industrialized countries freight railroads save consumers billions of dollars every year, making U.S. goods more competitive here and abroad and improving our standard of living. Railroads are, on average, four times more fuel efficient than trucks. Because a single train can carry the freight of several hundred trucks enough to replace a 12-mile long convoy of trucks on the highways railroads cut highway gridlock and reduce the high costs of highway construction and maintenance.
Freight Rail as a Complement to Trucks
No one, and certainly not railroads, disputes that motor carriers are absolutely indispensable to our economy and quality of life, and will remain so long into the future. That said, because of the enormous cost involved in building new highways, as well as environmental and land use concerns, it is highly unlikely that sufficient highway capacity can be built to handle expected future growth in freight transportation demand. As it is, over the past 30 years, highway traffic volume growth has far eclipsed growth in highway lane-miles (see nearby chart), and there is little reason to think that will change in the years ahead. The United States has the world’s most highly developed highway network, built and maintained at enormous public cost over the years. According to data from the FHW A, in 2011 alone, states disbursed $94 billion just on capital outlays and maintenance for highways (Federal Highway Administration, Highway Statistics 2011, Table SF-2, Association of American Railroads Page 4). Adding in other expenses such as administration and planning, law enforcement, interest, and grants to local governments brings total disbursements for highways to $150 billion in 2011. Even this huge level of spending, however, is widely considered inadequate to meet present-day, much less future, needs.
Fortunately, freight rail in general, and intermodal rail specifically, represents a viable and socially beneficial complement to highway freight movement. Today, rail intermodal takes millions of trucks off our highways each year, and its potential to play a much larger role in the future is enormous,
First-Mile and Last-Mile Connections
One of the main reasons why the United States has the world’s most efficient total freight transportation system is the willingness and ability of firms associated with various modes to work together in ways that benefit their customers and the economy. Policymakers can help this process by implementing programs that improve “first mile” and “last mile” connections where freight is handed off from one mode to another for example, at ports from ships to railroads or from ships to trucks, or from railroads to trucks at intermodal terminals. These connections are highly vulnerable to disruptions, and improving them would lead to especially large increases in efficiency and fluidity and forge a stronger, more effective total transportation package. Railroads are gratified that the current administration and legislators in both parties and in both houses of Congress have shown a strong commitment to multi-modalism. That’s evidenced, for example, in the evaluation and selection process for TIGER grants. To date, several dozen projects that have received TIGER grant funding have been associated in one way or another with freight railroads, and many of those projects are aimed at improving transportation performance by more effectively integrating different transportation modes. Some intermodal connection infrastructure projects that are of national and regional significance in terms of freight movement could be too costly for a local government or state to fund. Consequently, federal funding awarded through a competitive discretionary grant process, like the TIGER program, has been an appropriate approach for these needs.
Railroads have played a key role in this globalization. We estimate, for example, that railroads account for approximately one-third of U.S. exports, and that approximately half of U.S. rail intermodal traffic consists of exports or imports. There’s no doubt that globalization will continue, and railroads are working hard to ensure that they can continue to play a crucial role. The expansion of the Panama Canal is a case in point. As you probably know, the Panama Canal currently has two lock chambers, the dimensions of which limit the size of container ships that can traverse the canal. So-called “Panamax” ships, the largest ships that can currently use the canal, can carry a maximum of around 4,500 containers. However, a larger third lock chamber is under construction with completion likely in 2015 that will allow much larger ships to pass through. These larger “post-Panamax” ships will be able to carry up to approximately 12,500 containers, or nearly three times the maximum number carried by existing ships that use the canal. The big unknown is where ships carrying cargo that are bound for, or coming from, the eastern part of the United States will go. Today, a significant portion of the cargo from Asia destined for the eastern part of the United States is offloaded at West Coast ports (such as Los Angeles, Long Beach, Seattle, Tacoma, Vancouver, or Prince Rupert in British Columbia), and then transported inland on trucks, railroads, or, in some cases, rivers. Going the other way, cargo headed to Asia from the eastern part of the United States often travels via rail or truck to West Coast ports, where it is loaded onto ships heading west. It is not uncommon for existing Panamax (or smaller) ships coming from Asia with cargo bound for the eastern United States, as well as ships with cargo from the eastern United States heading to Asia, to go through the Panama Canal on an “all water” route, rather than use the land bridge (via truck or rail) across the country described in the previous paragraph. Some observers believe that the huge capital costs of the newer vessels and other factors will cause these ships to remain primarily on routes to the West Coast. Many others, though, think that a post-Panamax ship is just as likely to find it cost effective to use the “all-water” route to or from the eastern United States. Of course, if an all-water route is to be used, the eastern ports must be able to handle the post-Panamax vessels, which is the rationale for the efforts by a number of ports on the East Coast, the Southeast, and the Gulf of Mexico to dredge deeper channels, install new cranes, and/or build new dock capacity to accommodate post-Panamax ships. Meanwhile, ports on the West Coast are pursuing many of these same kinds of improvements to better position themselves as the preferred destination for ocean carriers even after the canal expansion is complete. Frankly, I don’t know which ports will be the “winners” and which will be the “losers” of this competitive battle. I do know, though, that from the point of view of our nation’s rail industry as a whole, it doesn’t really matter. The fact is, whether the freight is coming into or leaving from Long Beach or Savannah or Miami or Houston or Seattle or Norfolk or any other major port, our nation’s freight railroads are in a good position now, and are working diligently to be in an even better position in the future, to offer the safe, efficient, cost-effective service that their customers at ports and elsewhere want and need.
In a June 4, 2012 interview, in response to a question about the Panama Canal expansion, the CEO of Norfolk Southern said, “We are preparing and planning so that if the traffic comes in from the East and needs to move inland, we’ll be there to handle it. If the traffic comes in from the West and comes to a western gateway with one of the western carriers, we’ll be ready to handle it. He was speaking on behalf of his railroad, but his statement applies equally well to the rail industry as a whole
From 2008 to 2012, Class I railroads purchased 2,669 new state-of-the-art U.S. Freight Railroad Spending
locomotives and rebuilt another 845 locomotives to improve their capabilities. Over the same time period, railroads installed nearly 77 million new crossties, installed 2.9 million tons of new rail, and placed nearly 61 million cubic yards of ballast.
If the United States is to have the socially optimal amount of rail capacity, sound public policy is needed. First, policymakers should keep the current system of balanced rail regulation in place. The global superiority of U.S. freight railroads is a direct result of a regulatory system, embodied in the Staggers Rail Act of 1980, that relies on market-based competition to establish most rail rate and service standards. The Staggers Act did not eliminate government oversight. Government regulators today still can take action, including setting maximum-allowable rail rates. However, Staggers allowed railroads to act more like other businesses in terms of deciding for themselves how to utilize their assets and price their services. This balanced regulation has allowed railroads to improve their financial performance from anemic levels prior to Staggers to higher levels today, which in turn has allowed them to plow back hundreds of billions of dollars into improving the performance of their infrastructure and equipment to the immense benefit of their customers and our nation at large. Unfortunately, some special interests are calling for a return to the days of unbalanced and unreasonable regulation that would force railroads to artificially cut their rates to below market levels to certain favored shippers. A few shippers might benefit, but at the expense of all other shippers, rail employees, and the public at large.
Trucks, airlines, and barges operate over highways, airways, and waterways that the government largely pays for.
By contrast, America’s freight railroads pay nearly all of the costs of their tracks, bridges, and tunnels themselves.
To keep their networks in top condition and to build the new capacity that America will need in the years ahead, railroads must be able to earn enough to pay for it. Artificially cutting rail earnings would severely harm railroads’ ability to do this. It would mean less new rail capacity and less reliable rail service, negatively affecting the entire U.S. logistics chain. At a time when the pressure to reduce government spending on just about everything including transportation infrastructure is enormous, it makes no sense to enact public policies that would discourage private investments in rail infrastructure that would boost our economy and enhance our competitiveness. Second, where there is voluntary agreement between public and private sector stakeholders, policymakers should encourage and facilitate public-private partnerships for freight railroad infrastructure improvement projects where the fundamental purpose of the project is to provide public benefits or meet public needs. Public-private partnerships arrangements under which private freight railroads and government entities both contribute resources to a project offer a mutually beneficial way to solve critical transportation problems. When more people and freight move by rail, the public benefits tremendously through lower shipping costs, reduced highway gridlock, enhanced mobility, lower fuel consumption, lower greenhouse gas emissions, and improved safety. Such voluntary partnerships allow governments to expand the use of rail, paying only for the public benefits of a project. Meanwhile, host freight railroads pay for the benefits they receive. It’s a win-win for all involved. Many members of this panel recently saw firsthand one of the nation’s pre-eminent railroad public-private partnerships: the Alameda Corridor. That project combined public and private financing and ultimately facilitated enormous port growth and efficient rail operations while reducing the effects of freight movements on local communities and delivering significant environmental benefits. Without a partnership, many projects that promise substantial public benefits (such as reduced highway congestion by taking trucks off highways, or increased rail capacity for use by passenger trains) in addition to private benefits (such as enabling faster freight trains) are likely to be delayed or never started at all because neither side can justify the full investment needed to complete them. The benefits from these projects therefore remain essentially trapped until cooperation makes them feasible. With public-private partnerships, the public entity devotes public dollars to a project equivalent to the public benefits that will accrue. Private railroads contribute resources commensurate with the private gains expected to accrue. As a result, the universe of projects that can be undertaken to the benefit of all parties is significantly expanded.
Rail expansion projects often face vocal opposition from members of affected local communities or even larger, more sophisticated special interest groups from around the country. In many cases, railroads face a classic “not-in-my-backyard” problem, even for projects for which the benefits to a locality or region far outweigh the drawbacks. In the face of local opposition, railroads try to work with the local community to find a mutually satisfactory arrangement, and these efforts are usually successful. When agreement is not reached, however, projects can face lawsuits, seemingly interminable delays and sharply higher costs. A number of major rail intermodal terminal projects that yield tremendous gains for the overall logistical system, for example, have been and continue to be unduly delayed. Just one of the many examples involves an intermodal terminal BNSF Railway has been trying to build for years near the ports of Long Beach and Los Angeles. This facility would eliminate millions of truck miles annually from local freeways in Southern California, while utilizing state-of-the-art environmentally friendly technology such as all-electric cranes, ultra-low emissions switching locomotives, and low-emission yard equipment. It would be one of the “greenest” such facilities in the world, but the project continues to face court actions and other protests.
Most recently, the 11th Congress rejected proposals to increase maximum allowable truck weights to 97,000 pounds. Instead, MAP-21 directed the U.S. Department of Transportation to conduct a comprehensive two-year study to examine the impacts of trucks exceeding current federal size and weight limits. We urge policymakers to defer consideration of any truck size and weight legislation until the congressionally mandated study is completed.
Freight Transportation Modes Should Pay Their Own Way
The truck size and weight issue is related to a broader point: as a general rule, the various freight transportation modes should pay their own way. The traditional connection in which users of freight infrastructure pay for that infrastructure should not be broken.
America’s freight railroads pay virtually all of the costs of their tracks, bridges, and tunnels themselves.
Trucks pay only about 80% of the cost of the damage they cause to taxpayer-funded roads and bridges, while trucks weighing 80,000 to 100,000 pounds pay for only around half of the damage they cause. This huge underpayment, which totals several billion dollars per year, means that repairing much of the highway and bridge damage caused by heavy trucks is paid for by the general public, not by the trucking companies themselves.
As the Government Accountability Office (GAO) has pointed out, the existence of underpayments “distorts the competitive environment by making it appear that heavier trucks are a less expensive shipping method than they actually are and puts other modes, such as rail and maritime, at a disadvantage.” (U.S. Government Accountability Office, “Freight Transportation: National Policy and Strategies Can Help Improve Freight Mobility,” GAO-08-287, January 2008, p. 16.)
Moreover, under current projections, revenues to the Highway Trust Fund (HTF) will continue to decline relative to projected needs. Funding shortfalls in the HTF in recent years have caused the federal government to transfer some $55 billion in general fund revenues to meet contract obligations and authorized funding levels. Absent the addition of new revenue streams, general fund transfers are expected to be required in the future as well perhaps as high as $15 billion annually. These transfers directly benefit the railroad industry’s major competitor, which is trucking. Combined with the existing huge truck underpayments noted earlier, these transfers are an enormous competitive hurdle that railroads must overcome and they artificially distort the freight transportation marketplace.
Proponents of lifting the existing freeze on truck sizes and weights sometimes claim that they support higher taxes to pay for the additional damage heavier trucks would cause. However, the additional taxes these proponents are willing to pay are vastly lower than what is needed to make up for the huge underpayments.
The term “positive train control” (PTC) describes technologies designed to automatically stop or slow a train before certain accidents caused by human error occur. The Rail Safety Improvement Act of2008 (RSIA) requires passenger railroads and U.S. Class I freight railroads to install PTC by the end of2015 on main lines used to transport passengers or toxic inhalation materials (TIH). Specifically, PTC as mandated by Congress must be designed to prevent train-to-train collisions; derailments caused by excessive speed; unauthorized incursions by trains onto sections of track where maintenance activities are taking place; and the movement of a train through a track switch left in the wrong position. Positive train control is an unprecedented technological challenge.
A properly functioning, fully interoperable PTC system must be able to determine the precise location, direction, and speed of trains; warn train operators of potential problems; and take immediate action if the operator does not respond to the warning provided by the PTC system. For example, if a train operator fails to begin stopping a train before a stop signal or slowing down for a speed-restricted area, the PTC system would apply the brakes automatically before the train passed the stop signal or entered the speed-restricted area.
Such a system requires highly complex technologies able to analyze and incorporate the huge number of variables that affect train operations. A simple example: the length of time it takes to stop a train depends on train speed, terrain, the weight and length of the train, the number and distribution of locomotives and loaded and empty freight cars on the train, and other factors. A PTC system must be able to take all of these factors into account automatically, reliably, and accurately to safely stop the train.
Freight railroads have enlisted massive resources to meet the PTC mandate. They’ve retained more than 2,200 additional signal system personnel to implement PTC, and to date have collectively spent approximately $3 billion of their own funds on PTC development and deployment. Class 1 freight railroads expect to spend an additional $5 billion before development and installation is complete. Currently, the estimated total cost to freight railroads for PTC development and deployment is around $8 billion, with hundreds of millions of additional dollars needed each year after that to maintain the system.
Despite railroads’ best efforts, due to PTC’s complexity and the enormity of the implementation task and the fact that much of the technology PTC requires simply did not exist when the PTC mandate was passed and has been required to be developed from scratch much technological work remains to be done.
Railroads also face non-technological barriers to timely PTC implementation. For example, railroads are involved in discussions with the Federal Communications Commission regarding ways to streamline the currently unworkable process by which thousands of PTe antenna structures must obtain regulatory approval prior to installation. Unless that process changes, the timeline for ultimate deployment of PTC will be delayed significantly. Moreover, current FRA regulations pertaining to PTe implementation impose operational restrictions so severe that the fluidity of the rail network would be drastically impaired. It is important to resolve these issues, and the AAR appreciates that the FRA is considering them in a current rule making proceeding.
In addition to the challenges presented by both the FCC and FRA issues, the key unresolved question is, does the system work. Railroads need adequate time to ensure that this is the case. In that regard, the current PTC implementation deadline mandated by the RSIA should be extended by at least three years from December 31,2015, to December 31,2018. Given the unprecedented nature ofPTC and the uncertainties both known and unknown flexibility beyond December of 20 18 should also be addressed, with the authority for that flexibility residing with the Secretary of the Department of Transportation. Additionally, we believe that, in order to ensure that railroads can operate safely and efficiently with the PTC system, the imposition of PTC-related operational requirements and associated penalties should be deferred until all PTC systems are fully integrated and testing has been completed.
America today is connected by the most efficient, affordable, and environmentally responsible freight rail system in the world. Whenever Americans grow something, eat something, export something, import something, make something, turn on a light, or get dressed, it’s likely that freight railroads were involved somewhere along the line. Looking ahead, America cannot prosper in an increasingly competitive global marketplace, and freight logistics will suffer accordingly, if we do not maintain our best-in-the-world freight rail system.