Solution needed: Rail congestion is stifling economic growth

By Former Rep. Nick Rahall (D-WV)

 

Accelerating economic growth across the United States is dependent on the ability of our rail system to meet both current and future shipping demands. As our nation’s economy has grown in recent years, our rail system must strive to keep pace.

Today’s rail system is choked by congestion and delays at critical junctures. Take Chicago, for example, where shipments face enormous and costly delays. While it takes about 48 hours for a train to travel from Los Angeles to Chicago, once that train arrives in Chicago, it takes roughly 30 hours just for it to cross the city. And according to a report by the Illinois Section of the American Society of Civil Engineers, rail freight volume in Chicago is expected to double by 2025.

In my home state of West Virginia, I have seen firsthand the impact rail delays have on our ability to engage both in interstate commerce and international trade. Shippers in our state rely on the freight rail system to transport coal and other natural resources across state lines to ports and industries up and down the East Coast. The new Norfolk Southern (NS) Pritchard Intermodal facility in Wayne County, funded by TIGER grants, NS, and the state, is an excellent start to addressing infrastructure needs. This project must continue and receive full support from all stakeholders.

Adding additional rail infrastructure to meet such demand will be difficult for a host of reasons, not the least of which are limitations on space and NIMBY concerns, so the system is in a vulnerable position. Try as we might, we cannot build our way out of this problem as quickly as we need to.

Shippers across the country pay the price for the current impasse. They are often unable to get their products to markets on time under normal conditions, much less when operating in conditions of extreme weather, such as during the winter of 2013/2014, or during major shifts in freight volume. With major rail hubs up and down the Midwest and Northeast facing unmanageable congestion daily, it has become increasingly clear that North American rail is in need of a quicker and more efficient solution.

In order to ensure our rail system can manage the increasing volume of traffic without sacrificing efficiency, the rail industry, to its credit, is looking for alternative solutions. Canadian Pacific (CP), in its proposed merger with NS, says it is trying to unwind current congestion issues and add capacity through improved efficiency. CP argues that its merger with NS would create an end-to-end, single-line solution that better utilizes North American rail lines, increases velocity, offers improved service for shippers, and positions the railroad industry to better support increasing freight volumes. The two carriers’ rail lines do not cover the same geography, so there would be no diminishment of options for shippers.

The proposed merger has critics, of course. NS has said CP’s multiple offers have been too low, and that the merger will trigger more in the industry. On Capitol Hill, some have raised questions about the interim structure of the proposed deal, known as the “voting trust.” A voting trust is put in place in order to allow the companies involved to move forward on a transaction, while preserving the companies as separate and independent during the lengthy regulatory review process. If the deal is not ultimately approved, the voting trust allows the transaction to be unwound without harm to either party. Voting trusts help ensure that the regulatory review process does not discourage or prevent transactions that could provide important public benefits.

Since the passage of the Staggers Rail Act in 1980 – in which I was an active participant on behalf of captive coal shippers – the STB has allowed the parties to use a voting trust in 144 transactions, and disallowed a voting trust in none. Voting trusts have long served as an effective tool for protecting competition and the public interest during periods of regulatory review specific to rail, and other regulated industries. A preliminary question for the STB is on the voting trust for this transaction, which would place CP in voting trust and enable its CEO to resign from CP and become NS's CEO during the regulatory review period. CP's CEO has an enviable record of making railroads run better, which is what he would plan to do at NS while waiting for the STB to decide on the merger.

In the end, this all comes down to doing what is right for the future of North American rail. What solution is best for America’s growing economy? If you ask me, we should give all proposals that can deliver badly needed capacity serious consideration if our rail system is to meet future demand and accelerate the growth of our economy.