Sunday, April 22, 2007

Pricing Amtrak for host railroads - a market-based approach

The Illinois Rail Industry Committee had a hearing Friday morning. Chairman Elaine Nekritz convened three panels, including the Chairman of the Amtrak Board of Directors, David Laney. The last one was the shortest, unfortunately, but could have been the most interesting, as representatives of the Union Pacific and Canadian National were there to testify and discuss on-time performance on the expansion of Amtrak service. (BNSF has a schedule conflict).

Amtrak -- or intercity passenger rail in the United States outside of the Northeast Corridor -- has a tricky policy problem: privately financed and operated infrastructure for publicly-financed passenger service. No other mode of travel is like that. Air travel is the opposite: privately-financed service providers (if you ignore the post-9-11 bailout) with publicly-financed infrastructure (airports and air traffic control are financed largely by taxpayers). Cars and buses are privately-financed service providers (the car that you own, or Greyhound) using publicly-financed infrastructure (the roads and highways are financed by taxpayers).

The status quo policy for Amtrak service is for the government to require the host railroads essentially subsidize Amtrak's operations by not charging them much at all to use their tracks. Amtrak charges the "incremental cost" of using the tracks, which is another way of saying they don't charge much at all. It gets complicated, because Amtrak's appropriation helps to subsidize the freight railroads' pension obligations. However, Amtrak pays the freights much less than UPS or a coal train does for a time slot on their tracks. So, naturally, the freights are not that excited about Amtrak as a customer. They would rather have customers who pay them more.

So in the big scheme of things, when one of the host railroads is trying to figure out how to keep their trains moving, if it comes down to an Amtrak train that is paying next to nothing or a coal train that is paying top dollar, most freight railroads are going to keep the coal train moving before the Amtrak train. There's a federal regulation that requires the railroads to grant a "preference" over their other customers, but a top-down regulation that isn't ever enforced isn't likely to change the fundamental dynamics at play. Publicly traded corporations are in business to make money, and they are likely to ignore the "preference" as long as they can to serve their customers who pay them well. If they don't, their shareholders (like Warren Buffet, it turns out), get unhappy.

Amtrak needs to have faster, more reliable, more frequent service for the nation to confront our addiction to oil and address climate change. The best way to do that, it seems to me, is to line up the incentives of the host railroads with the incentives of Amtrak to build ridership and try to break our addiction to oil a little bit. Now the incentives are at cross-purposes. If we try to double frequency on Amtrak, the freight railroads will lost a valuable slot and thus lose money. If we try to get Amtrak service to speed up to shave an hour off each trip of 500 miles or so (easily doable with current equipment, by the way), the freights will have more more work and more hassle without any real incentive.

The freight railroads should be making money off of moving Amtrak trains -- as much money as they do with moving coal trains or trains full of merchandise. The faster they can move those Amtrak trains through their network, and the more reliable their on-time performance, the more money they should make.


Blogger Benjamin said...

So, how much more would Amtrak have to pay to UP or NS to get preferential treatment? Would that extra cost be prohibitive for expanding passenger rail service. If not, then I say go for it; if so, then I guess we'd just have to force the freight lines to put up with it with more "top-down" regulations if we want to mske any progress.

9:54 AM  
Blogger Christopher Parker said...

I would love to see a study balancing the costs of late trains with the costs of paying more for track. My hunch is that it makes financial sense to pay more to the freight railroads. The obvious costs are hotels and busses for passengers who have missed their connections, but it's much bigger than that. More staff time (on overtime, of course) and the disruption to staff schedules. The lost business and lower prices necessary for poorer service. And the biggest of all is the poorer equipment utilization because you can't depend on reliable equipment turns and have to station extra trainsets (ie, the Capital Limited in Washington DC).

Gene Skorowposki seems to have concluded the same thing - the California Corridor pays UP three times the regular rate.

3:19 PM  
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