Posted: Thursday, March 03, 2011 1:00 PM
Economist: Limited profits may derail capacity investment
A Washington State University economist says the number of railcars shipping agricultural products may shrink if the companies that own them can't get a better return on their investments.
Ken Casavant, also director of WSU's Freight Policy Transportation Institute, released Feb. 24 a study jointly authored with Thomas Corsi, Smith School professor of logistics. The North America Freight Car Association provided financial support.
The study, "Economic and Environmental Benefits of Private Railcars in North America," says privately owned freight rail cars are in jeopardy. Under existing railroad rates, private railcar owners don't receive a high enough rate of return to ensure they will continue to invest.
"If they don't, they're going to stop providing new service," Casavant said. "They're going to go other places with their monies. When that happens, the cars agriculture and other industries rely on may not be available."
In the last 10 years, railroads have been reluctant to put money into new investments, Casavant said.
Bulk agriculture movement is still the dominant traffic for railroads throughout the Pacific Northwest and United States, Casavant said.
Without investment from private companies, capacity becomes an issue, Casavant said. Shippers may have to start owning railcars, but that shifts the cost from the railroad to the shipper.
Railroads receive a good rate of return, Casavant said. That should entice them into making an investment in rolling stock, but if shippers and private car industries step up, there is little incentive for railroads to do so.
"As a result, a lot of the costs of purchase, investment and maintenance of those cars are borne by the shipper," Casavant said.
Casavant called for a re-examination of the interchange rules under which railroads and private car owners operate. Deregulation in the 1980s was designed to create competition among railroads, forcing them to moderate rates and provide services.
"There isn't much competition left between railroads any more," Casavant said. "You have to wonder whether shippers are going to get the service at a reasonable rate from the railroads under existing, weakened regulatory standards."
Right now, rates are negotiated with railroads in a "power position," Casavant said. If that changes and there is more representation for private car owners and small railroads, agriculture shippers would be better served, he said.
Washington Grain Commission Vice President Glen Squires said the study doesn't focus on most railcars used to haul grain. The grain hopper fleet and Washington state-owned grain cars are different, he said.
The grain industry could be affected because rail is used to transport chemicals and inputs, Squires said.
Casavant expects the industry and political decision-makers to respond to the study, carrying the issue to a congressional level.
"Transportation is the lifeline between the consumer's table and the farmer's fields," he said. "When something goes wrong, the farmer gets lower prices and the consumer loses alternatives and options. This is one of those issues that may affect the overall balance."