Norfolk Southern to the Rescue on I-81?

A Virginia Department of Transportation study counted 4.4 million trucks traveling through the Shenandoah Valley each year. In 2004, Norfolk Southern estimated that an expenditure of $875 million could take 500,000 trucks off Interstate 81 each year, but it can’t justify making the entire investment itself. “The capital investment will be greater than the benefits we would receive from it,” said railroad spokesman Robin Chapman. “We could not justify that spending on our own.”

Now, according to the Associated Press, the Virginia Department of Rail and Public Transportation is working with Norfolk Southern to examine the feasibility of state involvement in upgrading Norfolk Southern’s track. The study will look at rail improvements not just in Virginia but in an arc from Harrisburg, Pa., to Knoxville, Tenn.

Makes sense — certainly a lot more sense than the multi-billion dollar boondoggles proposed for upgrading I-81. If rail is the more cost-effective alternative, we need to consider it. On the other hand, if Norfolk Southern can’t justify investing in its own railroad track, I question whether the Commonwealth is justified subsidizing the project any more than any other transportation project.

Update: Be sure to read the informative commentary by “Anon 10:50” in the comments section, outlining the analysis of Norfolk Southern CEO Wick Moorman. Intermodal traffic is increasingly profitable for the railroad company but there are special challenges serving the I-81 corridor in Virginia.


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15 responses to “Norfolk Southern to the Rescue on I-81?”

  1. Anonymous Avatar

    All NS is saying is that the benefits to its company don’t justify the expense. Don’t confuse NS’ cost-benefit analysis of its internal benefits with the larger external benefits that may accrue to the motoring public on I-81. If indeed those can be quantified (and I’d bet any economist could do so), and the benefit on a dollar-for-dollar basis exceeds those of other projects, then I’d say it’s a good, innovative solution.

  2. Gold_h2o Avatar

    “We could not justify that spending on our own.”

    How much would NS be willing to pony up…..25%, 50%? They should know the answer to that already…..why the secrecy?

  3. Toomanytaxes Avatar
    Toomanytaxes

    Gold-H20 – I agree. At a minimum, the entire matter, including the financial data, should be made public. Interested members of the public, including NS’ competitors, should be permitted to provide their input to the State. This is another type of decision that should not be made in the usual process.

  4. Ray Hyde Avatar

    Anonymous is right.

    And it is the same problem with the toll roads. The benefit to the investors may not be enough to justify the expense, but even if it is, there is no reason that the other beneficiaries should gain at no cost.

    We have drivers who don’t use Metro paying for it, because of supposed benefits in terms of either less congestion or slower increase of congestion depending on who you believe.

    The only difference with the NS situation is that NS is a private company and Metro isn’t.

    Here is my problem, trucks are what 20-25% of traffic? So maybe you have 20 million vehicles on i-81 and you take out a half million trucks. Would anyone even notice the difference?

    Whether Norolk southern can justify it on their own nickle makes no difference and the state doesn’t need to know anything about NS books. All they have to do is decide what it is worth to get 500k trucks off their roads, and make NS an offer.

    Even if NS blindsided them completely, and the project would have paid anyway, the state still gets what it paid for. They may have paid more than they had to, but they didn’t pay more than the benefit was worth. It is still a deal. They can offer less, if they think they can get away with it.

    If NS doesn’t accept, then the state has to reconsider whether a higher offer is justified, especially considering they will eventually be faced with a multimillion dollar boondoggle anyway.

  5. Larry Gross Avatar
    Larry Gross

    If one presumes that highways are already subsidized for the trucking industry – then some might tend to believe that equal subsidies of rail would be justified in trying to “balance” the trucking load between rail and road.

    Of course then.. we’d actually have to have some idea of those subsidies at least more than some vague notion.

    But of course as the Spy guys say: “they’d have to kill you if they told you” because their competitors might find out.

    This is what has happened with PPTA and with NS I believe.

    I don’t doubt that any private concern negotiating with the state over a public private venture has legitimate concerns … but so does the State especially with regard to the public’s interest.

    And I certainly don’t think the answer is MORE subsidies to “balance” the equation because essentially what is being advocated is for taxpayers to directly fund these enterprises.

    You don’t want this at all.

    You want those companies to COMPETE – to use the essence of capitalisim to be, in fact, productive and cost-effective operations… and not coming back to tax payers in the future for more and more dollars.

    But the way the PPTA law is written in VA almost invites abuse… because it allows what are essentially “secret deals”

    When you have private concerns in other states NOT requiring public money for PPTA ventures.. and we have the same guys in Virginia asking for public money to go forward… we’ve got some major issues.. I think.

  6. Ray Hyde Avatar

    It doesn’t matter where the money goes, it only matters that the state gets value for what it spends.

    We can sit here and wait for NS to take 500k trucks off the road for us, in which case it costs us nothing. Or we can say to them, look, it’s worth a million a year to keep 500k trucks of out highways. Show us your plan to do that. Maybe they think it is chump change, maybe its enough to make a difference.

  7. Gold_h2o Avatar

    The article stated that the Fed’s chipped in $125.4 million for another project (Heartland Corridor) and the state provided another $22.3 million for a project that totaled $251 million…..does this mean Norfolk Southern paid for the rest….$103.3 million?

    I would assume that this project will be funded mostly by federal dollars…..don’t most rail subsides come from the federal level?

    If you are interested, here is a link to the route being discussed;

    http://maps.google.com/maps?hl=en&safe=off&sa=N&resnum=0&q=knoxville%2C%20tn&tab=wl

    I like the idea – maximizing rail resources in order to remove trucks from the road. I guess the ultimate question becomes, how much does 500K trucks “cost” the commonwealth each year. That would be a good starting point to see if the project has any real value to The Commonwealth

    Anyone know the answer?

  8. Larry Gross Avatar
    Larry Gross

    I’m pretty skeptical.

    I think NS needs to demonstrate that they are at a competitive disadvantage to start with – exactly the how and why.

    Second, if the government itself is responsible for the competitive disadvantage then the first priority would be to identify the how and why the government favors road over rail.

    If it is found that the trucking industry actually benefits from expenditures of tax dollars then the preferred remedy is NOT to extend those same financial subsidies to rails but to get them out of the equation entirely.

    The last thing in the world we want is taxpayers funding private enterprises on the generalized premise that it is “beneficial” in some sort of nebulous un-quantifiable way.

    I think this is headed in the wrong direction. When individuals and businesses receive monies from taxes – we are killing competition and more importantly the benefits of competition with respect to productivity and cost-effectiveness.

    This is what is going on right now with roads and settlement patterns. Taxpayer dollars are being used to incentivize wasteful behaviors – and the solution being advocated is to .. increase the use of tax dollars to further support such behaviors.

    It’s a giant ponzi scheme just like VDOT was operating for years and years. The only path is to keep raising taxes to feed an appetite never satiated.

    Bad Karma.

  9. Anonymous Avatar

    There is exactly zero qualitative difference between the state paying NS to take trucks off the road, and paying a farmer not to develop his property. Which one is a subsidy and which one is an investment in managing congestion and sprawl?

    The question is — which one is more cost-effective? I don’t care if the dollars go to private interests, Kim Jong Il, Fidel Castro or the US Chamber, so long as the dollars spent return the benefit that was promised.

  10. Jim Wamsley Avatar
    Jim Wamsley

    The proposal is for a public private partnership where NS pays a fee or toll for each unit hauled.

    The comparison should be with the Star Solution proposal to toll I-81 after they used citizen money to build the extra lanes.

  11. Ray Hyde Avatar

    “There is exactly zero qualitative difference between the state paying NS to take trucks off the road, and paying a farmer not to develop his property. …
    The question is — which one is more cost-effective? “

    Thank you anonymous, I think you are correct. And I agree, I don’t care where the dollars go if they provide the benefits promised.

    I don’t understand your comment about subsidy or investment. I think whether a particualar project is a subsidy or incentive depends on whether you are opposed or in favor. I’d say a subsidy (without its usual pejorative meaning) is an ongoing payment. An investment is a one-time or ongoing capital investment, usually made with the assumption that it is equivalent to some other series of payments. Provided that the two are equivalent, I don’t see any difference.

    The only issue is whether what you are buying will happen anyway, in which case the government need not be involved.

    If it won’t happen anyway, then the next question is can it happen with some help? And the last question is, should the government take over this task because it is necessary and no one else will do it?

    NS has said they cannot afford the investment based solely on the returns available, and farmers have said they cannot farm based solely on the returns available. But, both of those things might happen with some help, and the economics on both may change some day.

    But it is an interesting choice of examples which illustrates what we want, what we are buying, what the benefits are, who we are paying, and who is doing the paying.

    What do we want?

    In the NS case what we want is to get trucks off the road. In the farmer case, it isn’t so clear. Do we want to keep the farmer farming, or is it just that we don’t want developers developing?

    If that’s the case we could pay the farmer not to farm, and that might be cheaper than paying him TO farm. Or we could buy (or rent) his development rights, and leave the decision to farm or not up to him.

    The truckers have a role in this too. They are truckers so they would rather drive than ship, but they are also businessmen so if shipping is cheaper and faster, they will. We could choose to make a direct payment to truckers who agree to ship, and raise the payment until we get the benefit we want. Let them duke it out with NS. NS will know they don’t get the shipping if the price is too high.

    What are we buying?

    We are buying cost avoidance. Think of it as renting capacity in order to avoid the costs of providing and serving that capacity ourselves. In the NS case we are buying capacity from NS and giving it to the truckers for free. This helps overcome their inclination to drive by changing the price point at which it is effective to ship. It makes it possible for NS to provide a service they otherwise cannot afford, at least right now.

    In the farmers case we can buy product from the wholesalers and give it away to foreign countries as aid. Or we can pay farmers price supports. They sell to the wholesalers as usual, but they get an additional payment from the government to help cover their costs. This means that they produce more than they would otherwise (same as NS) and the price the wholesalers pay is lower. Presumably this shows up as low food costs. Or, we can pay for development rights to keep the land off the market, and not get mixed up in the produce business.

    What’s the Benefit?

    In the NS case the benefit is that we avoid spending money to maintain the highways for a half million trucks, or we postpose the cost of building the new highway equivalent of capacity for a half million trucks, or both.

    Or do we? We still have I-81, and we still maintain it. The real benefit is that we buy space on the highway from NS and pay the truckers to use the new NS space. Then we give away the highway space we saved to other drivers and truckers.

    Look at the analogy, we buy highway space from Metro and we pay riders to use that instead of the highway, and then we give away the space we saved on the highway for free.

    Either way, the benefit is the extra capacity,and the cost is that of the alternative capacity. For the NS case it is extra capacity equal towhat would have been used by 500,000 trucks, and the cost is the cost of double stacking facilities for NS and the operating subsidy that enables them to entice truckers to come on board.

    For Metro it is the urban road capacity that would have been used by 800,000 passengers, and the cost is the price of Metro, plus the operating subsidy that allows them to entice people out of their cars. Notice that it takes less to entice people today, than when Metro was built.

    With the farmers, you can have your choice or a mix. Food supplies for foreign aid and school lunches, lower food prices in the stores (maybe), or the cost avoidance and other benefits that comes from avoiding sprawl.

    Lets forget the first two, because farmers who are subject to sprawl are probably not helped much by crop subsidies. We are not going to starve anytime soon, but we will incur the costs of sprawl.

    So, from near-urban farmers, what we want is open space, less congestion, better environment and the cost avoidance from providing additional services. We could care less about the crops or the farmers themselves.

    What we are buying is, pretty much nothing. A few PDR’s and some tax credits for conservation easements. For the most part, we have just commanded them not to sprawl, zoned them out.

    We could do the same with the truckers: zone them off the highways, and offer them nothing. Customers who wanted the trucker’s services would have to do with lesser and more costly service from the trains, and many truckers would be flipping burgers, or hauling only local freight.

    We would still have the benefit of the increased highway capacity formerly used by trucks, and we wouldn’t have to pay NS: the shipping customers would have to do that. The cost would be whatever the new freight charges are, plus the losses to the trucking business.

    In the case of farmers, their sprawl customers, like the trucking customers, settle for lesser and more expensive accomodations. The cost shifts to those who are searching for homes and the benefits go to those that have or can supply homes: SURPRISE, home builders.

    So, the benefits are more open space, a quality of life that comes with pleasant vistas, less congestion, higher home values (offset by higher home costs and rents), and some putative savings from not supplying new/more infrastructure and government services.

    And we got all this free, no cost, right?

    Not really. All those sprawl customers are still somewhere, attending schools, driving around, getting arrested. We know they will wind up someplace at higher cost, and wherever they land will have to provide the services that we didn’t (or refused to) provide at sprawlville farms. The sprawl customers and their new neighbors pay the cost. (Hear that TMT?)

    Lets go back to the NS example. You can pay NS to make it cost effective to haul trucks and trucks to be hauled. The money comes from everyone, and you get additonal highway capacity that anyone can use. No one is coercerced. Trucks can still drive. Shippers can still ship, trains can still haul. Whatever we pay NS is what the added capacity costs.

    OR, you ban the trucks. NS can charge at will, truckers are out of work, shippers have fewer options and higher prices. The benefits are that everyone still gets to use the new capacity, except the truckers, and NS gets higher profits. The costs are the truckers losses and higher shipping costs, which get passed on to us all.

    Either way, you eventually still have to build additional capacity.

    The truckers, meanwhile, are sucking wind. They still have their trucks and they can use them for anything they want, as long as they don’t haul freight. They have no income stream, and the only way they can sell the truck is if they can find someone who wants to use it as a private vehicle.

    It’s the same situation for farmers. They have their farm and they can use it for anything they want, as long as it is farming and not sprawling. They have no income stream and the only way they can sell is to someone who can afford something extravagant and frivolous, like drivng a tractor trailer as a private vehicle.

    Everyone gets the environmental and visual benefits from the unused capacity in land. Builders and homeowners get the benefit from higher prices, and the costs get transferred to those in search of housing, initially, and back to us all eventually. We still have to provide the infrastructure and services, but (we) don’t have to pay for it because it will happen someplace else.

    What’s the cost/benefit? Everyone gets the better lifestyle, homeowners and builders get higher profits. The cost is incurred by farmers, and it is the difference in value between farm land and developed land. That difference is exaggerated by the artificial shortage, just as NS profits are exaggerated by the truck shortage.

    Either way it is still a lot of money cost concentrated on a small population.

    And there is one critical difference. Those that have to ship goods pay a high price to NS, but they pass the cost through to their customers. Farmers have no such pass through, they get to eat the entire cost.

    The only legitimate way to get the benefits we want in preventing sprawl is to buy or rent the land. If we buy it, we will then have to turn around and hire people to manage it. We can’t afford to maintain our parks as it is, so renting is probably the best option.

    It is equivalent to paying the truckers to ship by rail. They are still in business, rail gets more buisiness, every body pays a little and everybody gets more road and everybody is happy. You can easily adjust the results by adjusting the payments.

    Farmers don’t need to make a fortune, but they cannot take losses forever.

    I don’t like the idea of taxpayers funding private enterprises on the general theory that we will get some sort of nebuous generalized benefit, either. At least you pay for what you get.

    And it sure beats the practice of stealing nebulous generalized benefits when we can calculate the costs to the victims exactly.

  12. Anonymous Avatar

    Norfolk Southern President, Chairman, and CEO Charles “Wick” Moorman made a major address on October 19 at Hotel Roanoke, which he characterized as a “coming out party” for the railroad’s I-81 strategy.

    Intermodal is the fastest growing sector of NS’s business, he said, and set out four key reasons behind that statement

    First, he said, are rising oil prices, which constitute a competitive advantage for rail. Next comes a chronic shortage of long-distance truck drivers. He cited an example of a major trucking company that needs 18,000 drivers, and to retain this number they have to recruit 14,000 each year.

    Huge increases in imported goods added to the mix – all the big box stores, from Wal-Mart to Target to Lowe’s, etc. are importing enormous volumes of goods from overseas, which helps railroads.

    Highway congestion will remain a problem for the foreseeable future. There is neither the money nor the will to address this, he said, so it will stay with us.

    Since the first quarter of 2003, NS’s intermodal revenues are up 23 percent. Margins are up, too, he said, noting how in the past it was hard for rail carriers to make money on intermodal shipments because of intense truck competition. Now, he said, the margins on intermodal are comparable to those on other commodities.

    Moorman defined some I-81 terms as a prelude to his talk.

    “I-81 refers to the truck catchment area,” he said, and can extend all the way to Texas.

    “I-81 Corridor” refers to from North Jersey into the deep South, and includes both the NS Piedmont and Shenandoah lines. He said the Shenandoah line paralleling I-81 “will never be a route where we run a lot of trains at high speed.”

    “NS can be part of the solution to congestion on I-81, but we can’t be the solution,” Moorman said.

    He peered back at the company’s history of involvement in the corridor. Moorman said Wiley Mitchell started the analysis as far back as 1981. He traced developments up to more recent steps in 2003 with the PPTA and the Reebie Study, which he said is “the genesis of a lot of our plans since then.”

    “We didn’t go out and beat the drums for I-81,” Moorman said, “because of priorities with the Heartland Corridor project.”

    He described the significance of that effort and the multi-state cooperation and financial support it has received.

    Now that Heartland is okay, it’s time to turn to I-81. “We’ll be talking a lot more about it as time goes on.”

    Moorman said there are about 4 million trucks per year on I-81, and validation of data is ongoing.

    “This market is largely untouched by rail,” he said. He drew a contrast by way of comparison with the Chicago-New York market. In that corridor, rail has a market share of more than 50 percent of the “would-be truck traffic.” Most of those are container shipments, and large companies control most of it.

    The I-81 market is more highly fragmented.

    It’s mostly trucks, and many are “moms and pops” (owner-operators). NS faces inadequate infrastructure and a very complex market in the I-81 corridor, which will make competing difficult.

    “Consistency is number one,” he said, and that requires reasonable speed and adequate terminal capacity… in short, infrastructure. High speed is not required.

    Over-the-road speeds of 35 to 40 mph have been adequate, he said, to capture premium intermodal business elsewhere.

    A prerequisite for capturing the I-81 market is a more open intermodal strategy, and helped the audience understand what that means – mostly lots of new equipment, that can carry all kinds of trucks.

    Moorman said the I-81 market could be attacked incrementally.

    Modest infrastructure improvements could divert 100,000 to 200,000 trucks annually. At the billion-dollar investment level in track, terminals, and rolling stock, it may be possible to take a million trucks per year off I-81. A public private partnership would be needed, with the public’s share in such cost commensurate with public value.

    Ultimately he said, with $6 or $7 billion, and a completely double tracked railroad, NS could do even better. It sounds like a lot, he said, but went on to contrast it to STAR’s $13 billion just for the section in Virginia.

    State transportation officials are coming around, he said. They realize they cannot whip this thing alone. It’s going to require a corridor or regional approach, and NS can do that.

    “We are the environmentally friendly way to go,” Moorman said, explaining some of the other advantages of relying on rail.

    “We can move ahead quickly,” he said. If funding can be identified, he added, a project could be in place in five years.

  13. Larry Gross Avatar
    Larry Gross

    I think this is bizarre.

    We’re using taxpayer money to pay truckers and NS to move goods that are being IMPORTED to this country from East and WEST coast ports.

    Rather than letting private companies engage in a competitive marketplace to produce cost-effective strategies for distribution….

    we have decided that because we already subsidize the trucking industry with highways that we need to extend that favor to NS.

    Now.. neither the trucking industry nor NS need to find better cheaper ways to move goods.. because taxpayers are going to pick up the costs – no matter what.

    Listen folks – subsidies are subsidies.

    They don’t lead to more ifficiency and higher productivity – they lead to dependence and waste.

    Paying NS to “take trucks off the road” is a bogus concept from square one.

    Let the market place do what it is intended to do.

    Basically what we have is the “two wrongs make a right” crowd getting involved in something that should be left to the marketplace.

    There’s a two word solution to too many trucks on I-81 – truck tolls – collected at the weigh stations – automatically via Ez-Pass.

    Use those tolls to build truck-only lanes where they are needed and let NS figure out how to use the removal of the truck subsidies to their own market advantage.

  14. Ray Hyde Avatar

    What if the market won;t solve the problem? What if NS decides it is too much money for the gain they make?

    What if they decide it is profitable and they go ahead. They will suck up $875 million in capital to remove a half million trucks from the road. That capital expenditure will be out there competing for funds with carloans, home loans, and state loans. It will be repaid with revenue from those who ship goods and those that buy them.

    Eventually we will still have to improve the road: that half million trucks is peanuts compared to what the road carries.

    If you collect truck tolls on the highway, it is substantially the same as providing a subsidy to NS, because the higher costs will encourage some truckers to go intermodal.

    If it does, you don’t get the revenue from the tolls. If it doesn’t you haven’t removed the trucks from the road and you probably haven’t raised enough money to improve it either. Meanwhile the costs of the tolls will go straight to the cost of goods, and you and I will pay for it anyway.

    Rather than pound your fist over subsidies and free markets, what we should do is find the least expensive way to meet the goals, even if we don’t like the moniker we put o that kind of transaction.

  15. Ray Hyde Avatar

    The difference between 6 or 7 billion for a complete NS upgrade and 12 billion for star is that the NS upgrade only improves the truck traffic while the STAR plan provides a benefit that all can use.

    The NS plan is a benefit to all, also, because it provides effective truck and car separation.

    Which plan provides the most public benefit per dollar? Don’t consider where the dollars come from, just the cost and the benefit.

    Anyone?

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