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- July 20 , 2010 -

Logistics News: Upcoming Requirement for Rail Safety May Bleed Capital Badly Needed for Rail Expansion

New AAR Study Questions Whether Benefits Worth the Billions in Costs for “Positive Train Control”; Wyman Study Finds Claimed Benefits for Shippers Non-Existent


SCDigest Editorial Staff

SCDigest Says:
Wyman believes PTC may actually reduce railroad efficiency for shippers by bringing more technology risk into rail system performance.

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Of great concern to US railroads but little known by shippers are upcoming requirements for vast new electronic systems, known by the term “positive train control” (PTC), thought by regulators to produce substantial improvements in rail safety.


But are the billions in investment required to implement PTC worth the costs? And will those dollars spent on PTC impact rail shippers by siphoning of investment capital needed for rail system expansion and efficiency gains over time?


Those are among the questions being asked by the Association of American Railroads (AAR), the industry’s trade and lobbying group.


The Rail Safety Improvement Act of 2008 was signed into law in October, 2008, and is being implemented by the Federal Railroad Administration (FRA). The law reflects some 15 years of concern about railroad accidents (including passenger trains), and in the end requires a number of different rail carriers to implement technology thought by regulators to reduce the likelihood of future safety-related incidents.


PTC can be summarized as a collision avoidance system that is centered in the locomotive.


“The system works by monitoring the vehicle’s location and a variety of operational and power settings on the locomotive. These monitoring activities combined, while factoring in the necessary braking distance, will essentially allow PTC to manage locomotive spacing,”  according to Bill Rennicke, a principle at consulting firm Oliver Wyman, who recently spoke on this issue with John Larkin, a respected transportation industry analyst at investment firm Stifel, Nicolaus & Company.


PTC is basically a set of technologies that will be overlaid on existing locomotive and track controls systems, rather than a separate control layer on its own, and works by making the locomotive continuously confirm that it is operating within its permitted section of track at the permitted speed. If those rules are violated, an automatic breaking action is applied.


While there have always been concerns about rail safety, the proximate catalyst for the 2008 rail safety law was the “Chatsworth” accident earlier in the year in which a commuter and freight train collided near Los Angeles, killing more than two dozen people. (The cause of that accident was found to be the commuter train driver running a red light on the track.)


According to the new law and FRA interpretation, PTC must be implemented o all main lines over which there is regularly scheduled commuter or passenger trains, and all the lines of Class I railroad that carry 5 million gross tons or more, or on which there's toxic or poisonous material handled on the line. (The US Transportation Secretary can also designate other lines for the requirements, and Class 2 and 3 railroads can also be required to use PTC in some instances.)



What it Will Cost


One recent estimate concluded that from the requirements as they stand today, about 74,000 miles, or 78% of the existing Class I network total of 94,000 miles, will need to support PTC.


The FRA itself estimates that the upfront cost to the Class I railroads will be about $5 billion dollars, with billions more spent to maintain the system over time. (See graphic below.)



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To put that in perspective, that $5 billion is approximately what the Class I railroads spend currently each year on infrastructure-related investments. Many have said that level of investment is grossly inadequate, given the expected growth in rail traffic over the coming years as concerns about costs, road congestion, and CO2 emissions push more traffic to rail.



The FRA has been justifying the costs that will be pushed on to the rail carriers by saying the railroads will achieve operational benefits on top of the public safety improvements as a result of PTC. That claim is made in large part based on a 2004 study by consulting firm ZATA-TECH and updated by the Chlorine Institute in early 2010.


However, the AAR asked consulting firm Oliver Wyman to relook at those studies, and they found the operational benefits were likely to very small at best.


“As people were thinking about PTC in the 1990’s, there were opportunities for better management of the rail system, better performance, and better communication of commercial events along the right of way. These opportunities have, for the most part, all been harvested by the railroads with the use of more effective systems, other than PTC,” says Wyman’s Rennicke. “In our opinion, the results of this study are quite a bit exaggerated and beyond what’s really possible… Some of the performance benefits that are being talked about as accruing to PTC are not even possible, since the system proposed by the FRA doesn’t have a precision or optimized dispatching capability as part of it.”


In other words, the enormous PTC investment costs were judged by the FRA to be substantially offset by other operational efficiency gains PTC would bring, but Wyman says those gains are either not likely to occur or do not consider steps the railroads have already made in the last decade to improve efficiency in those areas through means other than PTC.


Some of those benefits were directly said to be for shippers, for whom it was said that PTC would improve the flow of goods through the rail system due to faster, more reliable train performance and better performance through the rail yards.


However, Wyman “found no basis for any of those assumptions and in many cases we found basis to believe that the impact might even be negative. Therefore, we do not believe or accept this particular shipper benefit,” according to Carl Van Dyke, another Wyman consultant who worked on the study for the AAR.


In fact, Wyman believes PTC may actually reduce railroad efficiency for shippers by bringing more technology risk into rail system performance.


“The position of the U.S. Class I railroads and the AAR is that PTC is very expensive. Unless there's some external funding, this requirement will divert capital away from capacity expansion and other kinds of programs that are required by the railroads at a time where, as we come out of the economic downturn, recovery is going to require more railroad infrastructure,” Rennicke added.



How Strong are the Safety Benefits?

Interestingly, the FRA itself only ascribed some $400-600 million in “safety benefits” total over 20 years from the PTC requirement, using whatever mechanisms the government uses to value human life and other factors, versus the billions of investment required to implement PTC.


There are a very small number of accidents involving two trains hitting each other. The vast, vast majority of rail accidents, some 400-500 per year, involve cars going over rail crossings, which the PTC technology would not address at all.



Does the PTC implementation requirement as it stands make sense to you? Are you concerned it could siphon off investment capital needed by the Class I railroads to expand their networks? Let us know your thoughts at the Feedback button below.


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