The rebounding North American economy is boosting the rail sector as can be seen in the first-quarter profits most railways posted this year but the carriers still have a long way to roll before they reach their potential, industry representatives say.
“The indicators for 2010 are optimistic,” says John Gray, vice-president of policy and economics at the Association of American Railroads. He told the annual outlook conference of the Chartered Institute of Logistics and Transportation in North America that after a 15 per cent to 20 per cent drop in traffic last year, “It’s going to take time to get back to the healthy traffic levels of 2006, and it could take longer if there are any hiccups in the recovery.”
For that reason, railways are cautious about bringing stored freight cars and locomotives back into operation, he said. In the United States, 25 per cent of freight cars and 12 per cent of locomotives are in storage.
Cliff Mackay, president and CEO of the Railway Association of Canada, said the dropoff in freight traffic began abruptly in the fall of 2008 and by the end of 2009 was 22 per cent to 23 per cent below 2007. The recession required the railways to take drastic action to protect their financial health.
He said the recovery has been more robust in Canada than the United States allowing CN and CP to record strong first-quarter results. Mr. Mackay urged Ottawa not to turn the clock back on regulatory reform of the rail industry.
Mario Laccobacci, director of economics with AECOM, an international economic consulting firm and longtime transportation analyst with the Conference Board of Canada, said the railways have to put more attention to improving their productivity. “That would bring better service, lower freight rates and increased market share.”
Still the industry has made tremendous productivity improvements in the last 30 years, he added. “It works out to 3.2 per cent a year for 30 years. If we had seen the same productivity in other sectors of the economy, we would be much better off.”
However, during the last five years, freight rates have risen faster than input prices and productivity growth, he continued. A big unknown for the industry is what the Rail Service Review Panel might recommend in its report later this year.
The rail industry must spend 15 per cent to 20 per cent of its earnings on infrastructure renewal compared to three per cent to 15 per cent for other industrial sectors, he added. Even with the downturn last year, American railroads mounted their second-largest capacity expansion program ever.
American railways were deregulated in 1980 and since then there has been an almost continuous improvement in productivity, he said.
But ongoing spending could be hindered if American legislators proceed with proposals in the Senate for a regulatory review of the carriers.
He also said that the railways have made considerable progress in reducing greenhouse gas emissions. “They have doubled the amount of freight hauled but with the same amount of fuel . But the industry has made slow progress on improving fuel economy. We need long-term dedication to this.”
The rail industry sees the rail service panel as an opportunity to enhance freight transportation in Canada, he said. A commercial dispute resolution, as the railways and some shippers have proposed, could be a real benefit. “Reregulation is not the way to go. It will just mean added costs for shippers in the end.”