Does a Railroad Need to Own its Tracks?   June 4th, 2011

Commentary by Noel T. Braymer

Back in the 1960′s “everyone knew” that the railroads in the United States were going out of business. Actually the smaller railroads and the Class Is in the Mid-West and the North East were in trouble. My Father told me in the 1970′s that he thought that the solution to the problems of rail service in the 1960′s would be to nationalize the rail infrastructure but not the rail operating companies. The government would rebuild the railroads and then lease operating rights to the private companies. Part of his plan was to open new markets to carriers with increased sharing of routes. This would open up more competition and expand rail service to more regions. This would be for both expanded freight and passenger service. But of course no one listened to my Father about railroads in the 1960′s.

The two sickest railroads of the 1960′s were the New York Central and Pennsylvania Railroad. Many factories relocated away from the North East and Mid-West by this time and the rust belt had begun. While freight traffic declined for these two railroads, they were the less than proud owners of the busiest rail passenger lines, particularly commuter services in the county. The two railroads claimed the solution of all their problems would be solved if only they could merge. After years of delays finally the old ICC (Interstate Commerce Commission) approved the merger in 1968 as the Penn Central Railroad. The next year the Penn Central Railroad declared bankruptcy.

The hope was that by getting the Penn Central out of the passenger business it would be able to get out of bankruptcy. The plan for this new Passenger Only Railroad originally called Railpax was modeled on the old Pullman Company. Pullman not only built rail passenger cars, but for years contracted with the railroads to provide the first class service for sleeping and dining car passengers. The point of this plan was to free this new passenger rail service of the cost of owning the overhead of the infrastructure and instead just to pay rent for the part that they used. To make this new company look less like a bail out for the Penn Central an effort was made to include all intercity rail passenger service in it. Most of the Class 1 railroads had only long distance passenger service, unlike the Penn Central with short haul and commuter service mostly in the North East. The railroads were not excited about turning over their passenger service to Railpax. The railroads preferred to have full control over the traffic on their railroad. The long distance passenger trains weren’t making money, but operating them didn’t cost the railroads much either. The biggest headache was the cost of maintaining secondary rail lines to passenger standards. With some incentives most but not all the railroads joined Railpax which when opened for business as Amtrak in 1971 ushering in the elimination of half of the passenger rail service in this country.

Amtrak ran at a loss and the government subsidized operation: in 1973 Amtrak lost a grand total 159 million dollars. Not long after this an effort was made to reorganize the Penn Central to make it profitable. During this time many of the commuter operations were transferred to local governments and in 1976 ownership of most of the trackage between Boston and Washington was given to Amtrak which was counter to the original concept of Railpax. Conrail as the reorganized Penn Central finally became profitable and the government sold it off to private investors in 1987. By 1980 after being given ownership of the Boston-Washington Northeast Corridor, Amtrak’s subsidy needs exploded to over a billion dollars.

In the 1990′s Europe started to privatize rail service. Today as part of this process most of the counties of the European Union have separated ownership of the rail infrastructure from the operation of rail service. Some counties still have national rail services such as France and Germany but these operations are expected to run at a profit. Some services such as commuter service receive subsidy from their government. With infrastructure no longer owned by the operators this is opening up more trans-European freight and passenger rail service. German national railroad DB is aggressively working on expanding freight and passenger service to Britain and France. Each country has different methods of ownership of rail infrastructure. Ownership of infrastructure is not highly profitable. In many countries the rail infrastructure is subsidized to varying levels. In the 1990′s Britain tried to operate Railtrack, the owner of the British rail infrastructure as a for profit corporation. Track conditions got worse not better and by 2001 Railtrack was bankrupt and soon reorganized as Network Rail as a non- profit.

The difference between rail and other transportation services in this county is rail is the only one that owns its own infrastructure. This is a large reason railroads often went bankrupt before 1980 and had low rates of return on investment. Today the railroads are in much better shape because they have been able to rid themselves of most of the secondary and branch lines which had high costs and low income. Today the railroads are not interested in selling off more of their infrastructure. But federal, state and local governments between 1970 and 2000 did buy many miles of railroad. The question is how best to use these assets and how best to pay to maintain them needs to be found.

This entry was posted on Saturday, June 4th, 2011 at 1:37 PM and is filed under Editorials.