Slow Ride

Many songs have been written about slow trains, but a lot of recyclers would be happy to ship out their scrap materials on any train that is moving at all.

The shortcomings and perils of shipping on the freight rail network do not seem to be disappearing, even though the rail companies themselves are beginning to enjoy healthier financial quarters.

Part of the problem could be one of regulatory oversight, with a federal agency that was initially concerned about helping ailing rail companies possibly needing to switch tracks onto a route that will help shippers receive improved service.

FEELING INADEQUATE. The Surface Transportation Board (STB) was created in 1995 when the Interstate Commerce Commission was dissolved. According to its Web site, the STB is "charged with the fundamental missions of resolving railroad rate and service disputes and reviewing proposed railroad mergers."

The strategic goal of merging Class I railroads pre-dates the creation of the STB and goes back at least as far as the Staggers Rail Act of 1980. That deregulation measure was passed in part to address the "revenue adequacy" of Class I railroads, says Steve Hirsch, associate counsel/director of state and local programs with the Institute of Scrap Recycling Industries Inc. (ISRI), Washington.

In the execution of its current oversight duties, the STB seems to be keeping the spirit of the Staggers Rail Act very much at the forefront, even though the need to do so may have largely become unnecessary.

When the Staggers Rail Act was passed in 1980, the freight rail industry in North America was very different from how it looks today. "The rail network went through a period of excess capacity," says Hirsch. Symptoms included red ink for the rail companies, and medicines included mergers, layoffs and abandoning rail lines.

These changes produced an initial result of matching capacity to demand. But with an increased amount of global trade in the past several years, bottlenecks are an indication that demand is now exceeding capacity in many places.

As Hirsch points out, although there were 40 Class I railroads just 25 years ago, now there are only seven, and four of these control some 85 percent of the freight rail traffic in the United States.

The four dominant railroads can act as monopolies or duopolies in most market regions. This seemingly puts them in a position where losing money should be difficult, and oversight should in fact consider the point of view of shippers.

From Hirsch’s point of view, though, ensuring revenue adequacy seems to remain the foremost goal at the STB. "The financial reports the rail companies provide to Wall Street suggest a very robust, profitable financial environment," says Hirsch. "But the STB seems to hear its own, rather different view of what constitutes revenue adequacy."

In theory, the rail companies should be receiving enough revenue and experiencing enough profitability to invest in what is necessary to provide adequate service to its customer base, trade groups representing those customers are contending.

PROMISE KEEPERS. What Hirsch says he is hearing from ISRI members is a frustration with the inability of rail companies to deliver what they promise.

These promises range from the specific—the number of rail cars that will arrive at a given spot at a given time—to the general—that service will improve next week, next month or next year.

At the ISRI 2006 Convention & Exposition in Las Vegas, representatives from two Class I railroads had a chance to present their points of view to the assembled scrap company executives and managers.

David Garin of BNSF Railway Co., Fort Worth, Texas, said his company is concentrating on the "last mile" of freight transactions, acknowledging that the challenge is, "How do we make that more effective?"

Garin said rail freight providers are trying to address a number of problems by increasing the average time of a freight journey from point to point (velocity). "Velocity is the key to leveraging new and existing capacity," he said.

BNSF was surveying all of its customer sites to see how rail sidings can be reconfigured to avoid bottlenecks. At that time, some 30 percent of the sites visited caused the main rail line to be blocked while car switching takes place, demonstrating the need for such surveys.

Additionally, BNSF is investing in new locomotives and 66-foot gondola cars, Garin told attendees. He admitted, though, that attention to building new gondola cars may be suffering because of the increased attention to container cars used in intermodal shipping, which has become the fastest-growing segment of the freight rail industry.

CSX Transportation, Jacksonville, Fla., has invested in some 300 new locomotives in the past three years, said Shelly Mast, that company’s vice president of customer service.

Like BNSF, Mast said the company was concentrating on "first mile/last mile" improvements, although it was also being asked by customers to add new sidings.

Mast said a concern of scrap shippers and CSX alike is the increasing average age of the gondola fleet. She indicated that 43 percent of CSX’s gondola fleet would be reaching the end of its anticipated 40-year life span during the next four years.

At the same session, Phillip Bedwell of scrap recycler OmniSource Corp., Fort Wayne, Ind., predicted that more scrap companies will be acquiring private fleets of gondola cars in upcoming years as a way to ensure that they can remain on the rails.

Beyond infrastructure problems, another recycler says he believes tense labor-management relations within the rail industry remain a source of problems. The Baltimore area recycler says workers have felt slighted by many of their post-merger contracts and are now seeing managers and executives rewarded as profits return while they see themselves as being over-worked for the sake of controlling labor costs.

As with most service industries, if the front line workers are unhappy, then even the most well-intentioned salespeople and customer service phone representatives can be made to look bad when deadlines are not met and orders are not filled properly.

FORWARD GEAR. The concern of many recyclers is whether they have any influence to change the current freight rail situation.

Although recyclers may worry that they have insufficient clout with the rail companies, Hirsch is not so gloomy on that front. "The recycling industry and its consumers (such as steel mills and paper mills) together are actually the second largest rail transporter after coal," says Hirsch. Secondary commodities account for anywhere from 6 percent to 10 percent of what is shipped via rail, Hirsch estimates.

ISRI is preparing comments that are being sought by the United States Department of Transportation (DOT) in regard to improving bottlenecks within the federal freight transportation network.

In a document titled "Framework for a National Freight Policy," the Department of Transportation writes, "Effective policy solutions will require coordinated and collaborative action by both public and private parties. That coordination and collaboration starts with focused communication about a framework for action."

In its initial framework, the DOT mentions public-private collaboration as one key to increased investment in the freight infrastructure.

Hirsch says that ISRI is not opposed to such thinking, but that the phrase on its own does not provide any immediate solutions.

"In a well-thought out and well-executed partnership, a lot can be accomplished," he says. "It is something we do see some promise in, but the details are important."

For now, the details for scrap recyclers involve having access to rail cars when needed and being charged a reasonable rate for the cars when they are in their possession.