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Rail Freight In Relief of Highway Congestion
Reflections from 8-42 I-81 October, 2004
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DIVERSION BARRIERS

• Public Obstacles examples
• Acceptance
• Competitive Account

• Market Viability
• Equivalence
• Access Limitation
• Interoperability
• Density
• Institutional Readiness
• Capacity
• Capital
• Institutional Structure
• Institutional Commitment
• Sustained Performance

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ACCESS LIMITATION

• 70-80 of US manufacturing lacks on-line access
  to rail system
• Thus, most shippers require PD to be handled by
  a truck
• Conditions of access create the urban problem
• Intermodal becomes the key class of service for
  highway diversion

Dray Range of IMX Terminals
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INTERMODAL MARKET

• Intermodal is a price sell, strongly linked to
  capacity
• Contrasts with trucking, where low rates bring
  little equipment
• Customers tolerate slow transit for cheap
  capacity, and plan accordingly
• Motor carriers have emerged as leading domestic
  providers
• Real and perceived superiority but not largest
• Motivations
• Operational cost, balance, swing (rail)
  capacity, drivers
• Business ROA, growth capacity, IMX often more
  profitable
• Want growth

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INTERMODAL MARKET

• High performance Intermodal is possible
• IMX meets or beats single drivers in some lanes
  now
• Large market opportunity exists for services
• Truck conversion and import growth
• Mid-distance (500-1,000 miles) a key
  underdeveloped segment
• Long-haul not tapped out watershed lanes,
  premium segment
• Short haul international has promise
• Conversion economics
• Distance matters for train speed and PD factor
• Density matters for train-lot volume and train
  design

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CONVERSION OPPORTUNITY

• Dry Van Reefer highway business over 500 miles
  67 million units
• 120 billion market
• Truckload portion in dense lanes accessible to
  IMX network
• 30-35 million units
• 40-50 billion market
• Long Haul truck traffic is a major part of truck
  VMT

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CONVERSION CHALLENGE

• Converting highway volume requires reliable
  service in more lanes
• Includes constancy in railroad market commitments
• Speed affects eligibility
• Yet, Railroads face capital constraint and
  capacity confinement
• Behavior follows from constraints
• Acute issues during current cyclical peak
• Volume strong due to equipment supply, not
  performance
• Short-term capacity allocation, not long-term
  commitment
• Working within the box

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DIVERSION LEVERS

• Two-Sided Character
• Public Financing
• Market Strategy
• Manipulation of Density
• Intrinsic Appeal of Separation

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LIFTING CONSTRAINTS I-81
Public/Private investment deploys

• Open Technology
• Competitive Service
• Compelling Economic
• Advantage
• Aided by
• Confluent volume
• Network effects

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I-81 INVESTMENT DIVERSION
? of AADTT ?
Medium Term 492M
Long Term 492M
Medium Term 2.6B
Long Term 7.3B
Multi-State Corridor
Virginia Only
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RESULTS - MULTI-STATE CORRIDOR
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PRACTICAL EFFECTS

• Rail absorbs 60 of truck growth. Trucks rise,
  but so do cars
• Without rail, trucks on I-81 double by 2020 1 of
  3 vehicles a truck
• With rail, trucks grow by less than half 1 of 4
  vehicles a truck
• Without rail, I-81 becomes more of a truck route.
  With rail, it doesnt

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CONVERSION STRATEGY

• Central issue for intermodal conversion is
  railroad motivation and capability
• Motivational shift follows from two things
  capital and train-lot density
• Railroads prefer control, but prefer profit more
• Capital requirements range along a continuum,
  from boxes up to line
• Capital changes cost basis
• Margins matter to motivation
• Capital reorders railroad priorities
• Can be three players, not two

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MODERATING CAPITAL INTENSITY
Shared Investment Options

• Track upgrades, terminals, maintenance 42
• Equipment terminal function 32 (Cumulative
  56)
• Train starts affect crew power
• Large portions are capital costs/fixed commitments

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PUBLIC/PRIVATE COOPERATION
3-Way Investment Approach

• Public Track terminals, up to 42
• Private Operators Equipment terminals up to
  32 (Cum 56)
• Both Train starts affecting crew power
• Railroads contribute everywhere, including
  national fleets network

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401 Stamford, CT 06905-4310 U.S.A. Telephone
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