Posts Tagged ‘NAFTA’

Conference Speakers Optimistic That Intermodal Traffic Growth Will Continue

October 2, 2020

Colorful containers on a late day eastbound intermodal train on  CSX in Clinton, Ohio.

Speakers at the recently concluded North East Association of Rail Shippers virtual fall conference expressed cautious optimism that recent growth in intermodal volume can help railroads recover from traffic losses prompted by the COVID-19 pandemic.

Jason Seidl, managing director of Cowan and Company said the consensus among railroad executives who spoke during the conference is that current trends could continue for the remainder of 2020 and into next year.

Railroads are bullish on intermodal for the time being due to continued tightness in the trucking industry that has sent some shipment onto the rails.

Kansas City Southern CEO Pat Ottensmeyer said the USMCA treaty, which replaced NAFTA,  “allows North America to emerge as an even more powerful force in global manufacturing and trade.”

However, Ottensmeyer said the United States “must do a better job” coordinating policy with Mexico and Canada in order to maximize the benefits of the treaty.

Tom Tisa, who heads business development for CSX, noted that railroads posted intermodal traffic records in August because retailers were restocking depleted inventories and preparing for the holiday sales season.

However, Tisa expressed some uncertainty that the intermodal surge is sustainable although he is optimistic that it will continue.

Speakers at the conferences noted a contrast between how Canadian Class 1 railroads are managing their precision scheduled railroading operating model with how it is being done by U.S.-based carriers.

Analysts said this probably is because Canadian National and Canadian Pacific have been using PSR for a longer period of time whereas the U.S. carriers are still in early stages of

PSR, particularly those focused on chopping costs and paring assets.

Whereas U.S. railroads are still looking to sell low-density lines, Canadian carriers are seeking to add routes, including some lines they once spun off.

Trade Treaty Took Effect This Week

July 3, 2020

The USMCA trade agreement took effect on July 1, replacing NAFTA.

An analysis published in Railway Age magazine credited NAFTA, formally known as the North American Free Trade Agreement, with providing traffic growth for U.S. railroads and said the new treaty, known as the United States-Mexico-Canada Agreement presents similar opportunities.

Kansas City Southern CEO Pat Ottenssmeyer said USMCA modernizes NAFTA and could spur robust economic growth.

USMCA has provisions for agricultural market access, digital trade, financial services, and regulatory policy that Ottensmeyer said could benefit American workers, farmers and ranchers.

The treaty might be timely as many businesses are rethinking their supply chains in the wake of the COVID-19 pandemic.

Industry observers and shippers have suggested in recent comments that there may be a move away from being so reliant on China as a supply source.

However, Ottensmeyer said railroads also face challenges in taking advantage of USMCA because of what he termed “misalignment of government policy across North America, such as the current situation caused by the lack of coordination of ‘essential services’ in the three countries, could potentially result in the underperformance of existing, well-established supply chains.”

Ottensmeyer said better coordinated health and safety initiatives combined with effective security practices could provide “a path for the continent to emerge as an even stronger force in global manufacturing and logistics.”

Railroad Industry Has Its Wish List of Legislative, Policy and Regulatory Changes at the Ready

February 17, 2018

Christmas is 10 months away, but the railroad industry has a long wish list of what it wants from Santa Claus, who in this case is the federal government

The industry will send representatives to Washington on March 7 for its annual Railroad Day on Capitol Hill to push policy makers in Congress, the executive branch and federal regulatory agencies to grant those wishes.

In an analysis, Progressive Railroading magazine said some items on the list are perennial wishes, meaning the industry has still yet to see them granted.

These include a permanent extension of the Section 45G tax credit for short lines railroads; maintaining existing truck-size and weight restrictions; shoring up the federal Highway Trust Fund; and knocking out the U.S. Surface Transportation Board’s proposed “competitive switching” rules.

A recent wish that has been added to the list concerns the Trump administration infrastructure program proposal that Congress is now considering.

Railroad industry trade groups said they will push for rail projects to have priority in funding programs.

This will include increased federal funding for Amtrak and commuter-rail agencies to complete positive train control implementation.

They also want to argue that rails need to be on the same level as other modes of transportation.

“We are very concerned about modal parity,” said Nicole Brewin, vice president of government affairs for the Railway Supply Institute. “We are concerned that rail should have a bite of the apple, so to speak.”

NAFTA

Going back to the 2016 presidential election, railroads have expressed concern about the fate of the North American Free Trade Agreement, which then-candidate Donald Trump used to decry at every opportunity.

Since being elected, Trump has pushed to renegotiate the treaty, but encountered resistance from Canada and Mexico.

The railroad industry has generally supported the talks to negotiate new terms to NAFTA, but doesn’t support Trump’s pledge to withdraw if he doesn’t get the terms he wants.

That’s because railroads benefit from moving goods between the United States and Canada and Mexico. This includes some goods that are manufactured elsewhere around the world, but routed through those countries.

“Economic growth tied to NAFTA has allowed railways to invest tens of billions of dollars into their infrastructure while improving productivity and customer service, and fostering innovation,” a coalition of railroad trade groups wrote in an open letter issued on Jan. 22. “Collectively, these improvements have enabled railways to maintain the low rates that are required to provide shippers with access to global supply chains to support their success.”

The letter said that NAFTA has since it went into effect on Jan. 1, 1994, helped develop an integrated economy in which a continental rail network is essential for the flow of goods across North America.

Trade between the U.S. and Canada between 1993 and 2016 increased by 157 percent to $544.6 billion. During the same period, U.S.-Mexico trade skyrocketed 543 percent to $523.8 billion and Canada-Mexico trade jumped 776 percent to $30.8 billion.

The letter was signed by the heads of the Association of American Railroads, the Railway Association of Canada, and the Asociacion Mexicana de Ferrocarriles.

The AAR said about 42 percent of rail carloads and 35 percent of rail revenue are directly associated with international trade.

“We’re not saying NAFTA can’t be updated,” said AAR CEO Edward Hamberger. “There will be changes in it. But you can’t just withdraw from it.”

Worrying the railroad industry is a Trump administration proposal to dramatically increase the amount of content from NAFTA nations in automobiles to 85 percent from 62.5 percent.

The administration wants to see 50 percent of the content of vehicles come from companies in the United States.

Much of the auto traffic in North America, including parts, moves by rail and the industry fears that the administration’s proposed formula could interrupt the supply chain and make it more difficult for vehicles and parts to move within the United States or between Mexico and Canada duty-free.

Short Line Tax Credit

The short-line railroad tax credit has long been on the wish list of the American Short Line and Regional Railroad Association.

The credit, which expired on Dec. 31, 2016, allowed regional and short-lines railroads to claim a 50-cent tax credit for each dollar they spend on track rehabilitation and maintenance projects. That credit is capped at $3,500 per mile of owned or leased track.

Although Congress is considering extending the credit until the end of this year, ASLRRA President Linda Bauer Darr said her group’s members want a 10-year deal.

Class I railroads recently benefited from the Tax Cuts and Jobs Act, which cut their corporate taxes. Now short-line railroads want relief of their own.

Truck Size

The trucking industry, of course, has its own wish list that it circulates in Washington and that includes loosening federal restrictions on the size and weight of trucks allowed on interstate highways.

Truckers would like to see the allowable length restriction on double trailers extended from 28 feet to 33 feet.

“Our biggest concern [with the truck-size and weight issue] is the size and shape of the opposition,” says ASLRRA’s Darr. “As we see companies like Amazon coming on board and aligning themselves with FedEx, UPS and others, it becomes an even larger challenge to hold our ground on what is an existential threat to our industry.”

Darr said twin 33-foot trailers would hurt the carload market of railroads by causing a significant amount of freight diversion from rails to trucks.

Railroads and a lobbying group fighting longer trucks beat back the trucking industry’s proposals last year, but the truckers are back.

Railroad lobbyists say the congressional appropriations process is always a battleground because appropriations bills are the primary vehicles for bigger-truck proponents to advance their proposals.

Highway Trust Fund

The solvency of the Highway Trust Fund has been an issue in recent years because of falling revenue from federal taxes on gasoline and diesel fuel.

The trust fund is used for surface transportation improvements, including at transit-rail agencies.  Congress last increased fuel taxes in 1993 and many in the transportation sector have long argued that the trust fund isn’t keeping pace with the cost to maintain and repair infrastructure. Since 2008 Congress has bolstered the highway trust fund with $143 billion a year from general revenue.

The railroad industry argues that this has represented a subsidy to the trucking industry, which doesn’t cover the cost of infrastructure damage caused by heavy trucks.

The AAR said that freight railroads have invested $25 billion a year in their own infrastructure networks.

“We think our competition should have to pay their way as well,” said AAR Senior Vice President of Government Affairs Ian Jefferies.

The AAR has proposed finding new ways to shore up the highway trust fund, including raising the gas tax or instituting tolls or new fees based on vehicle miles traveled.

Railroad Regulation

So long as railroads and their customers continue to have disputes there will continue to be calls by shippers to impose new regulations on railroads.

The railroad industry is heartened by the Trump administration’s approach to federal regulation, including the U.S. Department of Transportation’s repeal late last year of a Federal Railroad Administration rulemaking proceeding pertaining to the installation of electronically controlled pneumatic brakes on certain tank cars.

The railroad industry has called Trump’s efforts to streamline the infrastructure project approval process a welcome sign.

Still, railroad industry executives worry that some proposed regulations being considered by the STB might discourage railroad investments.

This includes competitive access, also known as reciprocal switching, which is being pushed by some shippers.

The railroad industry view is that competitive switching would force them to surrender their privately-owned property for use by competing railroads, said Sean Winkler, director of advocacy at the Railway Engineering-Maintenance Supplier Association.

For their part, shippers counter that reciprocal switching would increase price competition.

The railroad industry is also eyeing how the STB defines “revenue adequacy” for Class I railroads, a concept that describes whether a railroad is earning enough revenue to cover its costs and earn a return that’s sufficient to attract capital.

The STB is currently awaiting the seating of three more members before moving forward on some rulemaking decisions.

The Board has two members, Acting Chair Ann Begeman and Vice Chair Deb Miller, since a third member, Daniel R. Elliott III, resigned last September.

The railroad industry wants to see those open seats filled by members with direct rail industry experience.

Infrastructure Plan

The railroad industry is pleased with the Trump administration’s focus on rebuilding infrastructure but fears that partisan fighting will result in little or nothing getting done.

The administration has proposed spending $200 billion over the next decade as matching grants for projects that would be primarily financed by state and local governments, or the private sector.

Trump has claimed that the plan will lead to $1.5 trillion in infrastructure spending.

“Picking a number to spend on infrastructure is the easy part; the hard part is figuring out how to pay for it,” said Chuck Baker, president of the National Railroad Construction and Maintenance Association.

Baker said he is “hopeful but not optimistic” about whether Congress will be able to agree on a program that “spends real money and in any way moves the dial on infrastructure.”

Instead, he believes what is more likely is a smaller bill that calls for regulatory reforms, shortens the environmental permitting process and fixes financing programs for infrastructure projects.

The railroad industry hopes that any infrastructure program included grants for freight-rail projects.

It could also be used to extend longer term the short-line railroad tax credit, freeze current truck size and weight restrictions, and provide grants for transit and intercity passenger rail.

NS VP Calls for Infrastructure Invesment

March 29, 2017

A Norfolk Southern vice president recently called for making transportation infrastructure investment a priority during a conference in Florida.

Darrell Wilson, NS vice president of government relations, said the federal government should make infrastructure its top priority followed by some form of deregulation and tax reform.

He spoke to the Jaxport Logistics & Intermodal conference in Jacksonville, Florida.

Wilson spoke during a panel session. His panel expressed skepticism about the Trump administration’s calls for trade protectionism, but said that U.S. businesses could benefit from a renegotiation of the North America Free Trade Agreement.