CAPACITY AND THE FUTURE OF RAIL INFRASTRUCTURE

Transcription

1 CAPACITY AND THE FUTURE OF RAIL INFRASTRUCTURE Research and Consulting Presentation to the Rail-Government Interface Conference, Ottawa, February

2 Outline Definition of Capacity Transportation Market and Corridor Level Network Level Co-production Increases Capacity Rail Capital Expenditures Technology and Innovation Future Rail Capacity Requirements CP Network Capacity Projects CP Centralized Traffic Control Projects Regulatory Constraints Impact Future Capacity Issues Related to Western Grain Noise/Vibration Complaints and Railway Crossings Government Investment Asia-Pacific Model and the Roberts Bank Corridor Conclusions Capacity and the Future of Rail Infrastructure 1

3 Definition of Capacity The capacity of rail like other transport modes is a complex issue Rail capacity can be considered at several levels: Transportation Market: The capacity of a specific transportation market which involves a given origin, destination and commodity. Rail may be one segment in a transportation market which may involve other rail and modes in a supply chain Rail Corridor: A number of transportation markets may coexist in a given rail line corridor with specific train capacity Rail Network: The overall capacity of a railway and its network At the market or corridor level several factors are involved: Asset efficiency: Equipment and locomotive crews Operational Management: Length and weight of trains, balancing of traffic flows, coordination with shippers and other stakeholders, handling of bottlenecks including winter/accident recovery Infrastructure: Track structures, sidings, signaling and multiple tracks If rail is part of a supply chain, then capacity also impacted by terminals, ports, trucking, shipping At the network level capacity may be reported in several ways: Volume of total traffic moved in a given period Volumes of traffic by commodity groupings moved in a given period in a general direction east, west, south Average train speed There are diverse measurements available at each level: Revenue ton-miles (RTMs) and Gross ton-miles moved Cycle times and Dwell times Number of train starts Number of trains per day Number of carloads per week/cars online Capacity and the Future of Rail Infrastructure 2

4 Transportation Market and Corridor Level (1) ASSET EFFICIENCY Freight Cars: New materials, stronger wheel assemblies, lower tare weights leads to increased content volumes per car Locomotives: Higher HP, more reliability leads to fewer locomotives moving longer heavier trains Train Crews: Better training, more technical assists leads to reduced crew size, longer crew runs at higher speeds OPERATIONAL MANAGEMENT Improved balancing of cars, locomotives and crews through IT produces a balanced and consistent traffic cycle Redesign or elimination of rail yards reduces dwell times Coordination with shippers and other stakeholders Consistent delivery of cars reduces bunching and congestion Reliable and rapid loading and unloading reduces cycle times Advanced IT has improved communications between the parties and reduces unexpected delays 24/7 operations at origin and destination will improve throughput Capacity and the Future of Rail Infrastructure 3

5 Transportation Market and Corridor Level (2) INFRASTRUCTURE Track Structures: Weight of Rail, Strength and durability of ties, quality of ballast and sub-grade improvements lead to increased train weights and speed Sidings: The length and frequency of occurrence of sidings leads to improvements in the operations of a single-track corridor Signaling: Extending Centralized Traffic Control (CTC) to more of a rail network increase the number of trains per day that can be moved in a corridor Double/Triple tracking: With sufficient property in an existing corridor, double or even triple tracking is possible and will eliminate meets and significantly improve capacity CP and CN western corridors through the Rocky Mountains can now handle more than 35 trains per day By way of contrast, the western corridors of BNSF and UP can handle over 100 trains per day This provides a glimpse of what the future rail infrastructure in Canada might look like, given the right economic and regulatory conditions Capacity and the Future of Rail Infrastructure 4

6 Transportation Market and Corridor Level (3) If rail is part of a longer supply chain then other factors impacting throughput capacity may be involved Pick up and delivery trucking constraints such as road congestion Loading and unloading terminals Speed of loading or unloading rail cars loop track configurations Storage capacities Hours of operation Port facilities Size of property to ground containers Speed of cranes loading and unloading ships Labour relations with longshoremen and truckers Marine shipping Ship capacities Speed of transit Illustration of the Aluminum Supply chain Alumina Offshore sources Australia, Jamaica, Guinea, Brazil Bulk ship to Port Alfred on the Saguenay River RS shortline to aluminum smelters at Arvida or Alma Aluminum billets RS shortline to the connection with CN CN movement to domestic and US destinations perhaps interlined with a US railroad Final Products Destinations are factories: aerospace, automotive, packaging, or fabrication Final move by truck to construction sites or retail outlets Capacity and the Future of Rail Infrastructure 5

7 Network Level Exhibit 2 demonstrates that the overall traffic volumes handled by CP and CN in terms of RTMs has kept pace with the demands of the national economy and matched real GDP growth Since 1990 real GDP grew by an annual average of 1.9% while rail traffic grew by an annual average 2.2% Note the downturn in rail traffic during the financial crisis and the subsequent strong recovery Exhibit 3 illustrates the growth in CP intermodal traffic when compared with total CP traffic Intermodal traffic has grown at a faster pace than traffic overall since intermodal traffic is more closely aligned with the trade sector, which in turn has grown with increased globalization The financial crisis negatively affected rail intermodal traffic and it has not yet fully recovered, but the average annual growth between 1990 and 2007 was 6.2% in line with the growth in international trade It is clear that CP and CN have provided sufficient rail capacity to meet the challenge of serving overall demand for several decades Capacity and the Future of Rail Infrastructure 6

8 Co-production Increases Capacity CP and CN engage in co-production a form of commercial access, to improve efficiency and service: Directional running Fraser Valley Reciprocal access to bottleneck locations - Vancouver Access to line haul segments northern Ontario More complex arrangements US north east These are commercial agreements, do not generally provide the right to solicit traffic, and do not impact rail competition The impact of these many co=production agreements has been to increase the rail capacity of both CP and CN together Such co-production agreements have also involved US railroads when appropriate Such collaboration along a supply chain can also increase capacity Capacity and the Future of Rail Infrastructure 7

9 Rail Capital Expenditures At the heart of the ability of the Canadian freight railways to meet the challenges of increasing future demand is the level of investment or capital expenditures Exhibit 4 presents the combined capital expenditures of CP and CN in Canada from 2000 to The increasing trend is apparent despite the dip during the financial crisis Exhibit 5 presents the components of capital expenditures by CP and CN in The dominance of track and roadway, and to a lesser extent rolling stock, is apparent It is a favourable regulatory regime and its stability going forward that provides the railways with its favourable investment climate Capacity and the Future of Rail Infrastructure 8

10 Technology and Innovation Capacity and the Future of Rail Infrastructure 9

11 Future Rail Capacity Requirements Cambridge Systematics Inc. has forecast US freight demand for AASHTO in 2000, 2005 and 2010 As presented in Exhibits 7 and 8, their forecasts have been declining, and the rail investment gap has also been declining Forecasting is not an exact science. Recent unexpected events: 2008 financial crisis, the dramatic increase in shale oil production, and the dramatic drop in the price of oil Future environmental developments may further curtail the use of coal Wish lists from shippers or governments do not make for reliable railway investment decisions Rail will and should invest when shippers commit to traffic volume increases and freight rates in contracts, and the internal rate of return is appropriate Capacity and the Future of Rail Infrastructure 10

12 CP Network Capacity Projects Capacity and the Future of Rail Infrastructure 11

13 CP Centralized Traffic Control Projects Capacity and the Future of Rail Infrastructure 12

14 Regulatory Constraints Impact - Western Future Grain Capacity (1) In May 2014, the federal government passed the Fair Rail for Grain Farmers Act to help deal with the current backlog in the grain handling and transportation system and to facilitate the movement of grain by rail BACKGROUND 2013 Fall crop of western grain at 76 million tons was 50% higher than average some 35 million tons CP and CN moved significant volumes in the Fall but there was spare capacity at that time Farmers held back grain hoping for future higher prices or to push their income into the next tax year The record crop increased the demand for rail during the 2013/14 winter which was one of the worst years on record All three western carriers CP, CN and BNSF were forced to reduce train frequency, size and speed While railways have equipment, materials, and labour pre-positioned and on call to deal with disruptions rock, earth, and debris landslides, hydraulic erosion, avalanches, frost and snow fall the speed of recovery is dependent on the severity of conditions The temporary reduction in rail capacity affected all shippers THE ACT The CTA to gather information from all grain supply chain partners and to advise the Minister The GIC has the authority to order the minimum amount of grain that CP and CN must move in a given crop year Capacity and the Future of Rail Infrastructure 13

15 Regulatory Regulatory Constraints Constraints Impact - Western Future Grain Capacity (2) A public policy to order railways to move minimum volumes of any given commodity is a deeply disturbing development for several reasons: Railways already have a strong financial incentive to move western grain traffic and instead of issuing Orders the federal government should consider instead eliminating the Maximum Revenue Entitlement (MRE) to establish a fully commercial system Favouring western grain traffic means disadvantaging other western traffic coal, potash, sulphur, energy, containers. It also hurts shortlines who have been unable to receive freight cars for the movement of other traffic from CP and CN, who are otherwise focused on western grain Government meddling leads to less capital investment by the railways over the medium and longer term which sets back rail capacity expansion. In particular, the replacement of the aging government-owned hopper car fleet by the railways with a more efficient fleet comes into question One of the key issues is the variability and seasonality of western grain production. This cannot be solved by government diktat and requires a balancing of interests that only the private sector can effectively and efficiently deliver Government s efforts to meddle in the commercial decisions of railways has a long and inglorious history it has usually led to the eventual need for government subsidies or even bankruptcy EXTENDED REGULATED INTERSWITCHING The Act also extended regulated interswitching to 160 km for all commodities originating on the Prairies Extending interswitching was irrelevant to the issue of a grain backlog all westbound rail routes were affected The amendment requires CP and CN to deliver traffic to BNSF at the border through regulated interswitching. Why would Canadian public Policy expressly favour US companies over Canadian companies? Capacity and the Future of Rail Infrastructure 14

16 Regulatory Constraints Noise Complaints and Crossings There are two current regulatory constraints that can also restrain rail capacity and need review NOISE AND VIBRATION COMPLAINTS The CTA is authorized to resolve complaints regarding rail noise and/or vibration The complaints frequently occur in urban areas where new residential or commercial development has been built in close proximity to rail Rail being present first, why are these developments authorized when the risks are obvious? Measures to alleviate the nuisance such as sound barriers encroach on rail property and restrict future rail capacity expansion RAILWAY CROSSINGS Road authorities, municipalities, landowners and utilities may wish to cross rail property If the parties cannot agree, the CTA may authorize a crossing and it has become common for the CTA to approve such crossings More frequent rail crossings have a negative impact on rail traffic flow thereby reducing rail capacity Capacity and the Future of Rail Infrastructure 15

17 Government Investment Asia Pacific Model If governments in the future are concerned with the prospect that future rail capacity may be inadequate to meet the demands of the national economy, then the 2006 Asia-Pacific Gateway and Corridor Initiative would be an excellent model to follow Its purpose was to strengthen Canada s competitive position in international trade by: Boosting Canada s commerce with the Asia-Pacific Region Increasing the share of North America bound container imports from Asia; and Improving the reliability of the Gateway and Corridor for Canadian and North American exports One important component was the Roberts Bank Rail Corridor, which, as indicated in Exhibit 9 involved a $307 million investment jointly from all the stakeholders The improvements included: The provision of associated road closures/road detours/advanced warning systems/overpasses Addressing the forecasted train traffic related to Roberts Bank developments to 2021 Deltaport s third birth and Terminal 2 Addressing the forecasted growth in population and employment, as well as the road transport networks and traffic to 2021 This was a highly successful partnership a similar approach recommends itself for future needs In that regard, in the CP submission to the CTA Review Panel it is stated that Over the medium to long term we are concerned about the ability of ports, especially the Vancouver inner harbour, to increase needed capacity to facilitate growing trade volumes. In the case of Vancouver, there is limited access to industrial lands for future development and there is strong community resistance to the expansion of industrial activity. Consideration must be given on how Government policy can support future growth at Canada s major port gateway Capacity and the Future of Rail Infrastructure 16

18 Government Investment Roberts Bank Corridor Capacity and the Future of Rail Infrastructure 17

19 Conclusions Determination of Rail capacity is a complex matter: Often measured at a micro-level as trains per day in a corridor At the network level measured as volume of traffic per = perhaps by commodity group and direction Capacity increases with asset efficiency, better operational management, and improved infrastructure Co-production increase the capacities of the participating railways and so does collaboration along a supply chain Over the past 25 years: Traffic growth at CP and CN has kept pace with the growth in real Canadian GDP Intermodal traffic growth has kept pace with the growth in international trade Overall, the Canadian railways have met the challenge of serving the demands of the national economy Capital expenditures are key to increasing rail capacity to meet future demands This requires a favourable and stable regulatory regime Capital expenditures will continue to enable significant advances in technology and innovation, and there is room to significantly increase the capacities of the existing networks Wish lists of shippers and governments, and expert forecasts of future demand, are unlikely to be a reliable basis for future rail investment decisions The Canadian railways continue to make significant capital expenditures based upon market needs Regulatory constraints that lead to encroachment on railway property can constrain present and future capacity they should be avoided If needed, government investment associated with increasing rail capacity should follow the Asia-Pacific model The 2014 Fair Rail for Grain Farmers Act was a step in the wrong direction to improving rail capacity and should be allowed to lapse in 2016 Capacity and the Future of Rail Infrastructure 18