New Heartland Corridor Increases Freight Capacity Between East Coast and Chicago

» When the government contributes millions to upgrade the freight railroad system, shouldn’t it ensure competition along the route?

The reopening of completion of renovations along Norfolk Southern’s Heartland Corridor last week will undoubtedly improve the transport of goods between the East Coast and the Midwest. After $321 million in investments, double-stacked freight trains will be able to travel directly between Norfolk and Chicago in just two days, shaving 250 miles off the existing route — until now an impossibility.

It’s exactly the kind of infrastructure the United States must develop to encourage the use of efficient and environmentally sustainable railways for the transport of goods.

And yet the manner in which the project was funded raises important questions about the role of the government in financing transportation infrastructure and puts in question just how competitive the current freight market really is.

Though Norfolk Southern, one of the nation’s largest railway operators, contributed a large percentage of funds, the federal government as well as the States of Virginia and Ohio played an important role in financing the project. Washington chipped in a total of $111 million to the program, Virginia added about $9 million, and Ohio threw in a bit less than $1 million. Some of this money also went to the creation of a new intermodal freight terminal in Columbus and the relocation of the Commonwealth Railway at the Port of Virginia, not a Norfolk Southern program. Construction began in 2007.

The overall scheme has been portrayed as a public-private partnership that will aid both in the delivery of goods by rail (and reduce the negative effects of truck use on major highways), but also in the economic development of ports on the East Coast and the overall industrial capacity in the Midwest. In terms of economic growth, that’s the good news.

But the American government’s propensity to both advocate the private ownership of infrastructure and then use public funds to improve those facilities is quite problematic. If the U.S. is committed to the current (inefficient) system in which a natural monopoly such as a railroad system is held in private hands, it should at least ensure that there are regulations encoding open access to said network.

That, however, is not the situation here. Indeed, Norfolk Southern has not only received a series of solid grants to pay for improvements but it will also be the sole direct profit taker here. This means, in essence, that a number of government entities have chosen to direct public funds towards capital facilities in the hands of one corporation — and that business is motivated by money-making, not the public interest. Nor is the Heartland Corridor the exception to the rule. Earlier this year, for instance, the U.S. Department of Transportation distributed $98 million in TIGER funds to the National Gateway project, run by CSX.

Though one could make the argument that these projects provide economic development benefits to the parts of the nation they touch, growth in one place seems destined to take away from another. If the Port of Norfolk expands because of this investment, what will happen to the Port of Savannah? They are substitutes, not complements. If the U.S. government is to decide for whatever reason that expanding trade in Virginia is a higher priority than doing so in Georgia, it should have a strategy to encourage a multitude of investments headed in that direction. With these funds seemingly being handed out willy-nilly (in the absence of a series national transportation plan), there doesn’t seem to be a rhyme or reason for this project’s funding over another one.

Moreover, the federal government must take a more active role in setting guidelines for how railway lines are utilized after they have received a burst of public funding. This is an important issue when it comes to the creation of improved intercity passenger lines, but it is just as valid for the freight industry. If there is a significant investment made in one company’s infrastructure, that business should be required to pass some of the profits from that facility back to the government.

An alternative, of course, is encouraging freight line owners to open their corridors to a variety of operators, competing to offer the lowest rates to customers. This would improve the benefits to the public as a whole and therefore make the investment more valuable from a societal economic perspective. As it stands now, however, most of the economic advantages will be directed to the shareholders of one company.

Update, 14 September: Reihan Salam has an interesting piece up critiquing what I wrote here. His argument that one solution could be having Norfolk Southern pay the government back for its contribution seems right-headed to me. Indeed, this might be an ideal example of how an infrastructure bank could work well.

46 replies on “New Heartland Corridor Increases Freight Capacity Between East Coast and Chicago”

If Norfolk Southern is very willing to open up their rail lines to Amtrak with no big proberms then it could be good in some aspects. If it works to take thousands of trucks off of a lot of the over loaded interstates then it kind of makes sense from that aspect condering this rail line runs though some very dangous places for trucks. So far Norfolk Southern as been far more easer and open to let Amtrak use their rail lines then CSX

The opening paragraph calls this a “reopening,” which is incorrect – the line only had windows of construction work, but never outright closed for construction.

These sorts of investments shouldn’t be purely zero-sum from a national economic perspective: lowering transportation costs should ultimately make both production and consumption in the United States more efficient.

Requiring open access for this sort of expenditure is a non-starter. The rail industry as a whole is not interested in open access and has and will continue to oppose it. The very concept of open access is highly problematic and radical given that the industry is capital intensive and has been largely privately financed (despite the misunderstood history of land grants.) Before advocating for such a radical position I suggest some intensive studying of railroad history, operations, and regulation.

On more pragmatic grounds, I fail to see the imperity of such a connection between the concept of funding rail investments and the need for some kind of open access quid pro quo.

1.) Everyone benefits from increased freight capacity, most especislly the highway system.

2.) The ports benefit from this increased capacity.

3.) The railroads are already required to provide public benefit by being common carriers.

4.) NS does not enjoy a monopoly on freight movements between significant eastern ports and the Midwest.

This project was not designed to benefit small or mid sized shippers along the corridor. It was designed as a birde traffic project linking the ports with the midwest and west. Every ton of additional traffic that NS ships via this route thanks to these improvements is a benefit to every state along the route in reduced strain to the existing highway networks.

At this time, open access in the North American rail network is little more than an operational theory used by pro-regulation shippers as a negotiation tool/threat. Advocating for it is a bit akin to advocacy for personal rapid transit.

And of course with every additional ton of traffic, NS makes additional profits.

Can anyone answer whether there is any great lakes shipping (raw materials, ore, etc) which is transferred to rail heading south from Lake Erie? Just intrigued.

FG- Yes. Ore moves south from Cleveland to Mingo/Weirton OH, still, I think. But, none of this uses the Heartland Corridor. There is a lot of coal that moves north from WV to Lake Erie thru Columbus OH, mostly through Sandusky, but that has always gone that way. The coal trains have always fit through the tunnels. There is also coal from the Monongahela Valley south of Pittsburgh that moves north to Ashtabula on the lake.

And, yes, the increased margin/revenue from being able to handle stacks on the route are what pay for the NS’s share of the investment. No increased net = no investment. Who would invest in a losing proposition?

NS says that the new route saves $500/container.
NS says that the new route will be used initially by 6 container trains/day.
NS says that a train carries 240 containers.

SO… some math:
$500 * 6 * 240 * 365 = $263 MILLION saved per year.

So why are the taxpayers footing ANY of this bill?
Do we now have to steal money from taxpayers to pay businesses to invest in 1 year payback projects?

Exactly. Now, if NS had turned over the ownership of the various tunnels being upgraded to the US Department of Transportation, in exchange for the funding, I’d be happy with that.

NS would probably also be happy with that. Its CEO has stated that the new paradigm should be that passenger operators own tracks and freight operators are tenants. I understand the logic from their POV is that they no longer have to build and maintain the infrastructure, and can simply pay access fees or rent.

Ayup. The advantage for the public is simply control: you don’t have the “UP has us over a barrel” stuff we’ve been seeing in Denver, California, and elsewhere.

No,no, no. You have it backward. The paradigm is, for passenger service up to 90 mph, the freight RR can be the owner and passenger operation the tenant. Over 90 mph, the passenger operator will have to own the higher speed track for it’s trains, but that does not mean that it cannot be integrated into the frt network or connected a parallel frt line. The frt RR would have little or no interest in using a 110 mph track.

A good chunk of the $500 per container savings goes to the shipper – and then on to the consumer. That’s what induces the traffic to move in that lane! The public should pay some for the improvement because some of the benefit accrues to the public. Reduced air pollution and reduce dependence on oil are regional and national goals that have little direct impact on NS’s bottom line.

NS likely would not have done this project w/o the public paying for their share of the benefit.

States have historically paid for improvements to connect their ports to markets. The Erie Canal (New York), The Boston and Albany Railroad (Boston), the Pennsylvania Mainline RR and Canal system (Philadelphia), the B&O (Baltimore), South Carolina Canal and Rail Road Company (Charleston), The Georgia Road (Savannah).

This project is mostly about keeping Norfolk in the container port game. That is why VA paid for a good chunk of it.

In more recent times, there was the clearance project in Pennsylvania that was funded in good part by the state and the Alameda corridor project, funded in part by the state of California.

You do realize how many of those companies were government owned?

The Erie Canal, the Pennsyvlania Main Line of Public Works: both fully government owned. Until the Penna. one was sold off to private interests for no particularly good reason.

It’s like the government just put a hundred million dollars towards building a high way that is owned by one truck company, which is used only by the same company. Would that make any sense?

There are some public benefits to this. First, any mode shift from trucks to trains is good for the environment and for public health; since there’s no end in sight to the trucking subsidies, it makes sense to also subsidize rail. Second, railroads pay property taxes in proportion to how much revenue they can derive from their lines.

The only reasonable concession that the government could ask for is allowing passenger trains on NS’s Richmond-Norfolk segment. However, even that concession is small: a major expansion of passenger rail would probably involve dedicated track on the same ROW, and so far NS has not demanded infeasible track separations as CSX and UP have.

Norfolk Southern from what the passanger officals have said in Vrginia is that they are far more peaceful to new passanger trains being opened up such as the Lynchburg Service and the one soon coming to Norfolk which is on their main lines. From what I’ve also read about the railroad tunnels and bridges on the railroad main line a lot of them haven’t have been worked on or repaired in over 80 years.

I think what Norfolk Southern could do to pay us back as tax payers would be to add some new double or triple track sections on the section of track from Norfolk to Petersburg.Or maybe give Amtrak a few years of no rail use fees for a few years to give back to Amtrak.

OK, here would be a reasonable concession: transferring the ownership of the lines to the federal government, and getting trackage rights back in return.

This actually *benefits* the private railroads because they no longer pay property taxes, but it also gives us as citizens long-term control over the railroad ROW, preventing trouble like we’ve been having with UP.

Well, they’ve done that before successfully. Actually they can grant rather more track usage rights than that without threatening room for potential future services; look at the NCRR.

Given the level of private capital investment involved (you say why should the public fund a project that directly benefits one company; they’d say why accept the deal if it means losing more business and/or pricing power to competition than they’d gain from the project?), it seems like a more appropriate place for competition in this sort of deal is in the bidding/project selection process. I don’t know what procedure was actually followed for determining which line/company to invest in, but something like this seems like it would be fair:

1. Public notice is given that the government is looking to invest in capital improvements in a rail line. The notice contains a description of the public benefits that are being sought (e.g. increased freight capacity between any major Atlantic port and Chicago, a certain amount of improvement to passenger rail service between Chicago and a major city on the east cost, monetary dividends, etc.).

2. Different companies make proposals for what could be done with their rail lines, including the specific amount of public investment sought and the specific benefits that the public would receive. This could possibly include proposals for creation of entirely new lines, if the company submitting the proposal believes it will be competitive.

3. The costs and benefits of each proposal are weighed (including declining them all, if none makes sense — sometimes it may be better for the government to just build a truly public facility themselves, or seek other solutions, etc). Unlike selecting the lowest cost bid on a well-specified project, there would be some subjectivity in this. But there could be some guidelines published up front for how much weight will be given to various factors, and the proposals that were not accepted should in the end be made public.

The whole point of this project is to speed up the flow of goods. The benefits of the government investment are returned to the factories in FASTER access to markets here and abroad. The project itself created decent paying jobs across its length, and will have a positive impact in long term. For years, the government subsidized the trucking industry who taxpayers get no ROI from. The Feds throw some money at Norfolk Southern, and everyone demands a handout.

How are Norfolk and Savannah rivals for container freight to Chicago? The rivals would seem to be further north, and as mentioned in the post, the rival ports received subsidized improvements via the CSX National Gateway project.

What we have is a duopoly in East Coast Class I’s, and if both duopolists have had improvements subsidized, and have to pay maintenance and property taxes on that improved infrastructure, that seems like as good as we are going to get until we break free of the deficit delusion thinking that equates investment in infrastructure and throwing resources away on reckless and unnecessary invasions in Southwest Asia.

Norfolk and Savannah and Charleston are all rivals for container traffic to the distribution centers in Ohio (and, to some degree, Chicago) because much of the container traffic landing on east coast ports these days is coming from the Pacific Rim. This is growing business that may grow even faster once the Panama canal is widened. Savannah has a good, cleared rail routes and excellent highway routes to Ohio and Chicago.

Columbus Ohio is a major apparel distribution center for the US, among other things.

I’ve been wondering if this project means any relief on the former Canrail/Penn Central route through Pennsylvania,Ohio and Indiana. THat’s a very heavy route which tends to cause Amtrak trains to run late fairly often. If so, that, combined with the CREATE project in the Chicgo area should help Amtrak and freight trains quite a bit.

Only to the extent that some containers now landing in Long Beach/LA will now land at east coast ports – Norfolk in particular in this case. That means fewer boxes moving eastbound thru Chicago to Columbus offset by somewhat fewer boxes moving west thru Chicago.

Real relief for Amtrak trains into and out of Chicago along NS’s Chicago line will only come with the addition of a 3rd train from 21st St. to Porter.

Your opening premise is flawed! CSX competes on this route as well.

Regarding the open access concept: we have one model of private transportation property ownership (the railroad) that is highly efficient and capable and one public model of transportation property ownership (state management of highways) with all kinds of problems, inflated costs and glacial pace of getting anything done.

There is value in integrating the track ownership with operation.

I suspect there may be a way to move to or closer to open access without the big inefficiencies that government control often (but not always) brings.

One thing: if the goal is to open up access to these Norfolk Southern tracks, then we had better be prepared to spend a *lot* more money!

The major problem with roads, economically, is that they are free to use (completely untolled), not that they are government-owned.

Free? Then what’s all that Fed gas tax for? And the excise fee truckers pay? They may not have users fees that accurately or fairly capture the costs on a per use basis, but the gas tax is at least somewhat proportional to use and is more of a user fee than a tax.

I’ve added an update at the bottom of the piece above. I think this could be an interesting case where an infrastructure bank could be particularly applicable because of the high chances that Norfolk Southern could actually pay back the initial construction costs over time.

One the main problems with transport infrastrcuture being in private hands is that a lot of the benefits of transport investment do not come back to the operator. In this case, NS could point out the the taxpayer would save money on road maintaince, so its worth the taxpayer investing in this project.

The question is whether the government should subsidise private companies for the public good. What I thin shoudl happen is that the government shoudl look at the total economic benefits (including extra taxes from NS and its employees), plus the (monetrised) environmental and social benefits. If that works out more than the initial outlay, and the subsdies are available to all private companies on a equitable basis, then its worth doing.

Mr. Freemark is off the mark. The Norfolk Southern Heartland Corridor was created to compete with the shorter haul by trucks. That reduces congestion and emissions as well as lowering shipping costs. It takes advantage of the shorter distance to Virginia ports vs. others on the east coat.

Rail has no “natural monopoly.” It competes with truck, and with other rails. Intermodal actually offers very open access because trucks can take advantage of it as well as shippers.

I’ll second what Mr. Tracy says. The “natural monopoly” rhetoric is as empty as Paris Hilton’s head. Intermodal traffic can go a variety of ways. These companies could fly the goods. They could go by highway. And they can go by other railroads. The latter raises the question of why the government is helping NS instead of CSX or other railroads. Nevertheless, there is no monopoly let alone “natural monopoly”. Or does Yonah still think this is 1920 adn boxcars rule the rails?

The rail network, like the road network, is a natural monopoly. Look up the definition. You don’t know what the phrase means.

A natural monopoly does not mean that you have an actual monopoly at this point in time, merely that economic laissez-faire forces will trend towards a monopoly.

Network effects mean that it is more efficient, economically, for the track to be run by a single operator. This is why the dozens of major railroads in the US have been reduced to two in the east, two in the West, and two in Canada. It would be fewer if not for the Interstate Commerce Commission and Surface Transportation Board prohibiting the last few mergers.

In the same way in which *roads* are a natural monopoly, so are *rails*. (In fact, they’re a natural monopoly jointly, and economic efficiency is maximized if both roads and rails are in the same hands.) Educate yourself. In Europe, they’re trying to rearrange things by keeping the *rails* in public hands and giving the *trains* open access — because it’s not the trains which are a natural monopoly, it’s the *rails*.

Please do learn what you’re talking about.

You’ve got to play fast and loose with the definition of “natural monopoly” to apply that label to railroads in 2010. Perhaps 10% of railroad traffic might fit that definition – “bottle neck” unit train traffic – and even there there is no functional monopoly since the utility can source coal from a different mine on a different road Utilities can and do play this game to get lower rates all the time.

For the lions share of traffic, RRs have no overwhelming cost/service advantage.

Generally, the lower cost of rail is balanced by the slower speed and lesser reliability such that the value of the rail service is generally roughly equal to truck. Much of the traffic lost by rail to highway over the past 50 years was a result of the service side of the equation tipping the balance in favor of truck.

Lately, higher fuel costs have tipped the balance back toward rail a bit. But, not surprisingly, the railroads have been concentrating on improving service reliability so the increased value of the service can translate into higher rates.

The railroads have only recently gotten to the point where they generate enough profit to avoid having to “eat their foot” to stay alive. They are willing and able to do a lot that is good for the country and it’s citizens. There is a large area of overlap between what’s good for the RRs and what’s good for the country. The Heartland Corridor is a good example of PPP that does exactly that. (BTW, NS’s share of the project was about 60%)

Natural Monopoly: “A natural monopoly exists when there is great scope for economies of scale to be exploited over a very large range of output. Indeed the scale of production that achieves productive efficiency may be a high percentage of the total market demand for the product in the industry.”

Railroad do not have a high percentage of the total market demand for their product – except in certain well-defined, small niches.

Passenger train advocates could do their cause a great deal of good if they took more time to understand the role of freight railroading in the supply chain, the nature of current operations and economics of railroading. It would go a long way toward finding areas of common ground on which to build. ..and there is a lot of common ground. The freight railroads are generally not capricious or “greedy” or “anti-passenger” per se. But neither are they going to damage their franchise and hand over share holder value just to be “nice”.

If it is reasonable to subside Amtrak 50 cents on the dollar because of benefits to society that are intangible, unquantifiable or just don’t show up on Amtrak’s balance sheet, then, perhaps, it’s reasonable for the public to pay for their share of benefits on private projects that don’t show up on the private corp’s balance sheet.

” If the U.S. is committed to the current (inefficient) system in which a natural monopoly such as a railroad system is held in private hands, it should at least ensure that there are regulations encoding open access to said network.”

1: Private (freight) railroads in the US are not inefficient, by many metrics. Freight rail shipping costs in the US are far lower than shipping costs for publicly-owned freight railroads in Europe, and US freight railroads are much more profitable. See the latest Trains magazine.

2: Freight railroads, when viewed in the context of all freight shipping methods, are not a monopoly at all; to the contrary, they have a small fraction of the shipping market in the US, measured by gross revenues.

3: Freight rail lines were built with largely private funds and are owned by private companies. In an economic system that respects private property, rail properties cannot just be taken and used (by other private or public entities) at the government’s whim.

“Much more profitable” == “much more of a monopoly”. That is how economics works.

Freight rail is now a duopoly west of the Mississippi (BNSF/UP) and a duopoly east of the Mississippi (CSX/NS); also a duopoly within Canada (CP/CN).

For north-south traffic parallel to the Mississippi, there is some competition (CN/KCS as well as all of the Big Four).

In the areas of large-volume bulk goods, trucking is not a competitor at all; it’s only used where rail is nonexistent. In the area of long-distance container shipping, it’s barely a competitor, it’s a complement, because rail is simply a better method of transport over long distances; UPS, FedEx, and Roadway are now three of the largest rail customers in the country.

Rail lines were almost universally built with eminent domain powers from the federal government, and often with legal obligations to provide passenger service. In an economic system which respects property, rail properties can and will be taken by the government for public purposes — with just compensation, naturally.

Just to correct you on your bizarre misapprehensions.

FedEx and Roadway are not major rail shippers. UPS is. JBHunt is. Schneider National is. “Just to correct you on your bizarre misapprehensions.”

“Much more profitable” == “much more of a monopoly”. That is how economics works.

**Not so- it just means that revenues are much higher than costs. US freight railroads have gotten their costs way down, compared to European state-owned freight lines. My father, for example, owns an apartment complex that is very profitable, in part because it has no mortgage. Under your flawed reasoning, his one apartment complex would be a monopoly (in a city of about 500,000 people, with tons of other apartment complexes).

Freight rail is now a duopoly west of the Mississippi (BNSF/UP) and a duopoly east of the Mississippi (CSX/NS); also a duopoly within Canada (CP/CN).

For north-south traffic parallel to the Mississippi, there is some competition (CN/KCS as well as all of the Big Four).

In the areas of large-volume bulk goods, trucking is not a competitor at all; it’s only used where rail is nonexistent. In the area of long-distance container shipping, it’s barely a competitor, it’s a complement, because rail is simply a better method of transport over long distances; UPS, FedEx, and Roadway are now three of the largest rail customers in the country.

** FYI, plenty of other goods are moved by rail, in addition to the ones you mention. Freight transportation in the area described in the article is not a monopoly. (Sounds like you would have loved the Interstate Commerce Commission regulators in the 1920s, as you think alike.)

Rail lines were almost universally built with eminent domain powers from the federal government, and often with legal obligations to provide passenger service. In an economic system which respects property, rail properties can and will be taken by the government for public purposes — with just compensation, naturally.

** I’m a business owner and lawyer- the government cannot just take private property, even with compensation. There are many tests that a “taking” of private property has to meet. Also, you may wish to read about the Norfolk & Western and Southern Railways, predecessors of today’s NS. Unlike Western lines, they were not largely built via eminent domain and the like.

Just to correct you on your bizarre misapprehensions.

** My analysis is based on law school, practicing as a lawyer and close watches on railroads, through extensive research. Go run your railroad in the USSR.

I think that what many people don’t understand is that the goal of the government through these funding programs is to elevate the Clean Air Act and mitigate congestion at state and federal highways. The more freight trains pulling containers over rail the less trucks on the road.

Many of my trains (I’m a C.S.X. Engineer) contain about 300 containers- that’s 300 trucks off the roads and far less pollution. This also saves on highway infrastructure.
Sharing the rail with other roads is a bad idea, our rails are congested as it is. where I work we have a “shared assets” with Norfolk Southern RR and it’s a nightmare getting trains through all the entanglements.(One night I sat for four hours to get out of the terminal waiting for foreign trains to depart and arrive.)
Trucks receive the benefits of highway construction for years and don’t pay taxes for it. The money the government gives the railroads is minuscule compared to money to highways. If you force railroads to share track, you would now be forced to pay billions in double and triple track projects and hundreds of millions more for additional terminal facilities for these foreign railroads.
You see, it’s easy to say let the railroads share but another thing to make it work in the real world.

In reality the government makes a lot of money on the railroads through right of way taxes (Railroads are taxed on every track they own-if double track they are charged twice) The F.R.A. constantly fines railroads for almost any violation at all. (If we don’t fill out our time cards correctly the R.R. is fined a couple thousand dollars) When R.R. travel over state owned Bridges they pay a toll based upon how many cars are carried over.

There are reasons and I believe very good ones that the government helps to fund freight rails and it’s always a win-win for the taxpayer…less pollution, less wear and tear on the highways, less traffic congestion and a greener earth overall.

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