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.