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Freight Rail Capacity, Funding, and PPP OverviewMay 19th, 2008
Chris BigonessManager Public Funding, Network Development
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Today’s Discussion Topics
Freight Rail OverviewImpending Transportation Capacity IssuesPublic-Private Partnerships in Freight Rail
Defined Areas of Opportunity and Challenge Example Projects
Conclusions
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Freight Railroads are Critical to the Economy
Indispensable link connecting markets here and abroad – huge global competitive advantage
Generate billions of dollars per year in:Savings in shipping costsTaxes and purchases that support tens of thousands
of jobsAvoided highway costs (maintenance and
construction)Fuel savings
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Railroads are Moving More Traffic Today Than Ever Before…
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Carloads Intermodal
U.S. Rail Traffic: % Change From Previous Year –
Q1-01 to Q3-07
Source: AAR Weekly Railroad Traffic
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…Putting Even More Pressure on Rail Infrastructure
Rail Networks System Miles and Volumes
5060708090
100110120130140150160170180190200210
1980 1985 1990 1995 2000 2005
Rail - RTM Rail - Track-miles
Source: National Rail Freight Infrastructure Capacity and Investment Study September 2007 and AAR
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Year
600
Gap to Maintain = $50 Billion per year
Gap to Maintain = $50 Billion per year (through 2015)
(through 2015)
Gap to Maintain = $50 Billion per year
Gap to Maintain = $50 Billion per year (through 2015)
(through 2015)
100
200
300
400
500
2006 2009 2012 2015 2018 2021 2024 2027 2030
Yea
r-o
f-E
xp
end
itu
re D
oll
ars
(in
Bil
lio
ns)
Gap to Improve = $107 Billion per year
Gap to Improve = $107 Billion per year (through 2015)
(through 2015)
Gap to Improve = $107 Billion per year
Gap to Improve = $107 Billion per year (through 2015)
(through 2015)Revenue
Cost toMaintain
Cost toImprove
Source: U.S. Chamber of Commerce
National funding gap
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1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Transportation Inventory &Admin.
2%
4%
6%
8%
10%
12%
14%
16%
18%
1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Annual State of Logistics Report, Council of Supply Chain Management Professionals
Total Logistics Costs
Transportation Costs
Inventory /Admin. Costs
Inventory and administrativ
e costs increased 13% over
2005
Transportation costs
increased 9.4% over 2005
U.S. Logistics Costs as a Percent of GDP
Rail = 6.7% of U.S.
Transportation Spend
What is the cost to the supply chain?What is the cost to the supply chain?
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Future Demand for Freight Transportation Will Grow
0 10 20 30 40
2035p
2002
Source: 2006 U.S. DOT projection
Billions of Tons of Freight Transported in the U.S.
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Why we need more rail
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Industry Capital Expenditures as a Percent of Revenue - 1995-2004
3%
3%
3%
3%
3%
4%
4%
4%
5%
5%
5%
5%
12%
18%
Food Mfg
Transp Eqpt
Machinery Mfg
Wood Prod
Petro/Coal Prod
All Mfg Avg
Fabr Metal
Chem Mfg
Plastic/Rubber
Paper
Computer/Elec
NonMetal Minl
Elec Utilities
Class 1 RR
Capital Investment Rates Comparison
Note: Utilities based on 1999-2004Source: U.S. Bureau of the Census, AAR, EEI
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$8.4
$6.4$6.2$5.9$5.7
$5.4
$6.1$6.6
$7.2
$6.3$6.1
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Railroad industry capital expenditures
$ Billions
Source: AAR
Rate of Return on Net Investment9.4%
7.6%7% 6.9% 6.5% 6.8% 7%
6.3% 6.1%
8.5%
10.2%
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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 F
Program Maintenance Expansion Mechanical & Other Locomotive
Capital CommitmentsCapital Commitments vs. ROIC
$ Millions
$2,258
$2,520
$2,265
$1,763$1,608
$1,505
$1,726
$1,988$2,179
$ Millions
$2,670ROIC$2,550
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The capital investment reality
ROI
If ROI > cost of capital:
• Faster, more reliable service
• Sustainability
• Stronger physical plant; more and better equipment
• Capital spending expands
If ROI < cost of capital:
• Lower capital spending
• Weaker physical plant, equipment
• Slower, less reliable service
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National Rail Freight Infrastructure and Capacity Investment Study
National Surface Transportation Policy and Revenue Study Commission requested a study to determine:
Future freight rail infrastructure costs What portion of these costs must be paid for with other-than-
railroad funds Findings
Demand for freight movement is steadily increasing Railroad infrastructure requirements will increase even if market
share remains the same Industry will need $148 billion between 2007 and 2035
2007 dollars, does not include property acquisitions Railroads will be unable to fund all improvements necessary to
take full advantage of their potential to move more goods by rail
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Why PPPs are Necessary
Source: National Rail Freight Infrastructure Capacity and Investment Study, September 2007
Future Volumes Compared to Future Capacity in 2035 without Improvements
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Will the investment be enough?
Total Needed Sources of Capital
$135 B
Growth
Productivity
Shortfall
$70 B
$26 B
$39 B
Class 1 capital investments needed to meet 2035 freight volume demand
Source: National Rail Freight Infrastructure Capacity and Investment Study September 2007
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BNSF Principles of Public Private Partnerships
Defined: Projects which combine freight rail business goals with diverse
goals of local, state, and federal governments Why?
Permits both parties to achieve their goals faster, better, cheaper
Key Points Private contributions commensurate with private benefits, and
public contributions commensurate with public benefits Voluntary Coordinated timing Supports BNSF ability to meet customer service requirements Allows BNSF to grow its rail freight business to meet demand BNSF funding competes with all other BNSF projects for capital
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Public Private Partnerships
RAILRAIL
Franchise Franchise
CapacityCapacity
SponsorSponsor
ROICROIC
ResourcesResources
TimingTiming
PUBLIC SECTORPUBLIC SECTOR
MandateMandate
BenefitBenefit
SponsorSponsor
FundingFunding
ProcessProcess
TimingTiming
Success Requires Aligning Private and Public Objectives
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PPP Areas of Opportunity
Multimodal and NAFTA trade corridor development Intermodal projects resulting in reduced roadway
congestion Relocation of freight services from urban cores Grade crossing improvements, closures, separations Air quality improvement projects designed to reduce
automobile and truck congestion Commuter rail and intercity passenger rail projects
Driven mainly by public policy Freight railroads typically do not contribute funding
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PPP Challenges
A recurring freight rail PPP challenge is accepting conditions attached by government to project public money to address social equity issues:
Mitigation on affected adjacent landMandatory passenger accessRequired use of “green” locomotivesRailroad-funded quiet zones
The offer of public money for a project does not guarantee a railroad’s participation
In many cases, railroads cannot accept public money if the requirements: Erase the capacity gains that the project was meant to provide in the first place
Lower the project’s return to unacceptable levels to commit private capital in lieu of funding competing capacity projects
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Various Forms / Various Public Goals
- Southern CA RegionalRail Authority
- CalTrans- Amtrak - Sound Transit - Metra - Northstar
Alameda Corridor Kansas City Flyovers
GenSet Locomotives Grade Separations
CREATE Heartland Corridor Crescent Corridor Rail Bypasses Line Capacity Critical Infrastructure Facilities/Connectors
State Grants/Bonds and FTA Grants & Appropriations
Alternative Financing / Loan Guarantees
Clean Air Funding
Regional, State, Federal and Private Funding
Project Public Involvement
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Examples of Freight Rail PPPs and Public Benefits
Chicago Regional Environmental and Transportation Efficiency
Funded by the freight railroads, Metra, Federal Government, Illinois, and the City of Chicago.
SAFETEA-LU funding - $100 millionPublic benefits:
$1.1 Billion related to air quality improvements
$595 Million related to motorists, rail passengers, and safety
CREATE
Brighton Park
Reduction in highway needs and construction costs will yield more than $10 Billion in savings for the nation over 20 years
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Examples of Freight Rail PPPs and Public Benefits
20 mile “express lane” for cargo containers moving inland from the Ports of Long Beach and Los Angeles opened 2002
Funded by BNSF and UP through a joint-powers authority bonding mechanism
Shippers pay their portion through container fees
Eliminated more than 200 at-grade crossingsReduced idling car and truck emissions by 54 percent
Cut locomotive emissions by 28 percentReduction in train noise and elimination of horn noise in corridor areaIncreased efficiency of cargo distribution networkImproved Metrolink commuter travel time at Redondo Junction
Alameda Corridor
Alameda Corridor
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What Benefits Does the Public Receive From Freight Rail?
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Conclusions
Demand for freight rail capacity will continue to grow Freight rail offers “public” benefits to non-users Successful projects require public involvement –
To meet public goals Goods movement Social/environmental
To expand capacity to support economy To ensure freight rail can meet customers’ needs
“Partnering” produces benefits for users, non-users