Freight Rail Wants Smarter, Greener And Safer Shipping. Its Regulators Have Other Ideas

Port slowdowns and empty store shelves have prompted policymakers investigation of supply chains and shipping networks at a recent hearing of the House Transportation and Infrastructure Committee. One witness from the Massachusetts Institute of Technology Center for Transportation and Logistics blamed chronic under-utilization of truck drivers and sub-optimal loading/unloading policies at warehouses. Another from the transportation intermediaries industry said it is a perfect storm of factors including shortages in labor, chips, warehouses, and container storage combined with historic demand for freight magnified at a global scale. Ian Jefferies of the Association of American Railroads detailed how pandemic-driven shifts in consumer spending and retail inventory can whiplash freight patterns.

This global shipping industry is highly diversified including rail freight, air freight, maritime shipping, trucking, logistics providers, and increasingly, proprietary shipping solutions from retailers like Amazon Prime which has commissioned its own fleet of 100,000 electric and ergonomic bespoke vans from Rivian because it wants to improve delivery over FedEx, UPS, and the Post Office.

The key questions are whether regulation can improve the status quo (and for whom) and to what degree can providers be allowed flexibility to adjust to difficult market conditions. Moreover, it is difficult to discern cost and energy efficiency because of regulatory distortions. For example trucking may off an attractive price to the shipper because the costs of highway subsidies and greenhouse emissions are borne by Americans overall.

In the last century, freight rail focused on coal delivery, but today accounts for a whopping one-third of America’s ton miles delivering all kinds of consumer goods and industrial inputs. Freight rail operators invest some $25 billion annually to upgrade networks and to improve safety, volume, speed, and energy efficiency. It’s not surprising that privately-funded freight rail industry invests so much; if it didn’t, trucking would put them out of business. More largely trucking is racing to be green and autonomous and to achieve greater profitability through cuts in energy and labor cost. Brookings Institution transportation policy expert Clifford Winston argues that trucking will play a huge role in the future of freight movements. However freight rail still wins hands down as the greener shipping option, a combination of volume shipped across distance per given amount of energy. It is four to five times more efficient in energy used per mile compared trucks.

If anything, the many witnesses underscored the need for flexibility to adapt to changing conditions. Technology investments can make networks greener and safer and provide needed efficiency to better weather supply chain shocks in the future. Labor too could be more flexible, both in facilitating the upskilling of workers and in reducing the use of humans for repetitive tasks, which are better served by computers. Rather than encourage shipping networks to make these long term improvements, it appears that regulators want to do the opposite by setting prices, mandating labor levels, and controlling traffic flows, as the Surface Transportation Board (STB) contemplates with a new series of rulemakings in early 2022.

Forced switching

The US already has more freight rail miles than any country, some 140,000.  The green approach is to minimize new tracks and make existing lines as efficient as possible by double-stacking intermodal containers, adding longer trains, and optimizing shipping schedules. Often referred to as “Precision Scheduled Railroading,” or PSR, observers like Forbes contributor Ike Brannon see the drive for efficiency as a key to growth in railroading, which in turn can help green the economy.

However, shippers don’t necessarily have climate in mind when they build a facility. They expect rails to come to them and want a shipping price as close to free as possible. It may be great deal for any one shipper, but it’s not workable financially for the railroad—if policymakers expect continuous improvements to rail networks. While one can appreciate that a company wants to lock in low shipping rates, the voters of a country want to see a continually improving transport and distribution infrastructure in safety and energy efficiency.

Downsized from the Interstate Commerce Commission from the 19th Century, the STB was chartered to regulate the shipping of coal. To keep itself relevant, STB needs a new constituency. US trade associations for chemicals, the American Chemistry Council and National Association of Chemical Distributors, have been happy to step in and ask the STB to set shipping prices at a level unobtainable in a fair and transparent negotiation, as a forthcoming proceeding suggests. The STB is not acting to ensure consumer welfare or improve the environment, it is helping shippers get a free ride. David Henderson offers a helpful overview of the history of railroad regulation, its deregulation in 1980s, and subsequent efforts to re-regulate today. Sadly it appears that Democrats have forgotten the important policy success of the Staggers Act which laid the groundwork for competition and energy efficiency in rail.

Forced labor

A similar travesty against consumers is afoot at the Federal Railroad Administration in allowing critical rail safety programs to expire. A recent letter from 23 Senators to Deputy Director Amit Bose asks the FRA to “expand the use of automated track inspection (ATI) technology, which currently operates by waiver and through testing programs. ‘The data-driven fusion of ATI and visual inspections is producing a superior safety outcome, with track employees’ hours being reallocated to verifying and remedying the greater number of defects detected by ATI rather than conducting redundant visual inspections,’ the senators wrote. FRA has allowed several of these ATI programs to expire in recent months, even declining to extend one because it said the agency didn’t expect any new data to come out of it. ‘If this delay is due to FRA’s satisfaction with the ATI data collected to date, please indicate what next steps FRA is considering to further enable use of this safety technology,’ they wrote.” There is nothing more than FRA needs to do that reset the expiration date.

Investments in safety are the bedrock of all transportation networks, and around the world, both passenger and freight trains are becoming automated because of superior safety outcomes. Leading innovation expert Rob Atkinson of ITIF describes the “enabling technologies, such as sensors, communication networks, actuators, and software (including AI)” which cut carbon emissions, increase productivity. He observes,

“Continued technological innovation in the freight rail industry is critical to boosting U.S. living standards by helping to lower freight costs. But regulators need to avoid setting up roadblocks. Policymakers should foster regulation that incentivizes innovation, facilitates the deployment of automated systems, and accommodates dynamic technological change.”

Like the STB, the FRA found new constituencies in major rail unions like the Brotherhood Of Locomotive Engineers and Trainmen (BLET) and SMART Transportation Division (SMART–TD), which appear to have no qualms about holding back the future of safer shipping. By definition, operations can’t be autonomous if they’re driven by humans. The House hearing underscored labor shortages in many parts of the supply chain. Additional regulatory requirements will only exacerbate this problem at the precise moment when both employers and staff need flexibility to adapt.

However, there are constructive ways to ensure the careers of rail workers, notably through upskilling. While manual jobs are not justified in the train cabin, many are needed to manage the computer systems which run trains. Indeed freight rail faces a shortage of candidates for information technology jobs. Safety also encompasses the digital domain, and the freight rail industry has proposed a comprehensive approach for working with US cyber authorities to deter cyber intrusion. In any event, if the freight industry is allowed to respond to increasing consumer demand for goods, it will add more trains and cargo. And along with that, more jobs.

Originally published in Forbes.