UNION PACIFIC
Nati Harnik  /  AP file
The nation's rail infrastructure needs to be brought into the 21st century, many experts claim. “The day of us [railroads] being the sponge that can take the demand surge is over,” says Fred Green of Canadian Pacific Railway.
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updated 9/15/2004 6:55:09 AM ET 2004-09-15T10:55:09

At Brighton Park, a grassy rail junction a few miles south of central Chicago, locomotives shunt containers that have traveled hundreds of miles from the east and west coasts of the U.S.

The intersection is unremarkable save one thing: a wooden shack, painted blue, standing close to the tracks. The structure, built around 1920, is the junction's switching station. Inside, a railroad employee shifts a set of levers by hand, operating signals on three poles that flip up or down, sending the all-clear to oncoming trains.

This is hardly what you would expect of the world's mightiest rail network, which propelled U.S. industrial growth in the 19th century and helped tap the vast agricultural wealth of the Midwestern plains.

But much of the rail infrastructure in the U.S. dates back many decades. Some of the lines are single track, built to move troops during the Civil War, unsuited to the modern era in which trains generally use double tracks that allow travel in both directions.

The rail system's weaknesses have been cruelly exposed this year as the U.S. experiences all-time record freight volumes.

"We're seeing 21st century freight flows trying to fit into a 19th century rail network," says Roger Nober, chairman of the Surface Transportation Board, the rail industry regulator.

With about 40 percent of all U.S. freight carried by rail, there are fears this could be a drag on the U.S. economy. There are also concerns over the system's ability to cope with a projected doubling in the nation's freight volume in the next 20 years.

Record volumes are being driven by unprecedented demand for U.S. commodities such as coal, grains and metals from China, and as the strengthening U.S. economy has spurred economic activity after a four-year recession.

At Chicago, through which over a third of all rail freight in the U.S. passes, the situation is acute. It is the only U.S. city where all of the six biggest North American railroad company networks intersect.

Yet the city's rail yards — the largest rail hub in the U.S. — were built to accommodate rolling stock no longer than 3,000 feet. Today's locomotives drag cars that stretch up to 8,000 feet or almost two miles.

David Johnson, director of rail transportation for IMC, a global fertilizer company based in Illinois, says: "We have very quickly come to a point where the volumes have started to overwhelm the capacity."

Floyd Gaibler, deputy under-secretary of farm and foreign agricultural services at the U.S. Department of Agriculture, says: "There's much at stake for shippers, railroads, grain producers and for the U.S. economy."

Fred Green, executive vice president of operations and marketing for Canadian Pacific Railway, which operates two rail lines in the U.S., argues that although all railroads have bought extra locomotives and hired extra staff to cope with the current record harvest: "The day of us [railroads] being the sponge that can take the demand surge is over. At some point you have to look at track expansion."

That means making massive investments in the national rail network. Yet there is no agreement on how this should be financed.

The STB acknowledges that the rail industry cannot invest on a large scale, pointing out that its cost of capital is about 9.4 percent, yet its return on invested capital is only 6.8 percent.

Clarence Gooden, chief commercial officer at CSX Transportation, one of the four biggest U.S. railroads, says the industry is "not looking for government handouts".

He says the solution has to be a combination of getting costs down and freight rates up. "We need tax credit relief and a look at what type of incentives can help the industry make the mathematics work," he says.

Edward Hamberger, AAR president, says the problem needs to involve the port authorities, rail customers and others. "There is a huge flow of freight coming this country's way and there needs to be more recognition that we need to look at this holistically."

Chicago has moved in that direction with an ambitious, six-year public-private partnership project unveiled in June that involves $1.6 billion in track modernizations funded jointly by railroads, the city, Illinois and the U.S. government.

However it depends on the approval of a $900 million in federal government funds under the latest Transportation Authorization Bill, legislation that governs the disbursement of federal funds for transport needs. That is already a year behind schedule.

Gerald Rawling, director of operations and analysis at the Chicago Area Transportation Study, a federally and state-funded initiative, says time is running out: "We've reached the point where some large scale investment is needed, but that depends on whatever political will is there. And frankly I don't think it is yet."

© The Financial Times Ltd 2013. "FT" and "Financial Times" are trademarks of the Financial Times.

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