Monday, August 22, 2011

Lies, damned lies, and statistics

This particular bit of propaganda, especially the claim about high speed rail ticket prices per mile, has been making its way around lately, including by State Assemblyman Jerry Hill. It provides an excellent example of the value of cherry-picking one's data to support the conclusion.

Using empirical evidence from analyzing fares on high-speed train routes in Europe and Japan, it appears the CHSRA’s high-speed rail per mile rate should be about $0.44/mile to recover operating and construction costs; 80% higher than their presently-used $0.24/mile. Setting aside for a moment the fact that all but two of the world’s high-speed rail routes are subsidized, and assuming they at least break even, the analyzed per mile rate would make a one-way SF to LA ticket cost about $190.5 Therefore, if the CHSRA’s assumed private operator must charge enough to break even, four tickets for a LA/SF round trip would cost at least $1,520.

First the lie: The California High Speed Rail Authority is not required to recover construction costs, only operating costs and any revenue bonds sold on the basis of HSR ticket revenue. It is therefore, irrelevant, to cite what may be needed to recover construction costs.

With regards to the damned lie, as I have already shown before, every high speed rail operator recovers operating costs based on passenger revenue. The claim that "all but two of the world’s high-speed rail routes are subsidized" is a falsehood based on which routes have fully paid off their construction bonds, an assumption that does not necessarily work if, as SNCF has chosen to do, profits are used to invest in expansion rather than paying off the extant loans. It is a rather foolish person who considers a business unprofitable simply because the original loan is not yet paid off.

Lastly, we come to the statistics. Their empirical evidence fares in Europe are peak hour next day 2nd class fares upon Paris-Lyon, the most congested and hence profitable line within France. As any economics student could easily point out, when lines are operating at or near maximum capacity and there is still substantial demand, the fares will, absent outside regulation, reflect the highest price the market will bear. At 425 kilometers and 86.4 euros peak, this reflects a price of €0.20/km or $0.47 per mile. However, if we look at the Paris-Marseille segment, which covers 783 kilometers in three hours, we have next day fares ranging from €54 to €97, or $0.16-0.29/mile. Advanced fares drop as low as €39.90 for two weeks in advance, twelve cents per mile. Seen in this light, if anything, the 24¢/mile fare proposed for CAHSR is actually too little.

Similarly, the Japanese fares referred to appear to be from JR East's Tokaido Shinkansen who charge a flat fare of 14,050 yen on the Nozomi express trains between Tokyo and Shin-Osaka. That equates to a hefty 53¢ per mile, but again, this is not a sign of actual operational need rather than profit-taking. The congestion and demand on the Tokaido Shinkansen is sufficiently high that JR East is planning to build a ¥9 trillion maglev line to supplement it (a line which will be entirely privately funded and expected to be operational). A longer journey from Tokyo to Hakata, again using the Nozomi express along the congested Tokaido Shinkansen, is ¥22,320, 40¢ per mile. It is, of course, notable that that fare level does not impair traffic, contrary to the assertions of the Community Coalition on High Speed Rail.

A more proper response by CC-HSR would have been to try plugging in numbers for themselves and seeing if the numbers worked. Then, and only then, would it be appropriate to criticize the 24¢/mile figure if the numbers did not pan out. Since they failed to do so appropriately, I'll make some effort at doing so.

1. The trainset will resemble a Siemens Velaro E with a cafe car and a total of 405 seats in three classes (however, for the purpose of this analysis, all seats will be treated as coach).
2. The notional average trainset will travel an express route from Los Angeles to San Francisco with no stops.
3. Attributed maintenance costs will be equal to $33.74 per mile, in accordance with the tolls SNCF pays along Paris-Lyon.
4. Electricity use shall be 35.41 kilowatt hours per mile, similar to the TGV Atlantique (page 74), and the price per kilowatt hour 8.46 cents.
5. Three employees (engineer, conductor, and cafe attendant) whose total compensation per hour is 40, 30, and 25 dollars per hour respectively, with an assumed 3 hours of paid time per notional average trip.
6. The average train will have a capacity factor of only 50%.

These direct marginal operating costs come then to a total of $16,154.82 for the 432 mile journey. At 24 cents per mile, the 202 passengers paid a total of $20,943.36 ($21,210 if we round up to the $105 ticket cost) in fares, meaning that the average train should cover its costs handily. Amtrak's experience is that the cafe car adds an additional 7% to the revenue, boosting total revenue to $22,694.70, an operating profit of $6,539.88. Provided that these numbers truly represent the average train, the California high speed rail system should not face any difficulty in raising sufficient operational revenue to run an operational profit at the 24 cents per mile fare level.

Thursday, August 18, 2011

Why did freight electrification fail in America?

Having recently acquired a copy of The Milwaukee Electrics by Noel T. Holley, I thought it might be worthwhile to go through and post some thoughts on why electrification did not become more widespread and was generally dismantled in the United States.

1. Electrification was extremely expensive. The Milwaukee Road’s 654 miles of electrification cost 23 million dollars when completed in 1920, some 200 million dollars adjusted for inflation using a GDP deflator or some 3.78 billion as a relative share of GDP. While that would not pose a major problem for the Class I railroads of today, that amount was a rather large sum for the Milwaukee Road and, in part, led to its bankruptcy in 1925.

2. It did not produce major financial gains, even with regards to steam locomotives. After subtracting the cost of bond and interest payments, electrification amounted to only one million dollars in annual savings on the Rocky Mountain Division and $100,000 on the Coast Division (the Coast Division having had construction and interest prices increase greatly compared to the Rocky Mountain due to World War II). Higher traffic would have greatly increased the savings, however the Milwaukee Road was the Johnny-come-lately transcontinental and suffered accordingly. It is tempting to believe that had it been the Great Northern which electrified instead, the electrification might have been maintained to the present day.

3. The World Wars, Great Depression, and economic troubles for some in the 1920s put severe limits on the financial capability of the major railroads to make the major investments that electrification entailed.

4. Diesels provided nearly all of the advantages of electrification at far less cost. While electrification required the construction of extremely large amounts of infrastructure before a single locomotive could run, diesels could be integrated into the normal purchasing cycle and gradually replace steam locomotives.

5. For quite a long period of time, electrics did not offer a significant difference in motive power cost compared to diesels and could in fact be more expensive to operate. To quote the aforementioned book:

A study performed by Laurence Wylie in 1949 indicated that new diesels would be slightly cheaper to operate on the Coast Division than the old electrics. The purchase price, interest and taxes are what made diesels are more expensive choice.

This closeness of costs was not unique to Milwaukee. A 1948 study on the Great Northern electrification found diesels to be slightly cheaper to operate there also. The Great Northern blamed this on the exorbitant rates it was paying for electric power. Its variable rats went as high as $.01 per kilowatt hour (kwh) including demand charges. Joe Gaynor, who headed the G.N. electrification, felt the rate would have to be cut to $.005 per kwh for economics to justify expansion of their electrification.

Energy costs were one of the factors favoring electrics on the Milwaukee. From the late 1940’s through the late 1960’s, the Milwaukee paid $.09 per gallon for diesel oil compared to $.068 for enough electricity to produce equivalent power. (Calculations and locomotive tests showed that one gallon of oil equaled 12.5 kwh which were purchased for $.00544 per kilowatt hour.) This rate was quite good in comparison to the Pennsylvania RR which paid roughly $.009 in 1950 and $.013 by 1966.

Today of course, the situation is quite different when it comes to the price of fuel. However, that does not necessarily support electrification of the mainline corridors as a real possibility within the next few years. With only a limited amount of funding available for improvements, expansion of freight service is likely to be a more profitable endeavor, and so receive the monies, than electrification absent a public-private partnership for the purpose of electrification.

Friday, August 12, 2011

Oil prices lead to higher usage of intermodal rail services

Survey Sees Major Shift of Truck Freight to Intermodal

Shippers shifted freight from all-truck modes to intermodal at the fastest pace in years during the second quarter, according to a closely watched survey by the Wolfe Trahan research group.

Based on preliminary results of the survey conducted in July and early August, the shift from roads to rail occurred more than at any point in the last eight years, the analysts said, and shippers expect to shift more domestic cargo to intermodal in the months ahead. The full results of the survey are scheduled to be released before Labor Day.

During the April-June quarter, “shippers in our survey shifted a net 4.5 percent of their volume from truck to rail,” said analysts Edward Wolfe and Scott Group, for “the highest net shift to rail in the past eight years of our survey.”

Shippers also said they expect to move a net 3.6 percent more to rail from highway-only transport over the next 6-12 months, which is a pickup from recent surveys. In this year’s first quarter, shippers projected a 3.2 percent net shift in the coming year, up slightly from last year’s fourth quarter.

For most of last year, surveyed shippers told Wolfe Trahan they only expected to shift a net 1.3 percent to 1.9 percent of their business away from road delivery to intermodal.

While rail industry officials often credit the shift to improving rail service times and investments to convert more of their rail networks to doublestack clearances, researchers found a strong correlation between modal shifts and oil prices.

When average quarterly oil prices were below $70 a barrel for West Texas Intermediate crude during 2009, the survey found freight shifting back to trucks and the delivery convenience they provide.

But when WTI quarterly pricing moved above $70 per barrel in 2010 followed by a spike this year, shippers increasingly put more cargo aboard trains for the long-haul part of the trip.
With realistic long term oil prices remaining above $70 a barrel for the foreseeable future, freight rail is increasingly going to be the shipper of choice. Electrification, which offers energy prices roughly one third of the current cost of diesel, may become a means of competition between shipper; however, this is presuming that there is sufficient capacity on the rail lines to warrant such, which is generally not the case at present. Certainly however, the expectation of 500 hybrid locomotives sold by 2020 is one that should be easily matched. My own expectation is that such a number is probably on the more pessimistic side, should the claimed fuel savings hold up in practice.

Wednesday, August 3, 2011

When rail spending is depressing and an outrage

Earlier today, Secretary LaHood announced an additional $336 million in Federal funding for the purchase of new intercity locomotives and rail cars. This brings the total of such awards to $782 million for a total of 33 locomotives and 120 passenger cars. This is, quite frankly, an absurd amount of money. At an average of five million for each vehicle, the utility of continuing to purchase individual locomotives and cars rather pales. Diesel or electric multiple unit train sets, even FRA compliant USRailcar models, become a far better value for the money as they offer increased performance over traditional locomotive and car consists. Their relative novelty to American passenger railroading may also offer a useful public relations boost with a "futuristic look."

Consider, for instance, that NCTD in San Diego County was able to purchase twelve Siemens Desiro DMUs at a total price of 52.2 million when they set up the Sprinter rail service, a price of 4.35 million per unit. For this price, instead of receiving 6 locomotives and 42 rail cars, California could have purchased 48 such multiple units. Four unit consists would enable 478 coach seats and 24 business class seats, using Desiro Classic specifications and assuming each end car contains business class seats. These twelve trains would be capable of taking over, in part or in full, for any of Amtrak California's routes and providing increased service in the process, perhaps allowing even for an authentic Surfliner Express rather than the paltry 15 minute savings currently offered.

As a further note, it is outrageous that California is the only state to spend substantial sums of it's own money on increasing capacity through this measure. 42 million, 20% of the total funding, came from California's own funds. Only Illinois paid as well and their funding amounted to a paltry 11.6 million, barely 5% of the purchase that was made for and about 2.5% of the total projects Illinois is involved in. Further Federal funds should require a state match similar to that of California's.