impact of high oil prices on freight transportation: modal shift ...

TECHNICAL REPORT - IMPACT OF HIGH OIL PRICES ON FREIGHT TRANSPORTATION:
MODAL SHIFT POTENTIAL IN FIVE CORRIDORS
5.3 RAIL LINE-HAUL EFFICIENCY
In terms <strong>of</strong> the direct operating cost that it takes to move a train from point A to point B, rail line-haul costs
also show a large sensitivity to fuel, as shown in Exhibit 15.
Exhibit 15: Rail Line-Haul Costs as a function <strong>of</strong> Fuel Price
Scenario $/Barrel
Fuel %
<strong>of</strong> 2005
base
In the 2020 Pessimistic scenario, it can be seen that rail costs rise by 64 percent, which is comparable with
the trucking cost increase. But in monetary terms the rail cost increase is much less since overall rail costs
start from a lower base:
• While rail costs rise by 64 percent, this represents only a 24¢ per FEU-mile increase (from Exhibit
15).
• Trucking costs rise by 85 percent, but this represents a $1.49 increase per FEU-mile (from Exhibit
13).
So in absolute terms, overall rail costs are affected much less by the fuel price increase, reflecting the
relative energy efficiency <strong>of</strong> rail over trucking. In addition, rail costs include a substantial component <strong>of</strong>
terminal operating cost, which are largely fixed; and therefore these costs comprise a greater share <strong>of</strong>
total cost for short hauls, and a lesser share for long hauls. Finally, since railroads have to pay for their
own capacity expansion, they need to charge more than just their cost in order to have anything left over
for funding capital projects, or return on investment.
As a rule, railroads must price competitively to other modes <strong>of</strong> transportation and thus, their price increases
may be more reflective <strong>of</strong> other modes’ costs than <strong>of</strong> their own. “As roadway congestion and <strong>high</strong> fuel
<strong>prices</strong> continue to drive shippers to the railroads, CSX expects its rates to rise 5 percent to 6 percent this
year, with only a small portion <strong>of</strong> that stemming from fuel surcharges meant to <strong>of</strong>fset rising diesel <strong>prices</strong>. 18”
Accordingly, the assertion in Exhibit 4 that inland distribution costs are likely to rise along with maritime
costs is a reasonable one, since for import/export traffic (particularly transcontinental double-stack traffic
to the East coast); maritime costs establish the competitive environment within which the railroads must set
their own <strong>prices</strong> for intermodal service.
18 “CSX Powers Up”, Railway Age magazine, May 2008, page 28.
TEMS, INC. OCTOBER 2008
Rail Cost
per FEU-
Mile
Rail % <strong>of</strong>
2005
base
2002 Historic $28.85 53% $0.30 84%
2005 Base $54.79 100% $0.36 100%
2020 Optimistic $59.61 109% $0.37 103%
2020 Central $91.03 166% $0.45 123%
2020 Pessimistic $157.18 287% $0.60 164%
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