Fuel Inflation
- Posted by ryan on March 13th, 2008 filed in In the News
Economists like to point out that we consume much less oil per unit of GDP than we did back in the 1970s, making the country less vulnerable to increases in oil prices. Maybe so, but oil is still omnipresent in the nation’s economy. While us Metro-commuting urbanites are thanking our lucky stars that soaring gas prices haven’t taken a direct chunk out of our wallets, it’s still the case that many of the goods we buy arrive courtesy of long-haul truckers, who fuel their rigs with diesel. This provides a direct inflation pathway from fuel to goods, either through increases in trucking rates for companies that can demand them, or from reduced goods supply as high fuel costs shave margins and drive freelancers out of business.
This is an absurd state of affairs. Long-haul cross-country shipping should be done via rail, and it no doubt would be (especially now) were we not so terrible about investing in our rail resources. Even diesel powered locomotives are far cleaner and cheaper to fuel than the trucks they replace. Were our railways entirely electrified, the efficiency gains would be greater still, and freight emissions would decline as electrical generation shifted toward renewables. And obviously, there would be significant gains from getting trucks off the roads, both from reduced congestion and from a safety perspective.
And really, the cost per capacity of rails versus roads should make this a no-brainer. I can’t imagine there’s much–or any–cost advantage to paving three new lanes along a right of way as opposed to laying three new rail lines. The capacity difference, however, is enormous. Isn’t value for money invested an important consideration anymore?
March 13th, 2008 at 1:58 pm
Investments in rail are now, belatedly, being made. The WSJ covered it a month or so ago.
Trucking fuel isn’t that large a percentage of goods’ cost. I once sat down and calculated the fuel cost to move 30,000 pounds 1500 miles by truck. It bascially takes one gallon to move 100 pounds 1500 miles by truck. Doubling the price of diesel from $4/gallon to $8/gallon would add just 4 cents per pound to the transportation cost.
Still, rail is cheaper, and we’ll see an incrase in capacity over the next few years.
March 13th, 2008 at 2:07 pm
The problem with long-haul freight shipping is the same problem you have with long-haul subway commutes: that last mile. Why does crosscountry freight get unloaded either outside Baltimore or Richmond and THEN trucked to DC? Someone decided that freight handling in the Potomac Yards stockyards wasn’t cost effective. And now that area is developed with residential and commercial, it’s too late.
On the commuter side, had they built the Tysons Corner Metro station, how does Mr. Commuter get from the station to the Booz-Allen building 2 miles away? He waits 40 minutes for the shuttle bus, if it’s anything like the Falls Church Metro loop.
Time is money and a lot of people don’t have it to spend waiting on a bus. Give them more and smaller busses, and you might make a dent in the number of parking spaces.
March 13th, 2008 at 2:48 pm
Monkey, I think long-haul trucking is referring to routes like Baltimore to Denver, not Baltimore to DC. Trucks will always have the advantage in the last mile.
However, if you’ve every driven a cross country road trip along I-80, I-70, or one of the countless other cross country interstates (many of which parallel cross country rail main lines, too), there are plenty of trucks out there with license plates from far, far away.
And as for trucking rising up in the first place, it’s pretty easy to compete against the railroads when Uncle Sam decides he’s going to more or less build you a nationwide network of freeways - for free - while your sucker competitors on steel rails not only have to use their own money to build tracks, but they’re subject to a lot more regulations, too. Imagine if we subsidized rail improvements to the same degree - capacity expansion, electrification, etc.
March 13th, 2008 at 3:06 pm
So with $4 a gallon diesel, at what pricepoint does longhaul not make economic sense? And how can heavy rail use this to its advantage?
March 13th, 2008 at 3:14 pm
AC is right that the rail network is gradually being expanded. As it stands, there’s just about no excess capacity for freight. As such, the only way to switch away from long-haul trucking is to make long-haul trips short-haul trips. One way to do that would be to adjust sea-shipping patterns, but it’s not like we have a ton of extra port capacity, either. Another way is to adjust the physical locations of distribution centers, but that’s not exactly a quick fix.
Trucking, like driving, is slow to respond to increased fuel costs, because there just aren’t good alternatives. In the short term, these things will just translate into higher prices for goods. For some of those goods, consumers will suck it up and pay more. For others, consumers will buy less.
Heavy rail can use this to its advantage by saying look, it’s stupid to count on trucking for long-haul shipping in a world where gas isn’t getting any cheaper. So please to be investing in rail infrastructure, Uncle Sam.
March 13th, 2008 at 3:18 pm
I think the breaking point depends totally on the context of each individual shipment. How direct is the train route? How long is the truck ride for the last ‘mile’? What you’re shipping also matters a great deal. The railroads have been working hard at the market for container shipments - off of a boat at the port, onto a train, then onto a truck for the last mile - all in one container.
Other raw commodities, such as coal, are even more efficient, since their origins and destinations are more or less set in stone, and tracks go there.
The kicker about rail is that all of those freight locomotives are already diesel-electric - the diesel engine is essentially a giant generator for electric motors that actually spin the wheels. Putting up the wires for electrification is quite expensive, but promises to save a lot of money in the long run, and also allows for the use of regenerative braking and and other fun technologies.
March 13th, 2008 at 3:27 pm
What’s the likelihood of the next administration putting serious investment in freight infrastructure, considering Congress has been trying to kill Amtrack for decades?
March 13th, 2008 at 3:30 pm
Depends on the administration. An Obama White House would, I think, be strongly supportive of new infrastructure investment, including rail.
And Amtrak has some strong champions in Congress, on both sides of the aisle. As often as not, in recent years, Bush has tried to kill Amtrak, and a collection of Dems and Republicans has restored the funding.
March 14th, 2008 at 10:23 am
And as for trucking rising up in the first place, it’s pretty easy to compete against the railroads when Uncle Sam decides he’s going to more or less build you a nationwide network of freeways - for free - while your sucker competitors on steel rails not only have to use their own money to build tracks, but they’re subject to a lot more regulations, too.
A nationwide network paid for by dedicated taxes on the users, however, at least at the federal level. Congestion charges would be an even smarter way to fund roads, but it’s ludicrous to pretend that the entirely gas tax funded Federal Highway Trust Fund is a subsidy for roads and driving. Even at the state level, most highway funds are from gas taxes and other driver only taxes like registration fees. (At least for VA and NC, the states with which I’m familiar, though the last two Virginia governors have also gotten General Fund monies spent on roads as part of their general infrastructure investment programs.) However, it’s true that there is overall government subsidy of roads, but it comes at the state and local level, not from Uncle Sam. (At the same time, there are a large number of state-supported Amtrak routes as well in important corridors.)
There are much better arguments for rail being subsidized, mostly focusing on the ancillary benefits like reduced congestion on roads and reduced energy use.
Of course, Amtrak’s energy use per passenger and reduction of congestion per passenger would be even more impressive if Amtrak concentrated only on the 100-750 mile rail corridors, which are all experiencing ridership increases and near profitability instead of the lightly ridden national routes. Rail should clearly replace many short distance flights. However, groups like the National Association of Railroad Passengers are always complaining the loudest about any plans to cut the inefficient and unprofitable routes. The thought, apparently, is that politics makes it necessary.
March 14th, 2008 at 10:37 am
Another odd “subsidy” for highways is that, despite the various environmental benefits of rail with energy consumption and congestion, it takes considerably longer to perform the environmental impact statements for new or upgraded rail rights of way than for new or upgraded highways. I assume that FRA regulations are partially responsible. Just look at the Southeast High Speed Rail Corridor, now in its tenth year of EIS study.
March 14th, 2008 at 10:45 am
Here’s the WSJ article mentioned earlier in the thread.
I don’t worry about freight rail too much. They own the tracks, they’ve had record profits recently, and they’re investing in capacity upgrades. Amtrak does have some serious issues where the freight railroads own the track, since they are less interested in upgrading trackage to support high speed rail (or even 90 mph rail) that the freight trainsets don’t run at, but that’s not a problem for freight rail.
March 14th, 2008 at 11:26 am
The thing about the gas tax funding highways, however, is that passenger cars provide a huge subsidy for trucks carrying cargo cross country. Especially when you factor in the damage that heavy trucks do to the roadways, their extra fees and (in many states) higher taxes on diesel fuel don’t come close to making up the difference in terms of damage.
And, even if there isn’t a direct subsidy involved, there’s a clear policy preference expressed in the choices made by the Feds over the past 50-60 years to emphasize automotive transport over all other modes. They haven’t just emphasized trucking, they’ve hamstrung the railroads, as well.
March 15th, 2008 at 5:44 pm
I would also point to Alan Drake’s idea to electrify the freight network.
http://www.lightrailnow.org/features/f_lrt_2006-05a.htm