[00:00] Bryan Hyde: Welcome to the Powering America Podcast. I'm Brian Hyde, and today I'm joined by Arnav Rao. He is a transportation policy analyst with the Open Markets Institute. And Arnab, first of all, welcome to the program. Would you mind taking just a moment to tell us a little bit about yourself and about your background? [00:16] Arnav Rao: Sure, yeah. So my name is Arnab. I work at the Open Markets Institute. We are focused on fair competition, anti-monopoly, competition policy, and how can use competition policy as a policy tool to make more equitable societies, stronger democracies, and a more resilient economic system, economic and political system. I got into the work, transportation policy work, I worked for a bit in college on the federal affairs team at Union Pacific before working with their lobbying shop. Those guys are They're great, really nice people, love my experience there. But my time there really informed my views about how monopolistic rail systems had kind of captured the political economy, and that drove me to this competition policy and monopoly work since then. [01:15] Bryan Hyde: It's always refreshing to hear someone making the case for competition because as much as it may be a threat to some people, it really is what brings out the best. It's the whole steel sharpens steel kind of kind of principle there. We're going to talk about rail today. And I have to start with, you know, railroads have been around quite a long time. And this may seem like kind of an out-of-left-field question, but why is it that rail still continues to be such a powerful means of shipping in the US today? It's like we really haven't come up with something to replace it in over 150 years. [01:54] Arnav Rao: Yeah, there's good reason for it. Rail, as railroads will tell you, are some of the most efficient means of transportation. They emit fewer greenhouse gases than trucks. They're more efficient. You can take bulk items. And to get to the question as to why we still need rail more than 100 years later, 150 years about, is that really any industrial capacity that we want to build in America, if we want to make things, we want to manufacture goods, we want to build ships, as the president says, we want to reshore a lot of what was lost to Asian manufacturing, we need the rails to be able to move big bulky items. What am I talking about? Chemicals. They move fertilizer. They move wood and rocks and sand. These things are really required for any type of industrial innovation. If we want to have a greener climate, we want to start building electric vehicles or electric vehicle batteries, those things require moving of iron, phosphate, and And all of these subcomponents that are difficult or uneconomical to move on trucks. So a strong rail system is really important for industrial revival. [03:26] Bryan Hyde: So having said that, let's talk about the Union Pacific Norfolk Southern rail merger. Now, I have to admit, Arnab, I don't follow railroad news much. In fact, because I don't live near tracks at this time, I'm largely oblivious to it. But talk to me about how each of these respective railroads are doing, and then let's talk about why they are are looking to merge? Yeah. [03:52] Arnav Rao: So for a little bit of context, Union Pacific is one of the 2 what we call Class I railroads, and they serve the western half of the United States, west of the Mississippi, alongside BNSF. And Norfolk Southern is one of the duopolists in rail on the eastern side of the United States, serving east of the Mississippi River again. And there's really over the years been a strong consolidation of these large Class I, what we call them, railroads. Back during the passage of railroad deregulation, we had north of 30 Class I railroads serving the United States, and now we have just 6. Union Pacific, BNSF on the eastern side, Norfolk Southern and CSX— sorry, BNSF and UP on the western side, Norfolk Southern and CSX on the eastern side, and 2 railroads in the central United States. And what UP and Norfolk Southern are wanting to do is really establish the first truly transcontinental railroad going from one coast to the other coast. And back in grade school, we all learned about the transcontinental railroads of the 19th and 20th centuries, and those weren't actually transcontinental. They sort of terminated near the Mississippi River and didn't go all the way to the eastern United States. This would be the first truly transcontinental railroad, a massive, massive railroad with a lot of power. [05:41] Bryan Hyde: What would it mean in terms of how goods are shipped? You mentioned that the big bulky large quantities of items tend to prefer to still use rail. Would this open up some possibilities, maybe ease the pressure on the trucking industry? [06:01] Arnav Rao: So that's the contention that Union Pacific and Norfolk Southern are making. They're saying that by Merging will be able to provide really this single-line seamless service from the Eastern United States to the Western United States. And by doing that, they contend that they'll be able to take millions of truckloads off the roads. While in principle that sounds reasonable, a single-line service sounds more efficient, In actuality, that it's likely to not be the case. And why do I say this? Because I think what railroads have demonstrated has been the real problem in their industry is it's twofold. They've, one, really abused their market power. They've raised prices since about the early 2000s much faster than inflation, and they've priced out a lot of traffic that have otherwise moved on rail that now moves on trucks. And the result of their massive price increases and pricing power has been pretty stagnant volumes. We've seen this decline in coal, which is one important aspect. Coal decline is multifactorial, but even apart from coal and other industrial groups as well, we've seen flat or declining volume for railroads. So the real problem has been pricing power and abuse of market power. And really the combination doesn't do anything to fix this. Even if we have a single line service, there's no guarantee that the railroad would pass those efficiencies on to shippers. [08:00] Bryan Hyde: This may be an apples-to-oranges comparison, but I would really love to hear your take on the efficiency of trucking versus the efficiency of rail. I mean, does rail just run away in terms of how much more efficient it is, or is there some kind of parity between the two? [08:18] Arnav Rao: No, I mean, for long distances, rail is king. The issue that comes up with rail isn't the fact that It is more efficient, so it should be cheaper. With the pricing power, it just hasn't been. So there's 2 issues really. The pricing power is one, and service reliability is the second one. With trucking, shippers are able to really get a fine-grained, here's where my shipment is, here's when it's coming, here's when they'll be arriving at my facility. They have a standard of reliability that they can rely on. With rail, what's happened recently and in the last about 15, 20 years is this move towards an operating model called precision scheduled railroading. And what precision scheduled railroading has really been is it's really a Wall Street-driven operating model where the railroads ask, how can we strip out as many costs out of the system as possible? and still try to deliver service. The issue is that rail has really kind of gone too far. They've stripped out a lot of assets. They've ripped out track. They've closed extra yards. They've closed intermodal facilities. They've laid off a lot of workers. And their capacity now is really bare bones. So with that, any small disruption will cause cascading failures in the rail system, and that really hurts reliability. So even though rail should be more efficient, shippers find it to be more expensive and less reliable, which really disincentivizes them from shipping on rail. [10:12] Bryan Hyde: Talk to me about the communities that would be affected by this merger. I mean, we tend to think about the trains on the track, but Obviously, there have to be some logistics along the way to maintain those locomotives and so forth. How does this affect the communities that are part of that ecosystem? [10:33] Arnav Rao: Yeah, I think one of the ways that people most commonly interact with railroads is when they're sitting at the blocked crossing, the railroad is crossing the road, and you got to sit there for 5, 10 minutes while the Well, the train that's a mile-plus long is crossing in front of you slowly. And part of the issue with that is— part of the issue with the length of trains has been the advent of that precision scheduled railroading model that I discussed earlier. They've lengthened the trains to try to improve efficiency. They have And as they've increased the train lengths, trains have gotten too long for what the industry calls sidings, which are extra tracks that allow trains to pass each other. And with that, the number of blocked crossings that people experience has increased. And according to the Federal Railroad Administration, which maintains a database of blocked crossings, Union Pacific— accounts for more blocked crossing reports than all of the other Class I railroads combined. They're simply not great actors when it comes to this. And if we take them at their word and they are going to increase traffic on many of these lines, some of these places will see 400% increases in traffic. Across, like in Centerville, for example, 400% increases in traffic. I think the Twin Cities is expected to have an increase of 225% of traffic. So that's going to lead to more blocked crossings if they don't reinvest back in capacity. [12:35] Bryan Hyde: Is there any talk of Rail becoming more of a means of moving people instead of just cargo? I mean, I realize, you know, the old days, oh yes, you hop a train, you know, to Albuquerque or whatever. Is there any chance of that ever coming back? Or is it, in this case, is air travel simply far too efficient and affordable for that to ever be a possibility again? [13:01] Arnav Rao: I think if we have the right regulations again, We could. Part of the reason that Amtrak gets this really bad rep for being extremely delayed, we've seen Amtrak trains be delayed by a day, 2 days on some of these long-distance routes, especially in the West, is that a lot of times they're sitting behind these long freight trains. The freight trains have become so long they can't go into their sidings. So Amtrak trains are kind of just stuck behind them at their slow pace. And under the law, Amtrak trains have priority, but most of the time that's simply not enforced. And with the UP/NS merger, they've said that they're going to increase traffic, but in their latest application. They haven't really addressed Amtrak or commuter rail. A lot of the routes that Amtrak runs trains on, Union Pacific and Norfolk Southern are expecting significant increases in the number of freight trains. They haven't really made any commitments to a timetable-based operating systems or ways to deal with or create extra capacity. None of that's really been addressed in their merger application. So who knows if this problem will ever be solved? And with a larger, more powerful freight rail mega company, I'm not sure. [14:48] Bryan Hyde: And I guess this is just because everyone is kind of feeling the pinch at the fuel pump when they go to fuel up their vehicle, but rising fuel costs, how is that affecting the rail industry in general? And would it have impact on this merger one way or another as well? [15:05] Arnav Rao: Yeah, I mean, rising fuel costs ostensibly should be a favor for railroads, right? Trucks as we mentioned, consume way more fuel than railroads do. So railroads should be happy because their fuel costs are lower, I mean, on a per-ton basis than trucking. But the issue is that oftentimes railroads apply surcharges for diesel fuel surcharges onto shippers, especially captive shippers really feel the pinch of these surcharges, and they've often increased surcharges faster and higher than the actual price of fuel has increased. So again, it's that flexing of the market power that they have on the few shippers that they have remaining. And really the reason why they are incentivized to do this is as more shippers have moved to truck, they have fewer and fewer shippers available to cover all of their costs. So each shipper, they contend, needs to pay higher prices to cover all their costs. So again, that flexing of market power, it really negates the effect that higher fuel prices should have for— it should be a boon to rail, but it's not. [16:32] Bryan Hyde: Those costs are still going to get passed on to the end user. That one's inescapable. [16:38] Arnav Rao: Yeah. And for commodities, Especially farm commodities that rail transportation is such a high proportion of their final costs. Farmers' grain silos really feel the pinch from those increased costs. [16:55] Bryan Hyde: Tell me a little bit about your website with the Open Markets Institute. Where can people go to get more information on this and other subjects? [17:06] Arnav Rao: Yeah. Feel free to visit our website, openmarketsinstitute.org. We do a lot of competition policy-related stuff. In addition to the transportation work, one of my colleagues has done a really— right up the alley of this podcast— has done a really great book on the electrification of the United States, the history of electrification in the early 20th century. Really great book there. Could be a of interest to y'all. And then I do writing on transportation policy for the Washington Monthly and then for other news outlets as well. Those are commonly posted on our website as well. And feel free to follow us on our Twitter and various other social medias as well. [17:57] Bryan Hyde: Again, we've been talking with Arnab Rao. He is a transportation policy analyst at the Open Markets Institute. And Arnab, thank you for shedding light on this. I'll hear a train horn in the night and I'll be thinking differently than I would have been, you know, prior to this conversation. Thank you for joining us on the Powering America podcast. [18:15] Arnav Rao: Of course. Thank you for having me. Take care.