Investment boon or sinkhole?

Investment boon or sinkhole?

My friend and colleague Ted Prince made some interesting and important comments on public investment in transportation infrastructure in this space two weeks ago ("Olympic hurdles," July 4). Most of what he had to say also could have been said about private investment.

Ted is absolutely unassailable in his discussion of Nimby-ism (the virulent disease afflicting some who don't want anything to be built in their back yards), the problems of cost-benefit analysis in determining whether to spend public money for projects that may drive economic development, and the long life of capital. In addition to Nimby, Ted commented on BANANA - Build Absolutely Nothing Anywhere Near Anything. He missed the ultimate: NOPE - Not on Planet Earth.

Most of the factors Ted cited also exist in the private sector and must be dealt with. One difference is that private institutions don't have the luxury of time. Actually, public institutions don't either, but they take it anyway and it is rare that they can be forced to make a decision before they are ready to do so.

Even when the studies show greater benefit than cost, public entities - port and airport authorities, highway departments - can have a tough time getting taxpayers to put up the money for otherwise essential investments. Investment capital may be scarce or expensive for private entities, but once they persuade bankers that the money will be paid back, and with a return, they don't have to justify the expenditure to anyone else.

Try to build a new rail-classification yard in or near any major metropolitan area. The noise level of the cries of "Nimby, Nimby" rival that of a flock of crows. With intermodal growing rapidly, Union Pacific and BNSF Railway found themselves in need of new terminal facilities in Chicago.

UP thought it had a site and announced it several years ago. Then Dennis Hastert, the House speaker in whose district UP originally planned to build, weighed in with his objections. Result? UP built its newest intermodal terminal in Rochelle, Ill., 70 miles west of Chicago and halfway to Iowa.

BNSF had similar problems. Its existing close-in intermodal facilities were landlocked and couldn't be expanded. BNSF's new Logistics Park-Chicago is at the site of a former Army arsenal at Joliet, about 35 miles from Chicago as the Nimby-bird flies.

Both railroads actually may be better off with the distant terminals. It makes sense to ground containers and trailers farther from the congested center of Chicago, particularly shipments destined to distribution centers and consignees outside metropolitan Chicago. For traffic to be delivered close in or be interlined to an eastern railroad, BNSF and UP still have their older terminals.

For much of the past 50 years, railroads had to contend with the fact that their investment decisions tended to outlive those of their customers. An automaker decides to build a stamping plant, engine plant or assembly plant. The serving railroad spends money building facilities to handle the inbound and outbound business. There is just one problem, as anyone riding a Metro North Hudson Line commuter train past the now-demolished General Motors plant at Tarrytown, N.Y., can see: The plant is likely to close before the railroad has recovered all of its capital through amortization and depreciation.

After Japanese cars began pouring into the West Coast, Southern Pacific suffered the closure of seven auto-assembly plants in California. SP facilities were still there, but weren't being used and the investment was not bringing a return on capital. This contributed to SP's eventual sale to UP.

Some capital-investment decisions that railroads must make today may not carry as much risk as in the past. Expansion of an intermodal facility is not as dependent on the capital decisions of customers or even the likelihood that their facilities will still be operating in 30 or 40 years.

Intermodal is flexible. The railroad doesn't pick up a loaded container or trailer at a manufacturing facility, or deliver it to a consignee. Originating traffic arrives at the railroad's intermodal facility, is moved in trainloads to an intermodal yard, and is drayed to its final destination. Before that traffic pattern would become uneconomic, entire communities would have to decay.

With the constrained capacity environment in which railroads now operate, intermodal and all other types of traffic now are expected to pay their way and make a significant contribution to fixed cost. That reality is behind BNSF's decision to complete the double-tracking of its Transcon line between Los Angeles and Chicago. The Transcon is used mainly by intermodal trains, and the investment in additional capacity is justified by solid growth.

Larry Kaufman, former intermodal editor of The Journal of Commerce, has worked in and written about railroads for nearly 40 years. He can be contacted at Lkauf81509@aol.com.