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Talking Freight

Perspectives from Freight Transportation Providers - Trucking and Rail

March 17, 2004 Talking Freight Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the talking freight conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. If you have a question, please press the 1 followed by the 4 on your telephone any time during the presentation. At that time, your line will briefly be accessed to obtain information. I would now like to turn this conference over to Ms. Jennifer Seplow. Please go ahead, ma'am.

Jennifer Seplow:
Thank you. Good afternoon or good morning to those of you to the west and happy St. Patrick's day! Welcome to the talking freight seminar series. My name is jennifer seplow and I will moderate today's seminar. Today's topic is perspectives from freight transportation providers: trucking and rail. Please be advised that today's seminar is being recorded.

Today we have four speakers, dan murray of the american transportation research institute, todd spencer of the owner-operators independent drivers association, Craig rockey of the association of american railroads, and rob martinez of norfolk southern.

Dan murray is the director of research for the american transportation research institute, formerly known as the ATA foundation. ATRI, the research arm of the arm of the trucking industry, conducts research, analysis and evaluation on a broad range of transportation issues including technology, safety & human factors, security, environmental factors, and economic analyses.

Mr. Murray has directed numerous U.S. dot-sponsored projects including the electronic supply chain manifest operational test; air cargo security access system; development of real-time freight performance measures; freight data privacy standards and protocols initiative; and integration of intermodal data systems.

He is also a past board member of the Minneapolis-St. Paul metropolitan planning organization (MPO) representing freight interests.

Todd Spencer is the executive vice president of the owner-operator independent drivers association (OOIDA).

Mr. Spencer began his career in trucking as an employee-driver in 1974. In 1976, he purchased a truck and became an owner-operator trucker leased to a motor carrier. In 1978, he was elected to the association's board of directors. In 1981, he sold his two trucks and assumed the role as editor of the association's magazine, land line, and communications director for OOIDA. In 1992, he was elected to his current position as executive vice president.

Mr. Spencer has testified before various committees in the U.S. congress on trucking issues. He has served on various committees of the commercial vehicle safety alliance (CVSA) as an industry representative, as well as serving as an industry advisor to the federal motor carrier safety administration and the national transportation safety board.

Craig Rockey has been with the association of American railroads, located in Washington, D.C., since 1978. He is currently the vice president - policy & economics. Mr. Rockey's responsibilities focus on the industry/public policy, economics, regulation, and finance areas concerning the railroad industry. He conducts and supervises economic, financial, statistical, and cost studies; oversees creation and maintenance of databases, publications, and reports; evaluates regulatory and legislative proposal and internal industry initiatives; prepares and offers testimony before a various bodies; and prepares and delivers presentations and speeches.

Mr. Rockey has published numerous articles in transportation journals. He has submitted testimony and appeared before a variety of federal and state agencies and tribunals. He frequently acts as spokesman for the rail industry and has consulted for railroads in africa, asia, and north america. He is a member of various transportation and economic professional organizations and has co-authored a book entitled small railroads.

Dr. Robert Martinez is vice president marketing services and international of norfolk southern. During the first bush administration, he served at the u.s. department of transportation as deputy administrator for the maritime administration and was promoted by president george bush to associate deputy secretary of transportation and director of the office of intermodalism.

Dr. Martínez began working for norfolk southern in 1993 but left in 1994 to become the secretary of transportation for the commonwealth of virginia under governor george allen. As secretary of transportation, he had oversight over the virginia department of transportation (highways), the department of rail and public transportation, the virginia department of aviation, the department of motor vehicles, and virginia port authority.

Dr. Martínez returned to norfolk southern in early 1998. In his current position, he has oversight for the ports on the norfolk southern network, for international business development and for the market research and economics group.

I'd like to go over a few logistical details prior to starting the seminar. Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience question and answer. The operator will give you instructions on how to ask a question over the phone during the q&a period. However, if during the presentations you think of a question, you can type it into the smaller text box underneath the chat area on the lower right side of your screen. Please make sure you are typing in the thin text box and not the large white area. Presenters will be unable to answer your questions during their presentations, but I will use some of the questions typed into the chat box to start off the question and answer session in the last half hour of the seminar. Those questions that are not answered will be posted to the freight planning listserv. The listserv is an email list and is a great forum for the distribution of information and a place where you can post questions to find out what other subscribers have learned in the area of freight planning. If you have not already joined the listserv, the web address at which you can register is provided on the slide on your screen.

If at anytime you would like to zoom in on the slide that is showing on your screen, you can click on the zoom icon at the top of your screen. It looks like a magnifying glass with a plus sign in it.

Finally, I would like to remind you that this session is being recorded. A file containing the audio and the visual portion of this seminar will be posted to the talking freight web site in the next day or so. To access the recorded seminar, please visit and click on the “recorded events” link on the left side of the page and then choose the session you'd like to view. Due to the size of the file, recorded files are available for viewing/listening purposes only and cannot be saved to your own computer. We encourage you to direct others in your office who may have not been able to attend this seminar to access the recorded seminar.

We are continuing to work to make the PowerPoint presentations used during the seminar available. When these presentations become available I will send an email to let you know.

Good afternoon, everybody, welcome to perspectives from freight transportation providers - trucking and rail. We will now begin with the presentation of dan murray of the American transportation research institute. Dan, give me a second here. I will start you as a presenter. Okay, dan, you can go ahead.

Dan Murray:
Okay, thanks, jennifer. Thanks, everyone for joining us today. I am normally involved in more analytical research, hopefully today, I will do this very quickly, I probably should have incorporated a few more slides than I should have, what I will do is walk through really quickly what the issues are at a broad level, how they relate to the trucking industry and then I will offer some views on strategic issues and -- trends that we see developing in the trucking industry. Obviously there's some debate associated with some of these issues, but we can discuss that in q and a. At the highest level there are economic issue that is affecting all four modes, manufacturing production is up, and it, the february indicators look good, so, manufacturing is one of the most important indicators of trucking industry, and the other modes, certainly for primary planning and shipment issues. The manufacturing productivity has increased continuously, even through this last time period of what we called, I guess, a recession. Greenspan credits, himself, as technology as bridging the gap for increasing productivity at the same time job losses or jobs, static situations existed. So, technology plays a role in productivity, but, again, the indicators are forward growth is looking good. Railroad sales, which -- retail sales which either drive or mirror the productivity growth in manufacturing look good. They have been relatively high in all honesty through most of the last few years, of course related to customer confidence. There are multiple tracking mechanisms for customer confidence. Plus or minus some values here and there been high and it's probably one of the few things that did carry us through the recession and helped us avoid a more problematic economic growth period. Customer confidence is another important tracking mechanism that allows us to gauge some future forecasting. So, what does all that have to do with the trucking industry? Well, our economics mirror the economy in many way, and I am going to go out on a limb and say wall street does not reflect in sort of a dow jones industrial average what is going out in the field, because the truth is the trucking industry right now is doing quite well. We are moving a lot of and have been for quite some time, in fact. This of course often times is stratified across many sectors of the industry but in general most sectors of the industry right now are doing really well. It's a good sign. If you look across a longer time period, we have seen the 6% average annual growth, without much deviation, even through sort of the problematic time periods, and that's a good sign, 6% growth is certainly healthy from our standpoint, and '04 is really looking like we may see slight increases in a 6% growth rate. If you look at truckload, obviously one large sector of industry, the large carriers are doing very well, again many people credit this to a combination of critical mass, a liquidity, investment in assets and some -- investments that larger carriers can make in smaller carriers, todd will talk about, have a challenging time, but nevertheless with an index of 100 the industry clearly on the truckload side is holding its own. If you take that and break it you will -- up by hauls, which is relatively important, certainly from the intermodal aspect, short and medium hauls are doing well, and you are seeing a decrease in the long hauls, but, that's, again, the role of the intermodal, and if you look at the announcement that was made for the fourth quarter of '03, in the fourth quarter alone, intermodal growth was 8%. So intermodal as I will mention in a short while is an important part of this. LTL. Less than truckload, -- everyone is familiar with that. Again if you look at large carriers versus small carriers, again, not without exception or with exception small carriers are often time nonunion, large carriers are union. Both industries are doing well. The smaller carriers, I think, are able to pick up market share at the start of this economy, but all indicators are that the large LTLs are going to see increases and certainly in january and february they made some announcements that LTL growth is increasing. So, what else is pressing down on the industry right now? Well, fuel prices are, are really problematic, if you can marry the fuel prices with trucking failure our you will see there's an extremely close 1 to 1 relationship here. I will mention more in the strategic issues what fuel prices are doing, but it's a factor that they are both high and they are both volatile and those two factors together create an issue for the industry, as they do for all four modes, in fact. As insurance costs everyone knows if you have opened up your car or insurance premiums, they are increasing dramatically. -- carriers are seeing 20 to 50% increases in '03, generally in '04, these increases have stabilized, we have been able to build it into the bottom line. We are not expecting any other dramatic increases. But, certainly, they played a major role in some depressed operating margins in and '03 -- '02 and '03. Truckload carriers, particularly over the truckload carriers having 100% driver turnover. Well, unfortunately, we are seeing 110 to 120% increases now. There is some research that has in the past, and some additional research under way, that, there may be more driver churning than there is absolute net loss of drivers to the industry, but nevertheless it's localized expensive endeavor to recruit, train and maintain drivers. So, this is a costly impact for our industry. So, what does that mean for where we are going as an industry in the future? Well, some strategic trends and issues I wanted to share with you, background, the freight movement now, for the truck, the truck sector, of course, of the industry, is -- we are the largest sector of the four modes, with , it's about 68% of all tons moved in the U.S. it's, again, a relatively larger increase that's expected, when you look at revenues, again, the numbers go up, a healthy increase inspect revenues, and we are about up to 86, 87% of all freight revenue moved by the trucking industry. How is that all being done? Well, according to the US DOT, that's about 610 interstates for higher trucking companies. Now, the truth is many of these, by law, meet definitions of landscaping truck wall street a trailer attached to them. But clearly, someone in the neighborhood of, say, 100,000 to 200,000 trucking companies are out there with somewhere between, say, 6 and 20 trucks and it's a substantial force, clearly. The total employment is around 10 million, between 9 and 10.5 million employees, of those about 3.2 million are truck drivers. There are more far -- more CDLs out there, but within the CDL environment, about 3 million of them are truck drivers. 2.6 million class a trucks, if you go up to class, 6 to 8, it's somewhere between 3.5 and 4 million. If you go up to any commercial vehicle, you are close to 20 million, trucks and of course about 5 million trailers are used out there. Rail trends, I hopefully am not being presumptuous but I want to offer up the truck relation to the. Rail is also doing particularly well with a particular emphasis in Missouri -- intermodal growth. Intermodal growth always seems to pick up dramatically at the start of picking up and improving economic outlook and that seems to be the indicate in late '03 and early '04. Much of this is probably driven to be honest by southeast activity. The southeast asian economy never really seemed to falter when ours did, and china in particular is creating a large sucking sound westward and that's good for the intermodal growth. And I think it was matt rose who recently said and rob can correct something to the the effect, there is no other movement outside of china, implies there is a huge magnet of freight movement in that general direction. So, your air cargo trends. This is an interesting one. Technically it's the smallest of the four modes, but it's always the fastest growing by any definition over an annualized period. But what is probably the single most dramatic effect in the air cargo industry, is a lot of air cargo that is defined as air cargo is -- and is paid for as air cargo is now moving in trucks on the ground never to see the inside of a plane belly. This is simply a -- of having lower economic -- lower costs in this economic period and having the company drawing a line with the compass, 8 to 10 hours out and providing expedited service at lower rates. It may change fuel costs coming down at the end of '04 possibly, air cargo, freight movement, is increasing slowly in '04, but this is an industry that's in serious duress by most definitions, and I think '04 is going to be a very telling year for them in terms of how they work their way out of what is probably still a recession post 9/11 for their industry. Strategic issues for the industry at a high level? Well, as most modes will say, they are paying a considerable amount in taxes. The state number there is one particular Midwest state that I just picked, which was relatively average. The industry recognizes that infrastructure must be paid for and operations and transportation management is an important function of the 175,000 miles of national highway system, but there's no question that the industry, with little exception, believes that new user fees, particularly create-creative financing, is a serious issue for them. I think I would go so far to say the industry would probably be more comfortable with fuel tax increases than they would having hundreds of thousands of jurisdictions taking control over unique user fee systems. Now, there's one interesting system, I would say, representative Mark Kennedy of Minnesota has offered a program to congress called FAST lane that so far has met every policy litmus test of the truck trucking industry and would be supported by the trucking industry, electronic tolls only, goes into new capacity, when the sunset laws, etc. But nevertheless, there is a perception that the trucking industry will not support -- but they will support toll roads. Increases of 50%%, these are carriers are great debt scores. Hours of service regulation. I don't believe this is as big an issue as some possibly believe it is in the press, but certainly there are sectors of the industry that are looking for revisions and exemptions to the existing hours of service or, as in the '04 hours of service, certainly there's some issue of productivity, nobody wants -- in the freight planning side, the public sector freight planning side, nobody wants a dramatic increase in trucking -- trucks but preliminary sector, 5 to 8% in productivity, which will have to be made up with new capacity on the road. What does this mean? We don't want to add to congestion, there is going to be a large study in '04 will attempt to look at the safety implications of product safety and hours of service but in general most believe this is an improvement over the old 50 hour service. Fuel cost volatility. They are talking $2 a gallon by summer. As bad as the increasing rates of volatility, if you can't predict rates, you can't predict surcharges. You can't plan asset utilization varies far out without hard numbers, so this is really going to be another issue, and, frankly, could be an economic suppression of some of the growth we are seeing for all modes if there isn't some attention -- attention brought to that issue. Driver issues, another interesting one again, outside of hours of service as I mentioned, the faster the economy grows, the greater the pressure on wages, and that obviously puts some pressure on operating margins another sector, as baby boomers retire, the trucking industry in particular with a lot of churning and one of the top 10 industries for employee shortages, according to the department of commerce, is going to have to deal with the fact that over the next 10 years, we are going to lose a lot of people to retirement. What are we going to do about that? Well, technology productivity may help things but I think it's unknown at this stage of the game what the ultimate impact is going to be. As I mentioned earlier, driver turnover and driver churning, is a huge gray area, and what the net deficit is in drivers is not known right now, to be honest, but there's some attention being paid to that. Technology utilization, well, it's growing quickly in industry, security is driving much of that. It is a faster growth pattern in the larger areas because they have, again, greater liquidity and greater resources. The bringing problem with this, of course, is it creates great disparity from a technology standpoint in terms of linking sophisticated XML systems with supply chains with some of the smaller companies that are dealing with copiers, faxes, telephones and running into proprietary systems out there that needs talk of supply chains, the FHWA is looking at one study that hopes to offer insights and information how a freight information highway could be developed that allows integration of these myriad systems. Lastly the single biggest system here is not a technology issue but a privacy of data issue. Certainly our s in the public sector transportation planning arena are always looking for more and more data. The problem is data is both beneficial and dangerous depending on who has it, how it is used. There is proprietary data that should not be turned over according to the trucking industry. There is data frankly that they are protecting that probably could be turned over and somewhere some -- in the middle maybe with some new nondisclosure agreements, aggregating and cleansing tools could be brought to fix this issue, we might be able to turn over date that -- data that's never been turned over before. There is a project looking at both privacy and data sharing issues, and hopefully in a year or so from now there be -- may be an opportunity to share more data but the fear of the industry is that that data will be used against them. Until that issue is resolve -- resolved, there's never going to be a completely open atmosphere for bringing the public and private sector together with these large databases of information. That's a frustrating area for some researchers, but there may be some light at the end of the tunnel. Congestion, another huge issue, everyone concerned about it. One thing about congestion that maybe isn't well-known. It's a trucking industry with some exception is able to build on-- congestion into the routing and dispatching of asset utilization. It's always one of the top three problems for the trucking industry. But in many cases, it may be less of a problem than some of the solutions that are being thrown out. Truck mandatory toll roads, looking back five, six-years ago to the ohio turnpike authority which raised the toll 82% and then spread the 80% increase over two or three-years. We are seeing that same kind of thing going on in new jersey and pennsylvania. The theory is once you build these systems, it's a free for all with revenue. Again, the industry is concerned about that. And, so, at times when it feels like the industry is digging its heals and trying to resolve congestion issues it's simply because they don't see the positive return on investment from some of these creative alternative congestion tools. So, security costs, I will speed this up, all kinds of projects under way, operation safe commerce, port security grants, trucking industry is involved in most of them. Everyone is now hearing about the RFID activities that are going on at LA long beach. That is real. People hearing mores about it, wal-mart backing off of RFID. That's not true. It will be an interesting component in this large security system that is building across the country, and where it ultimately goes, I am not sure. I do believe that the federal government will ultimately promote functional solutions rather than test specific technologies so that it doesn't like -- look like any one system or concept is being endorsed. Lastly the u.s. patriot act has been driving a lot of this activity, but there certainly are authors in congress that says that needs to be fixed in some fashion. So I think all four modes are waiting and sitting back to see what happens with security at the washington d.c. level of things. I think that's my entire presentation. I heard a quote recently, somebody said it's a good time to be a survivor. If you rolled out the april 2000 to spring 2003 recession, you are probably going to be well positioned with, you know, stability and efficient system to what the industry believes will be a strong '04-'05 market and the trucking industry obviously has been positioned in the last four or five-years to move forward. There have been a few big losses in the industries -- as people have heard. But the existing base is excited and the numbers are looking very good. So, if you have questions, I think we are going to wrap up with all the speakers and I would be happy to answer any other questions. Thank you, jennifer.

J. Seplow:
Thank you, dan. A great presentation, and, again, if anybody does have questions that they think of ahead of time, please go ahead and type them into the chat area, and I will keep track of them and then start off the question and answer session with those questions. Todd, I will now turn the presenter roll over to you.

Todd Spencer:
Thank you. Thank you, I am todd spencer, executive vice president with the owner-operators independent drivers association. We are the trade association for small business truck owners and drivers formed in 1973 as a result of the first arab oil embargo. We are a national organization nearing 108,000 members, just a few in canada. You know, actually, I am not going to take much time, covering the industry in broad strokes. It is a very, very large industry, and it's an industry that is essential to the country, and the need, the need is growing. Roughly half of it is for hire, the other half is private carriage. I don't know if dan mentioned but most freight that is going to move in the country will move by truck, any freight that has any kind of value in it. The more profitable niche in trucking is the LTL segment. That's dominated by a relatively fewer -- few players, who, because of the size and the nature of their operation, they can, in essence, they have, they have less competition than what you are going to normally see in the truckload segment of the industry, where most owner- operators and most drivers are congregated. The truckload segment is ultra competitive, actually always has been, but especially so after deregulation, and most of the players in it are smaller operators, owners of, owners of a few trucks or maybe up to 20, and there are, -- well, there are large truckload carriers. There's no significant large truckload carrier with any significant market share. So, what that basically means is it's a very competitive business in terms of rates and structure. The principal way that carriers get freight, basically, is to under cut a competitor's rates, and that it's been a shipper's market for a long, long time, and they are fond of saying, well, look, if you are not going to provide the service that we want at this particular price, regardless of what it is, we will find somebody else that will. >the niche in trucking that we represent are principally owner-operators and individual drivers, and an owner operator is pretty much what it says, somebody who owns and drives the truck they own. Many owner-operators will own more than one truck on average, on average, 1.4. Most owner-operators will lease to larger motor carriers where they will run under that carrier's operating authority. 25% of owner-operators have their own operating authority themselves under the department of transportation. In both instances, the owner-operators are going to have the sole responsibilities of virtually every cost that's associated with operating the truck. And, you know, they are, like many other small businesses, they work very, very hard. We estimate, it's not uncommon for an owner-operator to work 100 hours a week. These people are dedicated to what they do. There is -- there are many, many comparisons between owner-operators and employee drivers, and, you know, more so now than there ever have been in the past. What you are looking at right now is basically a historical earnings comparison between owner-operators and employee drivers, and what you will see is prior to deregulation incomes for employee drivers are well above those of most owner-operators. Many if not most drivers were union -- then and most trucking companies were -- were regional in their scope of operations. Driving jobs were predictable, and it wasn't the least bit uncommon for drivers to go to work for a particular trucking company and work there their whole career. After deregulation, things changed dramatically. Most all trucking companies became nationwide carriers, incomes for drivers edged downward, closer to those of owner operators, while the hours that drivers would actually work grew considerably. It wasn't uncommon for drivers to be recruited on, they would be gone for three weeks at a time. Most of the old line carriers closed then, merged or failed. The carriers that were most successful after deregulation adapted a strategy of spurring experienced drivers and -- in exchange for new hires. The government played a role in that, a major role, with attractive options for tax revenues to the job training partnership act and they also played a major role in funding for new drivers who guaranteed student loans for driver training schools. There were significant scandals that went on with that in the '80s, and while these strategies produced new drivers for the carriers that took advantage of them, most of those drivers did stick in the industry and taxpayers ended up picking up the tab for the unpaid student loans of 1 to $2 billion, and I think we would certainly construe that the job training partnership money that has been in that way, never produced any kind of a bang for its buck. Among the driver population, we have got, we show an average of 48 years. What you are going to find is employee drivers tend to be younger. They tend to have -- they tend to have -- whoops, I went too fast. Let me get the owner-operators. They average 48 years old. Average of 20 years experience in the industry, and our organization has provided insurance for these folks for over quarter of a century. We are long recognized that this particular niche in driving are better, safer drivers. They are -- they have fewer accidents. Other insurers are now realizing that as well. We have the same concern that dan mentioned earlier in his presentation, that we don't know where drivers are going to come from in the future because of the challenge, the challenges that are in the industry. Of the driver population that we represent, they tend to be a little bit younger, and they tend to have a little bit less experience. Our -- figures on drivers through our organization probably aren't the best, because our organization tends to attract people that are more dedicated to seeing trucking as a career. We see so many instances now where drivers see this as simply a job to do till they find something better. We hear a lot about, you know, the work environment and why trucking is a job that would have these humongous levels of turnover, things like that. If you compare it to any other occupation, any other occupation, I think the reason that trucking is less attractive than other occupations are pretty clear. I mean, the -- if you think about, if you look at the standard work week that a truck driver is going to put in, of 100 hours, figure that over a year, that's 5,000 hours, that's significantly more than 2.5 times what an average worker would do. If you say wait a minute, drivers don't really work that many hours, just look at the hours that's able -- available to them through their hours of service regulations, 60 hours in their logbooks ends up being 3,000 hours and in essence, 50% more -- 50% more hours than any other group of workers. Yet. We have, we have our work cut out for us attracting people to fill this kind of a job, and it will be one of the biggest challenges for the future. But while I -- I am only going to have a short time here, and I need to talk about what is the real biggest issue in the industry today, productivity, efficiency, safety, everything, is the time that drivers spend loading and unloading their vehicles every week. I mean, staggering amounts of time, and there's -- the most recent survey showed drivers will spend 33 to 43 hours every week in loading and unloading activities, and this is time that since the drivers are almost never compensated for this time, it's almost never logged as on duty time. It's generally logged as off duty so drivers can maximize the hours that they have. Now, this has created, obviously this created turnover. It creates a he tremendous cost on the industry -- a tremendous cost on the industry, and much of that cost right now is absorbed by drivers, and then it goes on from there. Fatigue is clearly a safety issue in this, with its own cost. I mean, there are highway accidents, there are simply accidents where mistakes are made. Things are broken. With this particular situation with hours of service or with loading and unloading, compliance with hours of service regulations is virtually impossible, and that means the old hours of service regulations or the new ones, and right now the 100-hour weeks contribute mightily to driver turnover, and it in itself is a safety issue. It's also a cost you -- issue for drivers continuously recruiting drivers. Estimates I hear for hiring costs of even a single driver are up to $5,000 each and just to kind of give some -- this some perspective. It wasn't so long that I listened to one of the largest truckload carriers in the country talk about their need to hire 40,000 drivers in this next year. This truckload carrier operates 15,000 trucks. Now, what -- I mean, there is no venue. That it would necessarily be planned that we are going to hire more than twice as many drivers as we need, know we are not going to be to keep them. Our approach to that is ed. But when you start looking at the costs of what this loading and unloading situation actually costs the industry, you start putting a dollar figure on it. The closest that we could find it was put together by the university of michigan, and that would be, what would the costs be for drivers to comply with the hours of service regulations? 3.2 to $7.5 billion a year is what would -- what it would cost stunning sums. To offset, all you have to do to offset that cost is to eliminate the time that drivers spend loading and unloading. If you eliminate that, you wipe out that cost completely. And if you, when you think about the numbers of hours that drivers spend, it truly is a significant waste in every stretch of the word. I notice in dan's comments, we talked about dan mentioned hours of service, how many hours were going to be, how many new trucks were going to be needed to make up for the new hours of service regulations. Well, it's, it's an unknown right now, because we are not -- we as drivers are not sure whether or not shippers and receivers are going to actually take it seriously. Their responsibility to get trucks in and out. We don't know what carriers are going to do in terms of actually aggressively dealing with the issue, and if history repeats itself, what is going to happen, is there going to be way too many entities that are hoping drivers are going to find a way around complying with the hours of service regulations? If that happens, then, then we have, we haven't fixed those costs and ultimately we will end up making our highways less safe. We will end up making trucking an even less attractive occupation for those very drivers that we are going to need. I would like to, you know, my comments aren't necessarily an indictment of deregulation of the industry out of -- after 1980, but they are, they are kind of a -- I think we have to periodically review where we are. And we will -- we are over 20 years now beyond deregulation and are the problems shaking out on their own. And when it comes to the truckload segment of the industry, what has changed more dramatically is, it is with deregulation is the growth of freight brokerage and transportation intermediaries. That, as an industry, has grown significantly, and ironically, this, this intermediary industry is the area where profits are the greatest in all of trucking. Four to five times that of even the most profitable carriers, and each day these brokers and intermediaries control more and more of the freight. And we sit and we look, when you sit and look at where motor carriers are, they are simply not receiving sufficient revenues to assure the long-term survival of the company, and they are not -- and to assure that they can attract good quality people to drive the trucks in the future. When you look at, when you look at how trucking is, you see what's evolved is not an industry that's more efficient, it's an industry that simply has growth in middlemen. Exact opposite, account, of -- for example of what happened in the airlines, where travel agents and things like that, they are -- largely or in many instances a thing of the past. In trucking, it's not uncommon to have two, three, maybe even four freight intermediaries taking a share off of the top, which doesn't paint a rosy picture for having adequate revenues to assure the long-term survival in trucking. For right now, there is one really, really important issue that facing every driver on the road today, and that's finding a safe place to park when they need to rest, when they need to take the time off that is required for them. But not only by the regulation, but their bodily needs. Serious truck shortage, shortage of truck parking places, has been, it's been well-known or documented for over the past 10 years, but it's -- controversial because of those that have an economic interest say that's not really true at all. Our organization did studies of truck drivers back in 1999, and what we found then was that over 90% of truck drivers report having difficulty finding parking spaces at least once a week. More than 25% of drivers surveyed say they have problem finds rest areas three times a week and over 10% of drivers say they have problem five times a week. More than a third say they have a problem finding rest area parking spaces every night. These problems have gotten significantly worse from '99 to now. While even though there's been a study done suggesting that the problem isn't as, as of the problem of rest area shortages isn't as its represented, the fact of the matter, it is true, and our most recent study, where we had 30.3% of drivers say that hours of service regulations could be complied with because they can't find places to park. The problem is 50% greater. The most recent survey that was done or survey that was do -- done of available parking for truckers, while the press release that went with it said the parking was adequate, the study actually showed shortages in california, colorado, connecticut, delaware, illinois, indiana, kentucky, massachusetts, ohio, texas. I mean, generally, all big population states, also washington, vital to not only trucking but vital to the whole country. I mean, we have a serious issue with this. And it's not necessarily one to say who is going to be right, who is going to be wrong, but we, it is one that can be dealt with and needs to be dealt with in as decree -- creative -- creative a way as possible. We are open as an organization, the drivers are, to any creative thinking, whether it's paid parking, whether it's expanding existing rest areas, with graph he will, what -- whatever it takes. The gravel. The problem is that bad. We can't expect our drivers to comply with hours of service regulations if they can't find places to start. I am telling you we have a -- -- not telling you we have a significant shortage of rest areas but we have a significant shortage of truck stops. It cries out for people to work together for low budget solutions. Anything would be better than what they currently have right now. >one of the thing that still stuns me right now there are rest areas that have time limits on them where drivers cannot only be awakened and told to move out of the area, they can receive a citation, even if that moving makes them in violation of hours of service regulations. We need to be using existing weigh stations and commuter parking lots, whatever we have in every state that a truck driver operates in. One of the ideas that's, that's certainly controversial with truck stop operators is commercializing rests areas. But, hey, it needs to be done. The problem is that severe. I would suggest that they see this as an opportunity, rather than something that they want to oppose. Again, we are not talking about something that has to be elaborate, the fixes can be inexpensive. We talked to drivers who say, we don't care if it's a gravel parking lot. They are secure -- concerned about security, but they are willing to pay. They will pay for parking if they need it, if it's fair. We are not, as I mentioned earlier, we are not at all comfortable or confident that deregulation is going to shake out the way we want it to in trucking. Right now, we are not doing the things that we need to attract career-oriented safe drivers to the industry, and that is, the driver is the most important individual in trucking, and he is going to be to -- the key to driver safety. That's where investments need to be. Right now, we are not doing those. We certainly should. Thank you.

J. Seplow:
Thank you, todd. We will now turn it over to craig rockey. Hang on, craig, and I will designate you as the presenter. Okay. Our next presenter will be craig rockey of the american association of railroads. Craig, you may begin when you are ready.

Craig Rockey:
Thank you, jennifer. I will talk about the railroad industry and talk about trends and characteristics and considerations which are relevant to the ability of the railroads to maintain and improve their infrastructure.

Setting the stage, this map shows the U.S. railroad network — a system of interconnected and operationally and administratively, integrated railroads.. There are about 550 separate railroad entities which operate about 1.3 million cars over a 142,000 mile network. The u.s. freight railroads move more freight more efficiently and at lower rates than any other railroad freight system in the world. This isn't something that is fully appreciated by many, and they serve nearly every agriculture, industrial, mining, wholesale, and retail-based sector in our economy. They all have common standards for track or equipment, documentation, operating practices and so forth. And aside from customs issues at the border, the three North American countries operate a seamless and integrated system. Measured in ton miles, that's the left hand pie chart, railroads comprise 42% of the u.s. intercity market — that's well ahead of trucks at 12% and more than any other transportation mode on a share ton mile basis. That share has been trending upward in the recent past, 10 to 15 years or so, after falling steadily and dramatically for decades prior to that. For this 42% of the intercity transportation effort that they put out, railroads receive about 9.5% of the freight revenue, the right-hand pie chart. And the rail share of intercity revenue has been trending downward at 9.5%, was 14% in 1990 and 21% in 1980. Freight railroads are on average three times more fuel efficient than motor vehicles or trucks and they have been dramatically improving their efficiency. 20 years ago, they were a great deal less efficient than they are today. They are 72% more efficient today than they were 20 years ago. Also, in the external cost and social cost area, railroads translate into a great deal less pollution than do other modes. For every ton mile moved the typical truck emits roughly 3 to 12 times more pollutants, depending on the pollutant measure. Railroads are committed to continue doing their part. They are committed to helping achieve an 18% reduction in greenhouse gas reductions and intensity by 2012 as is called for in the administration's environmental policy goals. Railroads also combat highway congestion and congestion costs. The most recent Texas Transportation Institute study of urban mobility shows that the aggregate cost of highway congestion in the u.s. was almost $70 billion. And this was brought about by an undesirable level of congestion existing in 61% of the urban areas today. That's up from only 7% in 1982 and 20% in 1990, so there are rapid changes taking place there.

The American Association of State Highway and Transportation Officials, AASHTO, estimated that if the freight that the railroads carry was shifted to trucks, it would generate a cost to the federal, state, and local governments of $128 billion for highway improvements.

Railroads do bring about very significant safety benefits. They have lower employee injury rates than any other mode of transportation, and freight railroad transportation is -- associated with an estimated 1/4 of the fatalities in intercity freight as take place with motor carriers for every billion ton miles of freight moved. And with regard to hazardous materials, there is a 16 times greater potential for release in motor carriers than there is in railroads. So, just a -- touching on the social benefits here of railroads. And I mentioned 550 railroads of vastly different nature and size, but regardless of their characteristics and their differentials, they do share several key features, which are important when we get into the public policy area and understanding what is appropriate for railroads and transportation in general. The vast majority of railroads are privately owned and railroads almost exclusively own the tracks that they operate over. Railroads do not have automatic access to one another's tracks, although one railroad operating over another railroad is not uncommon, but those privileges are brought about by volunteer private negotiations among the parties involved, and in contrast with other modes, freight railroads receive no government subsidies. The railroads themselves pay for the vast infrastructure costs and maintenance. Some states do have programs, but they are especially for short lines and they are relatively small in scale. Railroads of all sizes, however, have recently begun to pursue government funding for more aggressive rail projects which have public benefits as their primary throw off. And lastly, with very few exceptions, freight railroads are not in the passenger business - freight and passenger are distinct.

Economic fundamentals, if they are to be worthwhile, certainly must drive public policy. People frequently don't understand that railroads are, in fact, a network, a huge number of modes representing the shippers and receivers, and these nodes are highly interdependent and, therefore, delays in, say, chicago, can result in delayed traffic in kansas city, for instance, and likewise improvements in chicago can benefit others across the networks. Also, railroads have huge fixed and common costs, especially in their infrastructure, that do not vary much with a level of traffic. Moreover, rail costs are often sunk, rail, ties and ballast that constitute the rail line don't have much in the way of alternate uses. Railroads have scope and scale economies, hence density is an important factor for railroads and their efficiency. And lastly, rail customers vary tremendously in their transportation needs and in the alternatives that they have for transport. Freight flows over the railroads have increased significantly in intensity over the last couple of decades as railroads have sought to maximize their economic efficiencies that we just talked about. This chart shows the class 1 ton miles per mile of road owned, a good measure of traffic density and therefore a also potential indicator of capacity constraints. From 1980 through 2002, traffic densities are up 174% and since only 1990 they are up 77%, and this chart illustrates why in some particular cases, railroads face capacity limitations. But, the railroad's goal is to build for traffic at hand, or soon to be at hand, and the economics and the competitive environment dictate that railroads cannot afford to have a lot of spare capacity on hand. Freight railroads have a large appetite for capital, particularly in infrastructure. I am aware of no other major u.s. industry that spends more of its revenue on capital expenditures. The last five-year period, the last measurable five-year period, railroads spent almost 19% of their revenue on cap ex investments, and the average, as this chart shows for all u.s. manufacturing was 3.8. From 1980 through 2003, railroads, the large railroads, invested well over $320 billion to maintain and improve their infrastructure and equipment. And it's particularly notable that these expenditures were from an industry that has an annual revenue take of $35 to $37 billion. This chart shows the railroad spending on roadway and structures over the past 10 years. After depreciation, the large railroads spent around $7 billion on infrastructure, adding in the spending on equipment, the freight railroads typically spend $15 billion or more, and that is a sum which is on average equal to about 45% of their operating revenue, plowed back in just to make sure that they maintain and where they need to improve their capabilities. The challenge becomes even more important and, frankly, potentially more difficult to achieve, when the additional pressures confronting railroads are considered. We talked about freight volumes. Of course everybody is aware of the 67 to -- 65 to 70% share of projected increase in traffic over the next 20 years, actually by 2020 and an even greater increase in intermodal volumes, which I might note have become at the end of last year, the railroad's largest revenue generator. Regarding service quality, rail customers have become accustomed to rising service levels of the railroads, and, of course, put that bar higher on a continual basis. Highway congestion, as that mounts, there's additional pressure on railroads to provide a relief valve by providing their services, and, of course, in the passenger area, there are numerous and considerable demands, and an increasing level, I would say, for use of freight-owned track by commuter and intercity passenger trains. There are at least 30 metropolitan areas that have imposed major expansion or major commuter systems that would rely at least partially on freight rail tracks or rights-of-way. So the big problem, as it turns out, is that railroads, in order to invest, must have the money and currently they are not generating adequate revenues. This particular slide shows the comparison of the cost to borrow, that the railroads confront, has been coming down over the long term, it's been somewhat steady over more recent years, and the yellow section at the bottom is the return that the railroads are generating from the assets obtained from their investments. And the theory here is quite simple. I mean, it's a textbook type of theory, and it's embraced by the regulators at the federal level, the states, the courts have certainly endorsed the theory, and that is simply that if you are going to have a going concern, the return on investments has got to be at least as great as the costs that you are incurring to borrow the money, to make those investments. So the objective here is to eliminate all of the red area, if you will, and the railroads, as you can see, have been ringing out much of that shortfall. They are not there yet. They are making improvements. But to be sustainable over the long run, they need to do that. So that is a critical focus for them. The railroads have no shortage of potential infrastructure and equipment investment projects. The financial markets, however, do provide stern discipline in what they will allow railroads to invest in, and that's necessary and appropriate in a free market economy. However, it does discourage investments that railroads would make that yield primarily public benefits such as the reduced congestion and cleaner air, improved safety and enhanced mobility that we have talked about before. And, therefore, what the railroads must concentrate on is those projects which have a direct and clear monetary benefit and throw off for the railroads and their investors. Now, this separation of satisfying the social benefits of the nation and enhancing those areas that railroads can be so effective in but do not necessarily yield profitability benefits for the railroads, we believe can be addressed or partially mitigated at least, through a more pronounced use of public/private financing partnerships for rail infrastructure improvement projects — in cases where the fundamental purpose of the project is to provide the public benefits and meet the public needs. Now these public/private partnerships are not subsidies to the railroads. Rather they are a mechanism combining both the private and public sectors where the public entities paid for the public benefits and the private entities pay for the private benefits, and that's the exactly the stance of the railroads today, they are eager, they are willing to enter into these partnerships, but the railroads are stepping up and saying that the benefits that can be identified that flow to the railroads will be on the railroads's dime and they will take care of those costs. And the chicago project that many of you may be familiar with — the so called Create — project is an example of that. It was initiated the middle of last year, and the six major railroads that serve chicago metropolitan area, the city of chicago and the state of illinois together formed a partnership to address the need for a $1.5 billion overhaul of chicago's rail transportation network that would modernize the freight and passenger track connections, that would expand the rail routes that would separate tracks from highways, and improve highway traffic flows, and so forth. A whole list of attributes. And again, AASHTO here, I put a quote from AASHTO, recognizing the benefits of the multiplier effect to local and national economies that accrue to the investments in infrastructure for freight/rail and railroads in general. Whatever the challenges are that face them, railroads are dedicated to concentrating on customer service. Railroads have responded in making tremendous improvements in customer service in recent years through, what else, you guessed it, massive investments in infrastructure and equipment, but also technological gains, operational developments, strategic alliances within the rail mode and between railroads and other modes and cooperative efforts with other groups. For example, of course, an ability to purchase rail transportation services in advance, guarantees for certain service products and lanes or scheduled service and speed and reliability improvements and the like. Railroads, of course, do face a number of additional regulatory and public policy issues, and depending how they turn out could make it easier or more difficult for them to continue to efficiently and cost-effectively serve the freight transportation needs of the economy, and obviously there are many, and we don't have time to go into them. But I didn't want to not recognize the fact that they do exist, that they are important and in some cases they are critically important. And, finally, in order for the railroads to continue to effectively and efficiently serve the nation's transportation needs, certain things must happen or not happen, as the case might be. First of all, adequate investments and technological advancements must continue. The railroads must keep the focus on customer service. Railroads must be allowed to earn enough to pay for everything they need in these areas. And, lastly, the need for partnerships with the public sector is critical. And, jennifer, that's it.

J. Seplow:
Thank you, craig. Before we move on to the next presentation, I just wanted to quickly mention. some of you have brought up that you are not able to view all participants in this seminar. That was due to an error in the setup, and I do apologize for that. I can assure you there are plenty of participants online right now. This is also preventing you from being able to chat with other participants. So you can only chat with myself or see messages from myself. But this will be corrected for the next seminar. We will now move on to our final presentation of robert martinez of norfolk southern. Rob, give me just a second and I will turn over the presenter role to you.

Rob Martinez:
Thanks very much. Everybody fasten your seat belts. As a refresher on who we are at norfolk southern, you see a system map, we are 22,000 route miles, railroad obviously covers the eastern part of the united states. We are are also in ontario, canada. This slide depicts for you the areas in which we serve. We are in every single commodity area that is suitable or amenable to movement by rail and we are a $6.5 billion company. By far the fastest-growing component of norfolk southern has been intermodal, as craig rockey just pointed out last year for the first time for the rail industry overall. Intermodal exceeded coal as a revenue source for the rail industry. And if you are a traditional railroader, that is an amazing, almost revolutionary reality taking place. It is growing fast in the united states and will continue to do so. At norfolk southern, intermodal was, for example, in 1998, 13% of our revenues. It is now, last year in '03, it was 19% and growing about 1% per year as a share of our revenue base at norfolk southern. And here you will see another depiction of how intermodal has been growing year over year in the u.s. and canada. What do we mean by intermodal? In railroad parlance it means something very specific. It means movement of containers on flat cars or trailers on flat cars. Here you see an equipment trend of how the shift has been taking place between trailers and containers. Back in the early to mid-90, when some of the major trucking carriers were transforming themselves to -- in the process of containerization, the railroad thought and actually kind of hoped that trailers would go away. Containers are easier for us to manage, to handle, to move and, frankly, we make better money on them. That has not occurred. It is clearly the case, although there have been substantial shifts in the equipment that's being used. Trailers will remain a part of the picture and one that we will continue to work and continue to work to learn how to do it correctly. Intermodal is point to point service, unlike traditional car load business, and it's important that the role or network not be vulcanized. You need sufficient volumes because you want to minimize the number of train locks, which is the number of train segments that need to be at intermediate points. Obviously you don't want to balkanize the network by having too many facilities. You want to network and capture the facilities. You don't want to have a ramp every 150 miles. Another thing, this gets to the container issue, one good opportunity, of course, to the extent that you can have a robust, have a network, and the -- it is good. The reason it is good is when you double stack the train, when you double stack the containers, you are effectively doubling the level of pay load for the cost of the pain, at virtually unchanged train costs per train, you are doubling the amount of the pay load. And at norfolk southern, we are fortunate in having one of the most robust, probably the most robust intermodal network of any in the industry in the sense of the percentage of our network, which is still cleared for high double back intermodal. Here everything in blue and in green is cleared for double stack. At norfolk southern intermodal growth has been driven by fairly steady investments in the infrastructure itself and in the facilities terminal and also new product development. What I mean by new product. By new product we mean things like the development of a new facility, such as the one that we opened in cleveland a couple of years ago or the one that we started that was started by georgia port authority in savannah a couple of -- years ago, the intermodal transfer facility there next to the port. That's a new service, so in effect a new product for for us or it's guaranteed service transcontinental, east coast, the service from the port of new york, new jersey, going up to canada or expedited service to new mexico that we just opened up a few months ago in 2003. But, our biggest competitor is, is truck. That's very clear. They are our biggest competitor. They are also our biggest, one of our biggest clients, are truckers as well. So it's -- they are both competitors and major customers. So as dan murray pointed out in his presentation, truck is a major intermodal part of the trucking industry and it's a major event of the rail industry. On the rail industry, the length of haul is a very significant factor. And if you look at the market shares that currently are held by intermodal versus over the road movement, between chicago and los angeles, a very long leg of haul, we see that intermodal rail has an 84% market share relative to over-the-road movement. That's a very robust situation. New york to chicago is a significant 38% market share. Northeast to southeast clearly a market opportunity for for those of us in the railroad, in the railroad, specifically norfolk southern and csx, rail competitor being csx. There are historical reasons for that that I can address if there is interest in doing so during the question and answer period. As you see a majority, a very important majority of our intermodal movement, in fact, depend on the relationships that we have with other rail carriers because they are very strongly favored through the interline operations that we have with other railroads. This is a depiction of the guaranteed, one of the services that we have, one of the guaranteed services, like transcontinental, as I have said before, this one illustrates the service that we have with burlington northern santa fe. What this says, if you drop off a container in oakland on day 1, it will be in charlotte the 6th morning or in harrisburg, pennsylvania on the 5th morning. And, of course, we have similar as much success with union pacific. But, intermodal is not the only way we try to grow the market at norfolk southern. We are pursuing to add market value and other product areas as well. One of the things that craig rockey had in his comments, and this is true, on the list of priorities he talked about the need to improve service performance issues. That's clearly what we are trying to do. Not only intermodal but across the board. >some examples of that. Let's talk a little bit about our metal construction opportunities. Here you see within the metals group, which is about 11% of our base right now, we are involved in several subcategories, what we call miner groups, such as metal and fuel coil, iron and steal, scrap metal, aluminum, mineral ores, etc, etc. Here you see a depiction of the of the steel mills and the processors that are directly located on norfolk southern. That is kind of traditional railroading depiction. But what are we working on today? We are working on addressing not only the needs of customers who are directly rail served like the steel mills that you see on this map but also developing a network of, of so called steel net facilities. These are port of distribution facilities that are on the railroad, obviously, but that are developed to serve nonrail served customers, whether they are, the shippers, the producers or the receivers. You have a, a customer of yours that's in the louisville area, we have a customer -- facility in louisville, that even if your customer is not able to receive directly on rail, they can get the economics of long haul on rail from, say, the steal -- steel mill from steel net facility in louisville and then have a truck dray for that move. Curiously over half of our revenue base now touches truck at some point. That is to say though even only 19% of our revenue basis intermodal, over half of our revenue base involves a truck moved either at origin or destination or both. So, intermodal is not only the truck dependent or truck allied component of our business. In the paper forest products, same story. We have got a product that we call thoroughbred EXTRA, where you have a paper mill that is directly served by rail, so you are able to use the economics of rail for long haul and the capacity that might be afforded by a boxcar. That goes to certified distribution centers, for final distribution via truck to the paper receivers.For chemicals and agriculture facilities, we have the thoroughbred bulk transfer facilities being located throughout our norfolk southern network. Let me close by speaking to one final part of our -- how we are we are trying to to grow our business through the thoroughbred operation plan, this is through individual freight cars that have one to several intermediate handling, between the point of where the shipment originates to the point of final destination and our new operating system that we'd say few years ago is called TOP for short. Prior to TOP, was a tonnage operation, which meant that the train -- if it was not sized in an optimal mannor its tonnage capacity, you would not release a train, that means you would not let it start moving until the train had sufficient tonnage on it so that you were making money on that individual train. From a cost perspective, that worked very well. Obviously from a customer perspective it worked less well. Now under TOP, we are working on a schedule, all of our trains run against the schedule. We adhere to the schedule, unlike before, we had a schedule you would ad hoc trains from a tonnage optimization perspective. What that means, is we run against the schedule now, we try to sell excess capacity, available capacity on individual trains, but we allow individual trains to move, even though they have not maxed out. That is a very, very much a customer-driven philosophy. And the whole issue is not necessarily to reduce transit time, it is to improve reliability and to eliminate the variation in the transit. For most shippers, it does not necessarily -- they may not need to have the product at their dock on thursday, but if it's there on friday, that's good enough, but it has to be there on friday, and they need to have the liability that it will be there on friday. And the metrics that we use, we have several metrics to track, in fact, how we are doing as far as implementation of TOP is concerned. Here you have -- you see system average train speed. This particular metric includes the time that is spent as well as in the intermediate handling, as well, and as you see, here, we have improved over the course of the past few years quite significantly on the average train speed. Cars online. Cars online is basically a photograph of a snapshot in time of how many cars we have on the network. If we are managing the same amount of overall volume or, in fact, increasing volume year over year, but we are able to do so with fewer rail cars, what that means is that we are doing a better job of velocity of our rail cars, they are turning quicker, that means that they are more productive and it reduces our asset costs overtime. And a final, another way of looking at this as well is terminal dwell. Terminal dwell is the amount of time that is spent in entry mode. I can't tell rail yards where cars are shifted in effect, are switched from one train to another train, are rehandled or reclassified. Here you can see there's been a reduction in terminal dwell over the past several years. Another way to look at our performance is to compare our various categories of train as you can see, have been improving our on time performance for virtually every category of train. Here you have -- you see the data from the year 2000 to 2003. Thank you very much.

J. Seplow:
Thank you, Rob. I hope everybody found these presentations interesting. We do have some questions that were typed into the chat area, so I am going to start off with those questions. Since we just ended with robert martinez's presentation, I will start off with a question for you first, rob. You show trackage rights on the panhandle rail line in ohio. Are you concerned about losing those rights should ohio opt to sell its ownership rights in the line?

R. Martinez:
I have to be completely honest. I am unfamiliar with any change in ohio so I can't comment on that. I am not the person to answer that question, but our strategic planning department I am sure is looking at that.

J. Seplow:
The next question is also related. Rob, I will let you give your opinion first, and, then, craig, if you want to jump in with an opinion as well. Is a government owner -- owned and maintained interstate rail network needed to make interstate trucking competitive again?

R. Martinez:
That would be a huge mistake. Railroads work because they are an integrated, -- vertically integrated industry. We own the tracks, we own the right-of-way. We own the locomotives, we own most of the terminals are operated by the industry itself. What would happen, if you had government ownership of the infrastructure is that the investment figures would go awry. You would have less competitive rail or have too little investment in infrastructures that would mean that rail service performance would be add convenient. It would be delinquent. And as a result you would have less market driven rail industry. And when you have less market pressures, less market demands, you are going to become less competitive.

C. Rockey:
Yes. I would certainly strongly second what rob said. And you don't have to look too far to realize this. North america, and I mentioned this, has the most efficient lowest cost service for rail users. Canada and mexico are up there too, basically, neck and neck. And, of course, they are vertically integrated. If you look around the world, and look at the railroads, what has been the case up until recently, is that virtually everybody's railroad, other than north america, was a state owned organ or closely overseen by the state, if not actually run, and it was in many cases a social tool. Well, what has been the wave in the last 15 years is conversions and privatizations which have attempted to mimic the model in north america. In other words, the countries have gravitated to a recognition that what is happening in north america with regards to the ownership and operator being the same, is the way to go. And there has been a parade of railroad and public officials from a myriad of other countries to the u.s, to the railroads, to the AAR to learn how to implement these changes, and I guess a particular case of note is mexico, which not too many years ago had a railroad system that was antiquated and was a vehicle for employment, and that has since been rationalized in recent years, has been divided into individual operations, all of which have been privatized, and in doing this, mexico considered different avenues and found out that if the state was to divide the railroad operations ownership, that the financiers, the lenders were not going to be eager to give them the funds that would be necessary to upgrade the system. So it's a recognition by government, and this may be the most important recognition of all - the wall street folks - that if you are going to get the biggest bang for the buck it has to be in private hands and vertically integrated.

J. Seplow:
Thank you, we will continue with craig and rob right now. Do any of you have any thoughts on the Transtexas corridor concept?

R. Martinez:
I haven't looked at it too carefully. I might add to one thing that craig mentioned before I answer that. And that if you look at the different approaches that have been taken in europe. Basically craig mentioned that railroads on a ton mile basis in the united states, we have a 42% market share, that's for intercity freight only. Intercity ton mile basis. In europe it's at 8% and in europe it's been declining every your, and that 8% number, that's a european commission number for freight movement in europe, where basically you are, you have got government-owned railroads and one in which looking at separating the operation from the infrastructure. In fact in several countries they have done that. As craig said in mexico, they did not take that approach. They moved to a vertical integrated network, and they have increased since that from about 13% market share to about 19% market share. As far as the texas situation is concerned, I am not that familiar with it. I will say what I do know bit gives me a little bit of concern only to the extent that you would have government in effect of structuring the economics of how it would work, and frankly when government gets involved, typically you don't get a good market driven outcome.

C. Rockey:
Is the transtexas proposal the one in which there are quite significant rights of way in which railroads and highways and pipelines and passenger and freight are all going to be placed in it. Is that the one you are talking about, jennifer?

J. Seplow:
This actually came from a question from one of the attendees.

R. Martinez:
That's the one I am refering to, Craig.

C. Rockey:
Yes, if that's the case, the governor announced that last year, as far as a broad concept and handed it over to the department of transportation there to advance. We are certainly interested in the specifics of that concept, but having not been privileged to them, to date, and I am not aware that they have advanced in specificity very far, there really isn't much to comment on, I don't think. Obviously one of the questions is, these have to involve flows, not just within texas, but from and to texas through other states, and what happens at the border, because I haven't been aware that this has been a project which has coordination outside of texas itself. So, there are a lot of fundamental questions that exist, and I am not sure that the material is there that allows one to delve into it.

J. Seplow:
Okay. We will go with two more questions with rail, and then we will move on to the trucking side. So, dan and todd, if you could just hang on a little it. On time performance statistics give an edge to trucking may give them a leg up on competition. What is being done in rail to improve on time performance?

R. Martinez:
Well, I think that's, that's a very good observation. And a valid observation. What I talked about at the very very tail end of my presentation is precisely what we are doing. That is, norfolk southern has moved to a scheduled railroad. The data that I depicted at the end is trained performance data, which is to say the percentage of our trains that are running on time, and how we have moved from a tonnage based system to, to, basically, to a scheduled railroad. So, that whole issue is about on-time performance. And, I would add that where we have focused for the past couple of years has been on train performance, where we are currently focusing the new iteration of top, is actually focusing on actual pickup of the shipment from the producer or the shippers, industrial track or siding and the actual delivery from the last train on which that shipment runs, from the last train to the delivery to the receiver. So it's, we are looking now at a full dock to dock tracking of our performance.

C. Rockey:
Yes, and those types of things, in different forms, are being done across the railroad industry. It's no secret that motor carriers have historically had and will always maintain an edge in dock to dock capabilities, but the advances of the railroads in this arena have been enormous, and the hallmark of them is that the railroads have customized their services on a customer by customer level and in that way advanced the needs directly of those shippers. And there is probably no better case in point than in the automobile and automobile parts industry as far as a macroexample of this, where railroads market share was fairly small not too long ago, and currently they have captured an estimated 70% of the market share for setup vehicles, cars, trucks, vans, and also a great percentage of auto parts, and the only way they were able to do that is to work very closely with the complaints that the automobile manufacturers and the suppliers for automobile parts had regarding railroad service, to find a cost-effective way to mitigate those problems and to put those solutions into service and to manage those flows, and now the railroads are an integral part of the just-in-time production process of the motor vehicle industry. So, it's those types of things on a customer by customer basis, I guess, is my point.

D. Murray:
Jennifer? Dan murray, can I pretend I am a railroad for a minute and comment? I don't think this is from my own industry, but I am of the opinion we have reached a level of stability between the two modes. You are going to see any dramatic revolutions in either industry. Trucking and technology, trucking and railroads are both investing in technology at various levels. They are both going to improve their delivery times, whatever. We will never have rail spurs up to restaurants, hospitals, schools, the standard line railroads use. So you did see in one of my slides where you are seeing a decrease in some of the longer haul, particularly for truckload, and a fair amount of that is going on to the railroad. So, the market system which rob is talking about does find this equilibrium, and it's evolving. You are going to see dramatic changes. We sometimes hear in urban areas, how do we get the trucks off the roads and put them on the rail. You don't necessarily want a bunch of rail spurs and rail lines running through larger -- large urban areas. I am not sure you are enhancing congestion reduction efforts. Clearly it makes some sense to take the long hauls and put them on rail cars, which is what is happening. So I think there's a -- the relationship is market based, and it continues to develop, and there are any massive revolutions that will occur. Now rob did mention the chicago project, or maybe it was craig. But there will be some incremental efficiencies from that sort of project , but it's not going to define that kind of trucking array. Maybe I am a luddite and I am missing something in this but but I think the market has created a stable system that is working well. Trucks don't necessarily want to move crushed coal and a series of other rock commodities, when the railroads do very well. Again on the manufactured goods sides the market defines costs and modes pretty well.

J. Seplow:
Thank you, dan. We will have one more rail question and then move on to trucking as I promised. What strategies are being used by railroads to bring public funding to infrastructure projects with public and private benefits?

C. Rockey:
Well, the most important thing, as an initiator of meaningful public private partnerships, in the railroads minds, these are projects which have public benefits as well as, perhaps, some level of benefits that accrue to railroads, and the most important factor in getting one of those projects is to have a sponsor. You don't have them unless you have that element, government agencies at the local level, at the state level and ultimately at the federal level to buy into a need. So they have got to either initiate it or they have got to be presented with it and believe in it, and until that happens, you won't have successful programs. The Create project was one which these three entities that I mentioned came together and decided this was necessary. In other, perhaps, smaller-type projects you have certain things that can be done that have very important and dramatic social benefits, and that can be accomplished through some existing programs such as perhaps the border and corridors program or the CMAQ program or other types of programs that are in place that have funding for those types of congestion and air quality mitigation or community improvement goals that railroads can be a part of.

J. Seplow:
Thank you. Rob, did you have anything to add?

R. Martinez:
The only thing I would add is that craig in one of his slides had something that said that typically a good public private is primarily is going to be one that has more benefits on the public side than the private. I think that's probably going to be true. A couple of other principles that you should keep in mind or should be part of any public-private approach with the rail industry. It has to stay voluntarily on both sides, public and protect to secure that public interest in any that is reached and railroad to protect its customers, shareholders and any employees. Any public private has to be done in a manner that is consistent with the reason that exists for rail. It is not what it used to be but it is -- there is there is still a sing regulatory regime with which we have to comply, ownership rights of the railroad and obviously has to be driven by the market.

J. Seplow:
Thank you. I know we have a few more rail questions in there, but I want to give dan and todd a chance to answer questions. I will switch to truck right now. If we have a chance, I will go back or you can send questions out and you can also e-mail presenters whose e-mail addresses are on the slide right now. Dan, I believe this is for you. In nevada we see the class 9 vehicle (5 axle) as predominant truck. Why are your statistics tracking the class 8 (4 axle)?

D. Murray:
That is incorrect. If you are talking 5 axle, typically it is a classic. Someone might want to educate me on a class 9. It is not on my radar screen. There is a trailer, which there are some truckload carriers have researched and are advocating for a 3 axle trailer, and obviously there's -- there is sort of a requisite weight increase assumption that goes with that. If that somehow fits the category of class 9. I am not aware of that. But class 8 trailers, 5 axle semi truck tore trailers with 80,000 pound limit, with length of 72 feet, etc, etc. Somebody may want to educate me on what a class 9 is.

J. Seplow:
Okay. The person who asked that question, if you do want to talk further with dan, his e-mail address is on there, as I had mentioned. Let's see. The next question we have is what role do you see in the commercial vehicle system component of ITS? Dan or todd. If you, whoever has something to say, feel free to just speak up.

T. Spencer:
Well, its, you might, just to be clean, make it black and white and say that the ITS systems that the industry invests in, obviously those are private and proprietary and that the public sector invests in for CVO. There is a lot of interaction today between those systems. There is a little bit of sharing of truck routing information, real time wireless, into some ITS systems with a few exception, its or technology-based data within the industry generally stays there again because of the data concerns that I mentioned earlier. I think there's a huge opportunity to do calibration and validation on both sides when we get to the point where we can share that data, but we need some, call it data firewalls built, so that it can be shared without sort of outside fears coming into play.

D. Murray:
Let me just add to that, todd as well can comment on this specifically. Even owner operators are investing inspect sophisticated telematic systems with new ones employed daily. The conference is going on as we speak in florida right now. It's amazing the new technologies that industry is considering investing in or has invested in. One of the big dilemmas is going to be the integration of these myriad and disparate systems so that we all work together and make sense for the customers in particular.

J. Seplow:
Thank you. This is actually an open question to everybody. With the trends that you are showing, is there any greater or lesser likelihood of smaller decentralized intermodalized yards?

D. Murray:
Dan murray talking. I don't think so. I think rob hit it on the head where the goal and benefit of intermodalism is efficiency and there are delays associated with container movements and trailer movements as it relates to intermodal. If you look at companies, successful companies like fedex and UPS, while they have regional processing centers, they have large operating centers in chicago or memphis and those systems seem to take advantage of economies of scale in terms of equipment in personnel.

I agree.

Yes, I agree with what dan just said.

The one possible exception, if I understand the question right, that may be to that, to that general mode of what is taking place, is the efforts, the efforts to make inroads into the shorter haul intermodal corridors, and market segments, with specialized rail equipment, which would allow movements below the generally sought out 500 miles or 70 oh miles or whatever one wants to place on it. And those, of course, would bring about the need for new intermodal terminals. Perhaps more closely placed.

J. Seplow:
Thank you. Is there any other comment related to that question? Okay. At this point, just to give people a chance to ask questions over the phone, we will open up the phone lines for questions. We will only take about five for minutes and then we will have to close out the seminar. But you can e-mail questions to presenters or through the LISTSRV and access a large group of people that way. Natalie, we can go ahead and open up the phone lines now and maybe take one or two questions from there.

Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. If you are using a speakerphone, please lift your hand set before answering your request. One moment, please, for the first question.

Our first question comes from myra bulis, FHWA. Please go ahead, ma'am.

Myra Bulis:
This question is geared towards the trucking side. I was having some problems with the presentation, seeing it and hearing it, but I believe I heard someone say that a driver, a truck driver's on duty time isn't recorded on a log? Can someone clarify that for me, please?

D. Murray:
It's recorded on a paper log. To point in time, I believe, there's one trucking company in the united states that's using electronic logs. But, in general, it's a paper log system. Todd, are you going to add to that?

T. Spencer:
No. Actually, I would simply concur. I figure there's probably more to the question, though?

M. Bulis:
Well, as I heard the presentation, I heard that the on-duty times you are not getting compensated for that time of loading and unloading?

T. Spencer:
That is a characteristic of the industry, especially since deregulation, the evolution has been to simply pay drivers per mile for miles that they drive, and that is basically the only compensation that they are going to receive.

M. Bullis:
Okay. But they do need to record that time as on duty time?

T. Spencer:
I certainly would agree with that.

D. Murray:
Technically speaking, they are required to record on duty time and off duty time and those rest periods. There's maximum amounts over a week and over a day when you can drive and can't drive. All of that is managed by the FMCSA and you can get substantially more information on the new hours of service at

T. Spencer:
It is a challenging situation that drivers find themselves in each day, in many instances make it clear certain time is to be logged on duty not driving, yet, there are economic pressures that they have to deal with, plus, there are demands that come from meeting service obligations that may or may not fit well into that particular, a driver's particular bodily needs. I guess, the biggest challenge that drivers have, is, in addition to the tremendous amount of drivers that they, in essence, donate or waste per week in loading -- unloading scenarios, there's never any predictabilty about it. You can be a driver with 10, 20 years of experience driving some place in some instances you back in and you don't know whether will -- you will be there 2 hours or 12 hours.

J. Seplow:
Thank you. Actually, due to time limitations, we are only able to take one question from the phone. We will have to bring the seminar to a close right now. I know a lot of you had good questions I would encourage you to post them to the LISTSERV or contact each of the speakers and get them answered that way. I want to thank each of the speakers for their presentations. It was a very good panel on trucking and rail. Thank everybody for attending. The next seminar, border operations with presentations from the federal highway administration and u.s. bureau of customs and border protection will be held on april 21. If you haven't done so already I would encourage you to visit the talking freight website, and I would encourage you to visit the LISTSERV if you have not already done so. Thank you, everybody, Dan, Craig and Rob and Todd.

Contact Information

Spencer Stevens
Office of Planning
Phone: 202-366-0149/717-221-4512
Carol Keenan
Office of Freight Management & Operations
Phone: 202-366-6993

Updated: 3/29/2011
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