Railroad Policy Analysis the National Railroad System Term Paper

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Railroad Policy Analysis

The national railroad system has been a tremendous asset to this country since its debut. Without the iron horse, our country would not have developed the means for transporting large quantities of goods from coast to coast. The changing of time has created many technological changes for the rail industry, but to a great extent these changes have been slow to be implemented. Additionally, the nation has undergone a digital revolution in the way business is conducted. Digital and wireless technologies have replaced many positions traditionally filled by staff, and while the downsizing can create a short-term problem, the increased levels of efficiency which businesses can pursue have created jobs in new sectors, along with increased revenues, and allowed businesses to improve their overall operating posture. As head of DSP Consulting, this paper proposes ways to improve efficiency on the Indiana Belt Line railway while improving their market penetration, and customer satisfaction.

Today's society would not be what it is without the technological advances which have affected every area of modern life. Communications are now virtually instantaneous. Businesses can monitor their supply chain, and sales demands at any time. Organizations can reduce operating expenses by more closely managing supply, demand, and organizing their shipping resources in the right place at the right time. By adding technological advances to an already steadfast industry, such as the rail industry, the organization can change a lagging performance into one which again led the country in job creating and effectiveness.

Changing systems means more to the organization than just purchasing new control devices. Changing systems also means changing the culture of the organization itself, and this may be a more significant hurdle for the industry to clear. Changing control systems and making procedural changes to utilize the same requires more than implementing new 'to do' lists. The digital technology has enabled businesses to think differently as well as act differently. A business which adopts new controls without changing its culture will encounter a significant level of opposition to the changes from within its ranks. For this reason, this paper will also address transforming the organizational culture within the Indiana Belt Line Railway. The purpose of change is not just to buy and install new equipment. The purpose is to transform the performance of the organization, and this will require a significant internal and external change process.

One popular advancement in technology that Class I railroads are using is remote control locomotives. The use of automated systems not only reduces the crew force needed to operate a train, but also eliminates the communication problems between the conductor and the engineer. Combined with global positioning satellite technology, scanners, and proximity alert systems, much of the everyday moving of cars around the rail yard can be completely automated, and controlled by a few staff from a central control facility rather than dozens of employees working in the freight yard. Automating inner yard transportation also creates a safer year, as men are not working around moving rail vehicles. These general ideas are examples of how the rail systems can adopt a changed operation posture in order to create a more efficiently operating organization.

The Changing Dynamic of the Rail Industry

After World War II, the decline of railroads was accelerated due to an increase in transport competition (mostly from trucking), excessive regulation and changing economic conditions. Competing modes of transportation received regular financial support from public funds, while railroads received larger doses of regulation. For example, public funds were used to construct the interstate highway system, airports and support facilities, and to improve inland waterways. This situation created a significant competitive disadvantage for the rail systems. At the same time railroads experienced increased competition, they were still burdened by having to pay the entire cost of building, maintaining and replacing equipment and facilities, and having a regulatory price structure that prevented full cost recovery.

Regulation of public businesses is always a controversial move. The advantages of guaranteed revenues from specific sources is often offset by a strategic disadvantage which is establishes between regulated and non-regulated organizational within the same industry. Regulation affected railroads adversely in the following ways

Rate making was time consuming and inflexible. It was also discriminatory because one class of service subsidized another, while some commodities were carried below cost. Trucks and unregulated carriers competed keenly for the subsidized traffic, thus forcing rates down and essentially rendering the cross-subsidization policy unworkable.

Railroads were unable to abandon lines which did not cover variable costs since the procedures to do so were lengthy, taking many years. As result, these services were provided at a loss.

Regulatory procedures inhibited joint usage and joint control of common trackage, and thus contributed to more costly operating practices.

Regulation discouraged innovation and did not provide managerial incentives. (MacAvoy and Snowed, 1997)

Furthermore, the late 60's and 70's were a time of increased economic expansion. The tax policies following the Kennedy administration, combined with economic demands created by the baby boom generation stimulated a massive growth in the U.S. economy. In hindsight, the timing could not have been worse for the rail industry to be under anti-competitive regulation. While other modal carriers were becoming more competitive, and stimulating revenue which allowed them to set the pace of the industry, the rail system was slowly degrading due to aging equipment, and lack of funds which could have been generated if the industry had been unregulated.

At the end of the 70's, by the time Congress reacted to the impending financial crisis, another competitor appeared on the horizon. The shipping container industry was slowly coming of age during the second half of the 1970's decade. By the time the second wave of peacetime economic expansion hit the U.S. during the 1980's, the rail system was positioned to begin to make up lost ground, but not ready to capitalize on the climbing business cycle. Other businesses have made technological advances during the 60's and 70's which bypasses much of the rail industry. As a result, the rail industry was still at a competitive disadvantage. This time it was not due to financial controls, but to outdated equipment, lowered revenues, and degrading facilities and track conditions.

Today, a global economy has again changed the dynamics of the playing field. Much of the goods which were previously shipped across the country during the 60's and 70's now entering the country via cargo ship and airliner. The shipments are already broken down by the manufacturer into shipping containers. These are lifted from the backs of cargo ships and dropped onto the backs of waiting long haul trucks, completely eliminating the need for the once monopolistic rail transport systems.

In summary, the fiscal problems which face the rail industry include:

Lack of financial reserves from previous economic cycles.

Increased competition

Fewer goods being transported intra-nationally

Increased drop shipments from international organizations directly to the end user.

Aging or degraded equipment (Adapted from Tomic, 1991)

Railroads and waterways saddled with an industrial-- revolution-era image and a tax and funding system that favors airlines and trucks, are still watching infrastructure fall farther behind modern day requirements. One study of just one segment of the rail network, the 1-95 corridors between Richmond, Va., and New York City, identified $6 billion of needed improvements over the next 20 years to reduce bottlenecks. Also, railroads finance their infrastructure spending with private funds, while the fuel and other taxes paid by trucking companies (and passenger vehicles) are still dedicated to highway construction. (Panchak, 2003)

Mergers and Collaborations

In response to the increasingly competitive nature of the market, rail companies are merging in hopes of gaining the advantages of economy of scale. Railroads are combining to provide uninterrupted service to shippers by extending their reach and cutting costs. "We will have the financial strength to make substantial infrastructure investments and service improvements...." said CSX Chairman Snow of recent merger with Conrail. "Together the companies will have stronger revenue, cash flow and earnings growth than they would have on their own." (Dinsmore, 1996) CSX and Conrail expect merging to save those $550 million a year through cost-cutting, job reductions and other economies of scale.

A merged CSX and Conrail would operate 29,645 miles of track in 22 states and serve most major markets east of the Mississippi River, including New York, Boston, Washington, Atlanta, Miami, New Orleans and Chicago. Annual sales would be nearly $14 billion. "This is simply put a terrific marriage that benefits the shareholder, benefits the shipper and benefits the American public," Snow said. "We're creating a transportation company for the 21st century." (Dinsmore, 1996)

Another avenue the rail industry was walked down has included collaborative efforts with other transportation industries. Inter-modal pioneer Malcolm McLean once recently said: "The inter-modal industry has a great future-it always has and it always will." (Sparkman, 2001) But that future seemed a bit closer in the early 1990s when the advent of double-stack trains and other new technology made rail inter-modal much more attractive for…

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