College Park, Md. – February 24, 2011 – The nation’s $90 billion fleet of privately owned freight railway cars may be in jeopardy, according to a new report released today by the Supply Chain Management Center at the University of Maryland’s Robert H. Smith School of Business. The fleet is integral to the efficient movement of goods by rail and drastically reduces the environmental impact of shipping by eliminating the equivalent of 30 million truck shipments a year. The report finds private owners of railway freight cars are not making high enough returns to justify their continued investment in the cars.
The report, “Economic and Environmental Benefits of Private Railcars in North America,” was jointly authored by Thomas M. Corsi, Michelle Smith Professor of Logistics at the Smith School, and Ken Casavant, Professor of Economics at Washington State University.
Corsi and Casavant find the poor rates of return for private railcar owners are due in part to changes in the railroad industry’s interchange rules, which have resulted in a number of new rules to increase safety and efficiency. The report finds that costs of these improvements have been borne primarly by the private car owners, who reap very little benefit in return, compared to the efficiency benefits realized by the railroads.
“From an economic efficiency and welfare point of view, benefit/cost ratios should be calculated for the industry as a whole and costs should be allocated in proportion to the benefits received,” said Corsi. “For the market to work for car investment there is a need for equitable, non discriminatory, and transparent interchange rules.”
If the freight rail system lost all or part of the privately owned fleet now used to transport a large portion of goods, those commodities and products might be moved to truck transportation. If trucks handled all the traffic now moved in private cars on the railroads, the total cost to clean the pollutants associated with this increment in truck traffic is estimated conservatively at $12 billion. The report finds that moving goods using private railcars saves 10 times the hydrocarbon production currently saved by all public transportation.
The report was prepared with financial support of the North America Freight Car Association (NAFCA), the industry trade association of rail car manufacturers, freight car lessors, lessees and railcar owners who own or operate the majority of freight cars in North America. A full copy of the report is available at www.nafcahq.com/economic-and-evironmental-benefits-of-private-railcars-in-north-america.
The Smith School’s Supply Chain Management Center provides research, consulting services and education highlighting the latest advances in e-supply chain management. The school also offers a range of supply chain management academic courses. The Smith School’s logistics, transportation and supply chain management program is consistently recognized among the best business school programs in the country. U.S. News & World Report ranked the undergraduate program No. 8 and the MBA program No. 15 in the United States in 2010. The Smith School is launching a master’s of business in supply chain program in fall 2011. Smith’s supply chain management curriculum incorporates all aspects of the industry, including expanding global networks and cutting-edge technology.