INTRO: Global market pressures are continuing to push down heavy haul revenues, forcing operators to seek cost savings through technical innovation

BYLINE: Thomas S Guins

Manager, Engineering Economics,Association of American Railroads

OVER THE PAST 25 years, the world market for all bulk commodities has become less a function of geopolitics and more determined by the discovery of low-cost producers. Transport plays a significant role in determining the cost of bulk commodities, often accounting for as much as 67% of the total cost at the loading port1,2. Heavy haul rail operations have generally proved to be the most cost-effective transport mode, but if the cost to the customer is not competitive, the railway and producer will both suffer when the demand is shifted to a lower-cost producer.

The bulk commodities traditionally handled by heavy haul railways - coal, grain and metallic ores - are low-revenue producers when compared to other goods carried by rail. For example, US railroads receive an average revenue of $8 to $20 per net tonne for bulk commodities compared to $50 to $109 per net tonne for higher value, non-bulk goods3.

It is clear that market forces will continue to provide a downward pressure on transport rates. Although rail costs have fallen dramatically (track maintenance alone by almost 50% of total direct cost4) over the last 30 years, the market will not allow the heavy haul community to accept the status quo. The competitive pressures of the market place will result in a continued reduction in movement costs in general and in the cost of rail rates in particular.

Outside influences will also have a major impact. The domestic market for coal in the USA is expected to be severely affected by the forthcoming deregulation of the electric power generation industry. Because transport can represent as much as 45% of the total delivered cost of coal-generated electricity5, the cost of transport will become an increasingly important factor in the location of power generating plants. All else being equal, if a heavy haul operation cannot provide efficient transport of coal, power generation capacity will be shifted to a location with lower movement costs.

Cost reduction options

When focusing attention on the continuing need to reduce the cost of heavy haul operations, we should start by looking at how the line-haul cost is distributed between track, equipment and operating expenses. Fig 1 shows the distribution of costs for a typical heavy haul operation. In this particular scenario, equipment costs account for over 50% of the total.

Future productivity improvements will come from developments in all three main areas. For example: