Summary and Conclusions

North Dakota's grain producers rely on an efficient rail system to move their products to export and domestic markets. In the 1999-2000 crop year, approximately 69 percent of all North Dakota grains and oilseeds transported to export and domestic markets were transported by rail.

A recent shift to larger grain hopper cars may threaten the viability of thestate's light-density branch line network. The old industry standard of 263,000-pound cars capable of hauling 100 tons of grain is being replaced with 286,000-pound cars capable of hauling 111 tons of grain. Many light-density branch lines can not handle these larger cars, as they have light rail in place, shallow or poor ballast, and/or deferred tie maintenance. Although it is possible to load the larger rail cars at lighter weights or operate at lower speeds on such lines, railroads operating over such lines eventually will face a decision between upgrading and abandoning lines that cannot handle the 286,000 pound cars at full weight.

This study simulates the impacts of handling larger rail cars on many types of rail lines, models the decision process used by railroads in deciding whether to upgrade such lines or abandon them, estimates the costs of upgrading rail lines that are unlikely to be upgraded, and estimates generalized highway impacts that could result from the abandonment of non-upgraded lines.

In simulating the impacts of handling larger rail cars on different types of rail lines, the study estimates that rail lines that have rail in place that is less than 90 pounds per yard are likely to need some form of upgrading to handle the larger rail cars. More than 1,200 miles of rail line in North Dakota have rail that is less than 90 pounds per yard. The costs of upgrading all of these lines are estimated to range between $258 million and $324 million, excluding the costs of bridge upgrading.

In modeling the railroad decision process on whether to upgrade lines with light rail to handle the larger cars, it was shown that railroads are likely to rank investment alternatives based on their internal rates of return. In estimating the internal rate of return to an upgrading investment, railroads are likely to use a maximum of an eight-year time frame for evaluating the benefits to upgrading. Moreover, the internal rate of return to the upgrading investment will depend on the proximity of the rail line to competitors' rail lines, the actions taken by competitors in terms of upgrading their rail lines, the ability of trucks to serve destination markets directly, the location of new shuttle train facilities, operational cost savings resulting from the upgrade, service improvements from the upgrade, and the cost of upgrading.

A numerical illustration of originating traffic levels where railroads are more likely to upgrade lines shows that at current revenue splits, short lines are unlikely to make the investment upgrade in most cases, while Class I railroads may find it beneficial to upgrade at traffic levels as low as 35 to 40 cars per mile. The illustration shows that a larger revenue share for short lines or a loan guarantee program that extends the length of loan terms available to short lines could increase the likelihood of upgrading lines with light rail on Short Line systems.

Finally, the study estimates the generalized highway impacts that would result from eliminating rail lines with various traffic thresholds. The study shows that if all rail lines with less than 35 cars per mile originated and less than 90 pound per yard rail are eliminated (895.5 miles), the annual highway impacts would exceed $1 million, but the cost of upgrading these lines would exceed $191 million. Similarly, if all lines with less than 150 cars per mile originated and less than 90 pound per yard rail are eliminated (1,202.3 miles), the annual highway impacts would exceed $1.8 million, but the cost of upgrading these lines would exceed $257 million.⁶⁴ Thus, a state-funded subsidy to upgrade all such potentially abandoned lines does not appear to be warranted. However, some subsidy may be justified in some cases.

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