Nature or Nurture:why Do Railroads Carry Greater Freight Share in the United States Than in Europe?



Nature or Nurture:why Do Railroads Carry Greater Freight Share in the United States Than in Europe?

Authors

J M Vassallo, Universidad Polit├ęcnica de Madrid, ES; Mark Fagan, Harvard University, US

Description

This paper evaluates in a quantitative way the reasons that explain the huge difference in terms of freight rail market share between Europe and the United States

Abstract

During the 1950s, the share of freight carried by railroads was similar and declining in both the United States and Europe. Beginning in the 1960s, however, the trends diverged. In the United States, the decline slowed during the 1960s and 1970s, and railroads? share of freight actually increased during the 1980s and 1990s. In contrast, European rail freight share steadily declined throughout this period. By 2000, the railroads? share of freight (measured in tonne-kilometres) had increased to 38 percent in the United States while it fell to 8 percent in Europe.

One possible explanation is that differences in geography and other natural or inherent characteristics make the United States more suitable for rail freight than Europe. The United States has three times the land area of the European Union (EU-15) which results in longer shipment distances that favour railroads over trucks. And the United States, despite its land mass, has only one-ninth the coastline of Europe, favouring railroads over coastal shipping. The mix of commodities shipped differs between the United States and Europe as well, and often in ways that bolster United States? railroad share.

An alternative explanation is that public policies have been more supportive of rail freight in the United States than in Europe. At first glance this idea seems suspect. Europe has much higher taxes on motor vehicle fuels and a long history of subsidizing its railroads. And although both Europe and the United States have built extensive high-performance highway systems, in Europe these are often financed by tolls while in the United States many are not. However, countervailing factors could be at work. The United States has encouraged its freight railroads to be more efficient by leaving them in private hands instead of nationalizing them, as Europe did. Moreover, the United States released the private railroads from the obligation to provide urban commuter service in 1958 and intercity passenger service in 1970, and then substantially eliminated government controls over freight rates in 1980, three steps which allowed railroad managers the freedom and flexibility to focus on freight.

This paper adds to the literature an examination of the reasons for the difference in rail?s share of freight in Europe and the United States. For the first comprehensive analytical comparison, the research provides an initial explanation of the rail share issue at the macro level. The methodology features a step-by-step calculation of how rail transportation volumes in the United States would change if the United States had the same transportation volume as Europe, the same market-share for non-surface modes (coastwise, barge, and pipeline) as Europe, the same distribution of shipment distances by commodity as Europe, and the same commodity-mix as Europe. Then, we contrast the resulting volume with the rail transportation volume that Europe is presently moving, and we observe that there is still a gap. This residual is explained by variables that we have not explicitly included in our analysis, many of which are thought to be a result of policy differences.

In brief, we find that a bit less than 83 percent of the gap in 2000 is probably due to natural or inherent differences, principally the shorter coastline and the longer shipment distances but also differences in commodities moved. However, 17 percent of the gap cannot be explained by these inherent differences, and is presumably due to public policies. If that gap were closed, railroads? share of freight in Europe would increase by approximately 65 percent (from 8 percent to 13 percent.)

Publisher

Association for European Transport