If railroads are the arteries of the U.S. economy, the Association of American Railroads (AAR) serves as the vital hub maintaining their health. Facing evolving industry challenges and opportunities, how does AAR develop strategies to lead the rail sector? This article examines insights from AAR President and CEO Ian Jefferies and Senior Vice President of Policy and Economics John Gray, analyzing the future direction of U.S. railroads across policy, technology, and market dynamics.
1. Policy Focus: Balanced Regulation and Future Orientation
AAR's core policy objective centers on maintaining a stable economic regulatory structure that enables railroads to generate sufficient revenue for necessary investments and quality customer service. In the short term, AAR closely monitors the Surface Transportation Board (STB), ensuring decisions are grounded in sound economic principles. The STB reauthorization bill emphasizes improving commission efficiency—a move AAR supports while stressing the need for economically robust actions.
Long-term, AAR advocates transitioning from steam-era regulatory models to forward-looking, performance-based frameworks. As new inspection and monitoring technologies emerge, AAR collaborates with regulators to demonstrate how innovations can meet or exceed current requirements, driving regulatory modernization.
- Regulatory stability: Preserving the economic regulatory structure ensures financial sustainability
- Operational efficiency: Supporting STB process improvements for optimized regulation
- Technology-driven change: Modernizing frameworks to accommodate rail innovation
2. Infrastructure: User-Pay Principle and Fair Competition
AAR strongly endorses user-pay principles for infrastructure funding. With trucking as both railroads' primary competitor and partner, AAR advocates maintaining the Highway Trust Fund through user fees. Some trucking firms have expressed willingness to increase fuel tax payments. AAR seeks trust fund adjustments—whether through higher fuel taxes or transitioning to mileage/weight-based models—to adequately cover infrastructure costs.
- User responsibility: Infrastructure costs should be borne by users to ensure fairness
- Trust fund reform: Adjusting funding mechanisms to meet infrastructure needs
- Level playing field: Preventing trucking subsidies from distorting intermodal competition
3. Market Analysis: Diverging Performance in Carload and Intermodal
Carload and intermodal services serve distinct markets—intermodal primarily handles consumer goods and manufacturers' intermediate products, while carload focuses on bulk commodities. Despite interconnection, their performance differs markedly.
Since 2013, intermodal (excluding 2016) has set annual records, driven by domestic growth. International intermodal rebounded recently after slower growth, though trade tensions and economic uncertainty create hesitation in commodity production. While 2018 U.S. GDP grew 3.1%, the commodity sector—more closely tied to rail—expanded just 1-1.5%, making it crucial for rail performance assessment.
- Market segmentation: Distinct carload and intermodal markets require differentiated approaches
- Intermodal growth: Strong domestic performance contrasts with trade-sensitive international business
- Commodity linkage: Rail prospects hinge on commodity sector performance
4. Market Volatility: Coal, Floods and Trade Disruptions
Rail markets constantly evolve with customer needs. Coal shipments continue declining as cheap natural gas erodes demand. Midwest floods in early 2019 severed two critical rail lines, disrupting coal, grain and intermodal transport. Meanwhile, U.S.-China trade tensions created a tariff-related shipping surge before new duties took effect, causing inventory buildup and complicating first-half performance. Offsetting these challenges, crude shipments rose due to Canadian imports and increased domestic production.
- Dynamic markets: Multiple factors require rail flexibility
- Coal decline: Environmental policies and gas competition reduce coal demand
- External shocks: Natural disasters and trade conflicts disrupt operations
5. AAR's Success: Advocacy, Regulation and Trade
AAR actively engages Congress, educating new legislators about privately-funded railroads that invest $25 billion annually in network maintenance. These efforts yielded positive results in House appropriations bills. AAR also promotes regulatory modernization, working with agencies to deploy efficiency-enhancing technologies. On trade, AAR supported USMCA (the updated NAFTA), believing it creates customer certainty and facilitates North American freight movement.
- Effective advocacy: Congressional engagement highlights rail's economic importance
- Regulatory progress: Advancing frameworks that accommodate innovation
- Trade support: Backing agreements that stabilize North American commerce
6. Precision Railroading: PSR's Impact and Service Quality
Precision Scheduled Railroading (PSR) reduces car handling to improve network fluidity and predictability—each handling event increases costs and reduces efficiency. While implementation requires ongoing adjustment to market changes, Canadian National and Canadian Pacific demonstrate PSR's potential to enhance service. U.S. railroads now pursue similar improvements.
- PSR objectives: Minimizing handling to boost efficiency and reliability
- Implementation challenges: Requires continuous optimization for market conditions
- Long-term benefits: Ultimately enhances service quality and customer satisfaction
7. Technological Innovation: PTC and Safety Advancements
Railroads deploy detectors, sensors, drones and high-resolution cameras for real-time network monitoring, transforming from reactive repair to proactive risk identification. These technologies improve inspection efficiency and safety. Meanwhile, railroads complete Positive Train Control (PTC) deployment, ensuring cross-operator interoperability.
- Real-time monitoring: Advanced sensors enable continuous network assessment
- Predictive maintenance: Identifying potential issues before failures occur
- PTC integration: Achieving seamless system interoperability
8. Trucking Competition: The Size and Weight Debate
AAR opposes trucking industry efforts to increase truck dimensions, arguing all infrastructure users should cover their costs. With $140 billion already transferred from general funds to maintain highways, research shows 80,000-pound trucks don't fully cover pavement damage costs. AAR contends expanding truck sizes would undermine fair rail-truck competition.
- Modal equity: Users must bear infrastructure costs proportionally
- Truck dimensions: Larger trucks would distort intermodal economics
- Funding reality: Highway trust fund challenges make expansion inadvisable
Facing unprecedented challenges and opportunities, AAR leads the rail industry toward safer, more efficient and sustainable operations through policy advocacy, technological advancement and market-responsive strategies.