My Bio and This Blog's Purpose

Saturday, March 1, 2014

Disrupters, Innovators & Rent Seekers in Rail


The purpose of this post is to demonstrate how disruptions, innovations, and rent seeking apply to the world of passenger rail just like it does to any other form of business.

Here are some examples of business disruptions. Such actions have resulted in life being much better for society today. 

Rent seeking is the yang to disruption's yin. As Steve Blank says about this counterbalance:  

Rent seekers are individuals or organizations that have succeeded with existing business models and look to the government and regulators as their first line of defense against innovative competition… Rent seekers spend money to increase their share of an existing market instead of creating new products or markets…

Overhauling the Paradigm Could Make the Passenger Train Thrive Once Again

Here are some possible scenarios of how passenger rail could drastically change for the better:
  • Operators provide multiple classes of service--beyond today's coach, business, first classes
  • Premium and specialty food service on trains
  • New operators using historic stations in major cities that are currently commuter only or have no meaningful Amtrak service
  • Train tickets that include non-rail connections and transfers between multiple stations in the same city
  • Rail operators providing other services at stations, like real estate agencies 
  • Private industry like travel agencies and cruise companies getting into the world of passenger rail
  • Expanded Auto Train service, regardless of operator
  • Some ideas for unconventional rail travel Jon Fostik and I separately proposed a few years ago
  • All-sleeper trains that are affordable but also offer premium rates
  • The recent move by the feds to allow Caltrain to use European style equipment on U.S. tracks
  • Different ways to finance passenger rail given that politicians aren't readily receptive to funding trains

Who Are Passenger Rail's Innovators Today?

Passenger rail ridership in America is at its highest in decades but most expansion plans to draw even more riders are stuck at the station due to congressional gridlock. There are disagreements over whether Amtrak—and by default, the public sector—should continue its role as a monopoly operator or if other carriers—some of whom are privately run—should be allowed to compete.

In the midst of the fight over passenger policy, there are several renegades who are not waiting for Congress or the White House to set new laws. In the last three years, Iowa Pacific has emerged as a potential shortline powerhouse by planning and providing passenger service to areas that hadn't carried people in decades while Florida East Coast’s All Aboard Florida has laid the groundwork for passenger service in 2015. 

Meanwhile in Amtrak's own backyard, Housatonic and New England Central have plans to provide service to cities that are underserved by the national carrier.

Last year, two different companies provided plans to run private service between Portland, ME and Montreal--one during the day, the other, at night. For years, the feds have included a Boston-Montreal route as part of a national high speed rail system, but the problem is that HSR money has dried up and even if it hadn't, there would have been some serious disagreements over where the route should go (via the Downeaster/western ME, central NH or Springfield, MA/Vermonter).

The Roadblocks to Innovation

Just as there are people who are thinking beyond an Amtrak (-only) world, there are many others who aren't willing to give up the existing order without a fight:
  • The aviation and highway lobbies along with their allies like think tanks and politicians
  • The Class I railroads and the AAR's Amtrak only stance
  • Amtrak management's complacency (continued focus on the NEC at the expense of its other routes)
  • Rail activists who support the status quo and oppose competition
  • Amtrak friendly politicians who resist meaningful changes for the national carrier (NJ Transit & politicians and the Northeastern congressional delegation)
  • A segment of the rail community that is opposed to lighter equipment being used because they allege that the European cars are "too dangerous" despite the fact that bulky equipment currently used on U.S. rails has its own safety issues
  • True Believers who think that giving more money to Amtrak is the answer while failing to realize that the agency's management is too focused on the Northeast
  • The FRA's inane standards on things like equipment crash-worthiness 

How Rent Seeking Is Blocking a 21st Century Rail Renaissance

I will now provide some examples of how rent seeking behavior is hurting the cause for passenger rail by responding to three of Blank's quotes:

Instead of offering better products or better service at lower prices, rent seekers hire lawyers and lobbyists to influence politicians and regulators to pass laws, write regulations and collect taxes that block competition.

When foreign operators devised plans to run HSR in late 2009 and early 2010, Amtrak was forced to create an HSR department just to keep up.

Amtrak president Joe Boardman sent a letter to four congressional leaders to impose burdens on some of these would-be HSR competitors by playing the liability card.

In 2012, the Senate proposed three provisions that would have stunted competition. Amtrak claimed plausible deniability because Senator Durbin and Majority Leader Reid took the brunt for proposing such foolishness. It wasn't coincidental that the move was directed at the very operators that have constantly outbid Amtrak on commuter contracts and formed the Association of Independent Passenger Rail Operators in 2011 to bid on intercity routes.

When companies are protected from competition, they have little incentive to cut costs or to pay attention to changing customer needs.

The Tea Party backlash of 2010 led Amtrak to primarily focus on the Northeast Corridor without much detail to the rest of the system. Remember, the non-NEC states are paying Amtrak for Section 209.

The FRA’s foot dragging on Section 214 provisions led Amtrak to tell three states to pay for a non-corridor train or lose service in 2016. That lax federal enforcement has also led Amtrak management to not make any serious efforts to provide additional equipment for the Western long distance trains.

The national operator is planning to completely phase out its remaining Heritage fleet while providing no additions to its eastern long distance capacity and completely neglecting inactive Superliners. Rumor has it is that Amtrak would rather scrap its older equipment than see other companies use it for state-sponsored services. 

Startups, investors and the public have done a poor job of calling out the politicians and regulators who use the words “innovation means jobs” while supporting rent seekers.

The Nightmare Scenario or the possibility of Amtrak only running overnight routes (plus the NEC) would stifle any hopes for reviving passenger rail in this country yet most rail advocates haven’t gotten this message, choosing instead to support the near monopoly.

On the other hand, it’s to the AIPRO’s credit that it got a jump start in challenging the rent seeking activities by pointing out the regulatory burdens. Now, someone needs to point the following out to the unions: If they are opposed to non-Amtrak operators, then they are in effect opposed to more jobs.


Innovation has helped other businesses and can help passenger rail—if entrepreneurs are allowed to. Rent seekers are around the corner and will seek to keep the laws as they are. If this latter group succeeds, then the public will be the biggest losers as America would continue to have mediocre rail service, and anti-rail forces will then continue to mock passenger trains as "outdated."

1 comment:

  1. Thank you for a very thoughtful piece on the potential for innovation in the US passenger rail system. I would like to add a couple of structural engineering issues to the mix. First, the FRA's system for classifying tracks and rail speeds dates back some forty years. It would be worth examining whether certain types of passenger trains can be safely and reliably run at higher speeds. If for example, a light low-slung passenger train endowed with the latest automatic safety systems could be safely run at 90mph on a track currently rated at 60 (or 120 on track rated for 90) for heavy conventional equipment - then you have instant high-speed rail potential on ordinary trackage.

    Secondly, the US needs to invest in research looking at a radical re-envisioning of rail passenger vehicles. After all, the idea is how to convey passengers over a linear rail line. We should examine everything from modified single occupancy rail vehicles, to semi-planing self-contained vehicles to extremely light, strong self-robotic train cars. All of these deserve a look from a combination of our best engineering institutions and our futurist-oriented think tanks and innovation centers. Currently our rail research is almost completely fixated on extremely conservative improvements to metallurgy, car buffer strength and automated control systems. These efforts may strengthen our current system, but ultimately will not take us where we need to go.