Thanks to one of this blog's readers who emailed me about high speed rail lines and the proposed project to improve and expand them in the USA. According to today's St. Louis Business Journal "Fed to invest $13B in U.S. high speed rail." The Associated Press says states are lining up for funding in "8 states seek stimulus money for high speed rail." And many people support the plan, as noted in an August, 2008 USAToday column "The case for high speed rail in America." Is this a good investment?
There is no doubt that the least-energy, lowest carbon footprint, and thereby lowest cost way to transport anything is via rail. Prior to the Reagan administration's deregulation of truck rates in the early 1980s shipping prices between all interstante points had to be registered with the U.S. Department of Transportation (DOT), and in-state with the state departments. These departments regulated pricing, and tended to price all shipping based on cost. As a result, there was a clear and major difference in the price of rail vs. truck vs. air. But deregulation changed that. Truck capacity exploded when truckers were allowed to lower prices to razor thin margins. Most businesses preferred trucks to rail because it was easier to schedule, scheduled in smaller lot sizes, was usually faster, and you could queu up the trucks down to a specific hour which was impossible with rail (a lot more flexible and suddenly not that much more expensive.) The flexibility, along with lower pricing brought about by hyper-competition, meant rail growth went nowhere while truck traffic skyrocketed (as did use of air shipping). The same reason passenger trains of old were replaced with car and plane travel.
So, there is no doubt that from a public policy standpoint rail traffic is a great move. It will be more energy efficient and less costly to the economy if people move by rail than car or air. But just because it's good public policy doesn't mean it will work. Remember the Susan B. Anthony dollar coin? How many readers have one in your pocket today? This coin was good public policy because it meant there would be far lower cost of printing the easily worn out paper dollar. Every major country from Canada (the Loonie) to the Euro have eliminated low value paper currency for the much more durable coin. So the Treasury department spent quite a bit on advertising to relaunch the dollar coin (which was dropped in the 1950s) and promote its use. Yet, within just a few months the product faltered and has found limited interest as currency (although still valid legal tender and held by numismatists). Just because the economics are favorable (for both users and the government) and the public policy is good does not mean the effort will succeed.
In open markets, it takes more than low cost and good idea to succeed. People are Locked-in to current solutions. In the case of the dollar, it couldn't be used in vending machines. Cash drawers had no slot for it. Many men had women had stopped carrying coins in the USA, and had no inclination to start. People were plenty pleased with things they way they were. To get people to change means you have to overcome that Lock-in to the current solution. And getting people to return to personal rail rather than cars or planes will have to overcome at least as much Lock-in as relaunching the dollar coin. Let's not forget that in the 1970s the feds started pouring money into a northeast corridor passenger train system connecting Boston, New York, Philadelphia, Baltimore and Washington – one of the most compact and populated areas of America. But in it's 30 year history Amtrak (as its called) has never been able to turn a profit, remaining subsidized to keep running.
So, to succeed high speed rail will need to apply The Phoenix Principle:
- The product must meet future customer needs. What scenarios of the future make high speed rail valuable? Increased urban density, high fuel costs, increased auto congestion, and higher airport inconvenience would all support the use. But some of these are incompatible (such as fuel cost and congestion). So we need to be very careful about the scenario planning to identify the individual user/market needs that high speed rail fulfills. Exactly which scenarios make this option a big winner with users? And what would cause those scenarios to develop? Markets are fickle, hard to guess, and impossible to "manage" as customers wander between options and trade-offs. Given that people are getting along pretty well with today's cars, busses, planes and standard trains a Phoenix Principle supporter would demand identifying the scenarios that make high-speed rail successful.
- The developers have to obsess about competition. As mentioned, people have a lot of options. How convenient will be these trains? Will they operate hourly, or once per day? How do I get from office or home to the departure terminal, and to my final destination on the other end? Will there be ample and affordable parking? Will there be rental cars? Easy drop-off and pick-up? Food? What are the economics of the whole transit from door-to-door? What is the comparison with each of the other travel options on not only cost but convenience, security, reliability, flexibility, user experience, seasonality, and any other factor that determines how people travel. And don't forget to compare the very need with other high-tech options, like webinars and fast developing enhancements to videoconferencing – competitors on the fringe.
- Why would somebody stop their old behavior and suddenly change? What Disruption is planned that will cause people to say "hey, this new high-speed rail is the think I need to try"? (As opposed to saying "that's nice – have you tried that yet? Maybe you should use that new train.") Will the government support this launch with a new tax of say 50% on short-hop air travel? Or a $1.50/gallon increase in gasoline taxes? Or a nationwide toll system to tax driving on interstate highways? Or even more inconvenient restrictions boarding airplanes? People don't change behavior for no reason – and encouraging a big change like shifting travel patterns requires some kind of Disruption that really gets their attention.
- You can't expect to change everyone – or even large numbers quickly. High speed rail needs to be implemented in White Space areas where it is most likely to succeed, and then watched and tested. Like mentioned, travel is more than just the train. Everything from schedules to prices to seats to feeder systems — there are a lot of variables here that need to be checked and tested. And regardless of early plans (assuming done by the very best planners and marketers) things will have to be adjusted. To succeed the owner/operator of these lines will have to convert an early group of users that become disciples for the product – like Howard Hughes created in the early days of air travel, or Apple does for its iPod and iPhone. These early adopters who have the earliest and greatest need will be the ones who can convince others about the efficacy of these new train lines and thereby reduce their risk, encouraging the others to migrate into this new solution.
Like I said, high speed rail is great public policy. But so is mass transit for Los Angeles or Houston. For it to be a success – meaning return a profit that covers the cost of capital and earns an above market rate of return – requires the introduction be managed like all Phoenix Projects. It must meet future user/market needs, it must be better than competitive options, there must be a Disruption to get people to consider using it, and it must be launched in White Space where the bugs can be worked out and a loyal following of users created. It takes a lot more than just laying down a bunch of new track and building new locomotives.