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Posts Tagged ‘Buy America’

Here is one group of economists that understands the problem with Buy-America policies. In their paper The Political Economy of Public Bus Procurement: The Role of Regulation, Energy Prices and Federal Subsidies, Professors Li, Kahn, and Nickelsburg report that the American bus fleet is more expensive and more polluting than that of other countries:

This absence of international trade has multiple implications. First, the absence of international competition likely leads to high prices. This could result in fewer buses due to capital constraint and hinder the economics of scale that is vital for public transit (Morhing 1972; Parry and Small 2009). While it is difficult to construct a hedonic bus price regression where we control for key metro bus characteristics, our research suggests that measured in comparable units, buses in Tokyo and Seoul are half the price of U.S. buses and buses produced in China are even cheaper. While cynics might question the quality of China’s buses, it is notable that wealthy and well governed Singapore is importing buses from China.

In the absence of international competition, U.S. tax payers face a higher price for subsidizing urban bus services and U.S owners of the domestic firms that produce the buses gain some monopoly rents. There is a fundamental asymmetry in that a small group of domestic producers benefit from the absence of imports while the costs borne by tax payers are broadly spread out (Stigler 1971, Becker 1985). Based on data from 1997 to 2011, the average price for a U.S metro bus (in year 2011 dollars) was $309,000 with the 10th percentile of the empirical distribution being $104,000 and the 90th percentile at $497,000.

A second implication of the absence of bus imports is extra energy consumption and hence greenhouse gas emissions. The bus fleets in Seoul and Tokyo are both more fuel efficient than in the U.S. The fleet fuel economy of buses in the U.S. was 3.54 miles per gallon (of gasoline-equivalent fuel) in 2011, compared with 4.74 in Tokyo which also operates a diesel-dominated fleet of about 1500 buses. In Seoul, the average fuel economy of 61 diesel buses was 5.05 and that of 7,469 CNG buses was 4.04 in 2011.

Chinese electric bus, being tested for use in Los Angeles. A rare example of a foreign bus manufacturer selling to the US market.

This Chinese electric bus, being tested for use in Los Angeles, is a rare example of a foreign bus manufacturer selling to the US market.

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Economists For Protectionism

jeanetteProfessional economists generally look for ways of improving labor productivity. And most economists would take a dim view of protectionism (and other market barriers). So you would think that the US transit industry, with its dismal labor productivity, is fertile ground for research, right?

Apparently not. Consider this “Research Brief” written by Dr. Jeanette Wicks-Lim  at the UMass Political Economy Research Institute. Called How “Buying American” Can Raise the Job-Creation, the report argues in favor of greater Buy-America requirements for transit vehicles purchases:

How many jobs does the U.S. economy gain when manufacturers raise the domestic content of their products? This research brief presents estimates which show that, on average, when manufacturers fully source the components and subcomponents of their vehicles domestically they create at least 26 percent more jobs than manufacturers that only meet the 60 percent Buy America requirement.

What she fails to consider is that the 100% Buy-America vehicle will be as much as 2x more expensive. It will also be much less reliable, and take years to custom-design.

That extra expense is an opportunity cost. Billions of dollars is being wasted that could go towards expanding the transit network, or running more transit service. Those things provide jobs too. As well, the overall economy would see benefits from have more extensive and frequent transit service.

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MBTA’s Buggy Railcars

Here is a textbook example of all the problems Buy-America causes for new railcar orders:

A long-awaited fleet of MBTA commuter rail cars, delivered 2½ years late by the South Korean manufacturer, is now so plagued by mechanical, engineering, and software problems that it has to be shipped to a facility in Rhode Island to be fitted with new parts.

Even as a T spokesman described the problems with the cars as “standard operating procedure,” rail workers and their union representatives said the situation is unprecedented, and federal officials acknowledged they are “monitor[ing] the situation closely.”

“In my 40-some years of railroad experience, we’ve never seen problems like this,” said Tom Murray, president of the local chapter of the Transport Workers Union of America.

But Massachusetts Bay Transportation Authority officials say the problems — including issues with doors, air-conditioning, brakes, and signal software — are a normal part of introducing new, more technologically advanced train cars into a transit system.

“Railroad coaches are not like new autos that a buyer drives off the lot,” MBTA spokesman Joe Pesaturo said. “Modifications are made as necessary. . . . This is standard operating procedure throughout the transit industry.”

First, you have to marvel at the MBTA blaming the problems on a more “technologically advanced” train car. For God’s sake, these are primitive commuter coaches. To think that toilets, air-conditioning, and doors are some bleeding edge technology!

But Pesaturo is technically correct that all this debugging is “standard operating procedure” for the US transit industry. That is because railcars have to be custom-designed — in order to comply with the Buy-America rules, and the FRA nonsense.

There is a better way. Let’s do what every other transit agency in the world does: use off-the-shelf trains, follow the global standards. Why shouldn’t the MBTA buy railcars just like the new auto buyer?

So it was inevitable that MBTA’s special-snowflake trains would go through a considerable amount of debugging. This will go on for years. It is not only expensive, but dangerous:

Some of the problems center on the control cars, which are designed to be driven by engineers at the front of the train. The cars cannot be used on rail lines owned by Amtrak, which run south of Boston, because the car’s software is incompatible with the signal system. In some instances, signals inside the train indicate that the engineer has the OK to proceed when outside signals indicate that the train must wait. In those cases, engineers noticed that the signals did not match up and reported the problem.

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Recent changes in MAP-21 have made Buy-America rules more strict. It will now apply to all contracts associated with a project, even ones that aren’t paid out of Federal dollars. This caught highway planners by surprise, and nearly halted a $1.3 billion expansion of CA highway 91 in the Inland Empire:

Inland officials are sounding alarm bells about a new twist on an old federal policy they say threatens big transportation projects set to launch in a few months. Going to bat for those officials are local members of Congress, who are urging the U.S. transportation secretary to be flexible in enforcing a provision concerning the use of domestic materials on roads and bridges, plus utility lines that have to moved. Hanging in the balance, officials say, is the massive makeover of Highway 91 between Interstate 15 and the Riverside County-Orange County line due to start by year’s end. The $1.3 billion project entails building four toll lanes, two general-purpose lanes and a connector ramp, and aims to deliver relief to tens of thousands of weary commuters who drive to jobs near the coast.

The projects could be postponed for months, if not years, officials said.

“We’ve always had Buy America on our contracts that use federal funds,” said Garry Cohoe, director of project delivery for San Bernardino Associated Governments.

What’s different, officials say, is federal lawmakers have extended the “Buy America” requirement to every contract associated with a project. That includes contracts signed to move gas pipelines, electrical wires and phone lines that are in the path of construction — though utility relocation typically isn’t paid for by federal dollars.

This is nothing new for transit agencies. They’ve always had to deal with this nonsense. This was the stated reason for rejecting the XPressWest HSR loan application. And Houston’s LRT project was severely delayed because two test vehicles were assembled in Spain (even though no Federal funds were involved).

Oh, and as for that Hwy 91 project….the DOT immediately granted an exemption.

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A loan application to build a Las Vegas high-speed rail line was rejected because the operator wanted to use foreign-built trains:

The Department has made clear that we prioritize projects that build a foundation for economic competitiveness by advancing domestic rail manufacturing in the United States. The FRA expects recipients of RRIF loans to purchase steel, iron, and other manufactured goods produced in the United States for their projects, regardless of whether the rolling stock is separately financed.

We recognize that a foreign equipment manufacturer may face challenges in meeting these Buy America requirements when responding to an initial opportunity in the United States for a limited order.

Note that the loan was not going to be spent on the train-sets. They would have been purchased separately. But the mere fact that any non-US goods were to be used was enough to kill the project.

And how exactly is this rigid adherence to Buy-America supposed to create jobs?

Now some would argue that this was a bad project anyway. The line would have terminated too far from Los Angeles to attract enough ridership. I agree with that point, but the rejection letter makes no mention of this. So what happens when the next HSR application comes along — and it is a really solid application. Will the DOT again make unreasonable requirements on rolling stock?  There is no domestic HSR manufacturing, and it is unrealistic to expect HSR manufacturers to magically spring out of nothingness to market trains for a project.

What we have here is a classic chicken-and-egg problem. Domestic HSR manufacturing cannot exist without HSR lines being built. And HSR lines cannot be built if the DOT mandates domestic rolling stock.

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Loco

Stephen Smith reports on Amtrak’s new overpriced and overweight locomotives:

Like all of Amtrak’s trains, the Amtrak Cities Sprinter will be fatter, slower, more expensive and more difficult to maintain than the models that Siemens sells to other countries.

The ACS-64, as the new model is known, is based on Siemens’ EuroSprinter, but has been modified to meet American regulators’ globally-unique crash safety standards. Many railroads across the world order changes to their trains, but the special requirements of the Federal Railroad Administration go far beyond what others ask.

Other countries use high-quality signaling to prevent collisions from happening in the first place, and crumple zones to protect light trains in case it does happen. The FRA, on the other hand, insists that American trains be bulked up to survive crashes with minimal deformation, with all of the inefficiencies that heavier trains that must be specially ordered entail.

The ACS-64 will weigh in at 98 metric tons, while other versions of the EuroSpriner, from Korea to Belgium, clock in at 80 to 88 metric tons. The Belgians paid around $4.6 million per locomotive and the Italians paid around $5.1 million; Amtrak is paying $6.7 million for each loco, despite putting in a much larger order. (Protectionist rules requiring Siemens to build the locomotives in America—the ACS-64 is mostly manufactured in Sacramento—certainly didn’t help keep the price tag down.) The ACS-64 can travel 135 miles per hour, but will be limited to 125 in everyday operation. The standard EuroSprinter model, by contrast, does 140, despite having a less powerful engine.

The locomotives will also in all likelihood also be more difficult to maintain than off-the-shelf models, as customized products are by their very nature relatively untested.

loco

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Due to delays and defects, Boston MBTA may have to cancel a railcar order with Hyundai Rotem. The root causes are no surprise:

Hyundai Rotem made a bold entrance into the US market a decade ago with attractive promises, well-placed connections, and prices that beat experienced competitors.

Some in the industry considered it a risky bet, given that Hyundai Rotem had yet to open an assembly plant on American soil, a requirement under federal law, or demonstrate experience negotiating the stricter safety standards and other requirements that have bedeviled several large international corporations trying to break into the US transit and passenger rail market.

“North America is the most difficult market. It is the graveyard of car builders,” said Jonathan Klein, a global transportation consultant and former executive and chief mechanical officer at multiple large rail and transit agencies.

 

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Buy-America policies, a self-inflicted trade embargo, makes it very difficult for transit agencies to get rolling stock on the Global Market. Having no domestic passenger railcar industry doesn’t help either.

Case in point: Amtrak California. They have funds in hand, but it will take years to acquire new bi-level rolling stock. In the meantime, what can they do?

The idea of spending millions of dollars retrofitting cars from the 1960′s is absurd. Deacdes ago I rode those cars as a kid, and even back then they seemed antiquated.

I can think of only one historical analog: Cuba’s fleet of antique automobiles.

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How NOT to Build a Train

Railway Age has a recent article on the race to build America’s high-speed trains. Here is the key section, which goes into all the nonsense of a decidedly political process:

The Federal Railroad Administration’s HSR grant program, funded under ARRA (American Reinvestment and Recovery Act), contains a 100% Buy America requirement. That means everything—vehicles, train control, rail, crossties, track fasteners—must be sourced and manufactured in the U.S. The FRA is willing to grant waivers on a case-by-case basis, “but only as a last resort,” Deputy Administrator Karen Rae told a Railway Supply Institute audience in Washington. “Foreign companies have talked with us asking us to change the requirement, and we told them absolutely not,” House Railroad Subcommittee Majority Staff Director Jennifer Esposito (a former Teamsters official) told the same group.

For politicians who feel compelled to wax patriotic and talk about creating American jobs in a recessionary economy, this is perfect public prose. But is it plausible? “Buy America is an emotional and political issue,” says National Railroad Construction and Maintenance Association President Chuck Baker. “There is a greater short-term political risk in resisting it than a long-term manufacturing risk. Buy America is what works; it’s what creates political support. It’s too easy to kill high speed rail, so at least for now, there’s little choice but to agree.”

Privately, some carbuilders are shaking their heads. “We need a sustained capital market for high speed equipment,” says one. ”We’re already at 80% to 85% U.S. content, and moving our carbody manufacturing to the U.S. could bring us close to 100%. But it will drive up our manufacturing costs. We’ll have to create a new supply chain.” Says another, “From a manufacturing perspective, we are one industry, and transit cars are our biggest piece of business. Given the thousands of components that go into a passenger rail vehicle, creating requirements for only one mode, high speed, which represents a fraction of the market, does not provide the economies of scale we need to make a relatively small order viable.”

When DB or Renfe or even SNCF needs to buy a high-speed train, they simply call up Siemens (or Alstom or Talgo) and order some trains. Simple as that. Customization consists of painting a logo on the outside, and maybe choosing colors for the interior. It is no different than how United or Continental orders airplanes, or how Hertz orders automobiles.

Now consider the process for building trains in the USA. Under FTA rules, all train components must be 100% manufactured in the US. And to guarantee no foreign manufacturing takes place, regulators will devise enough oddball design specs that bidders have no choice but to custom design the rolling stock from scratch. Then, local municipalities compete to offer huge tax breaks to lure a manufacturer.

For transit agencies, this nonsense results in 100% higher costs for vehicle procurement. And even as a jobs program, the cost-effectiveness is abysmal.

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Page 18 of ‘SMART’ staff recommendation on DMU vehicle procurement gives further proof that the only US jobs preserved through Buy-America are those of idiot FTA bureaucrats:

As part of the contract, two pilot cars will be built. These cars will be fully assembled and tested in Japan and, to meet Buy America requirements, will be disassembled and shipped to Rochelle for re-assembly and limited retesting.

Here we have a make-work program to build, disassemble, and then re-assemble train cars. Remember when the Soviets used to be ridiculed for this? Why would SMART go to all the trouble?

The reason might be the ill-fated Metro project in Houston, where two prototype cars were to be assembled in Spain. As reported in the Houston Chronicle:

A year-old voicemail retained by one of the Metropolitan Transit Authority’s outside attorneys may hold the key to preserving the first federal light-rail funds in Houston history. The April 17, 2009, message from Scott Biehl, then the Federal Transit Administration’s acting chief counsel, to Metro attorney Ed Gill responded to Gill’s inquiry about whether “Buy America” rules would permit the assembly of two prototype rail cars in Spain if the cars were purchased with local, not federal, funds.

“Ed, you nailed it,” Biehl said in the message, which was included in Metro’s formal response Friday to the FTA’s Buy America investigation. “The answer is we don’t care.”

Based on this message and the advice of its lawyers, Metro believed the arrangement would pass muster under Buy America rules, which require that assembly of all rolling stock for federally funded projects take place in the United States, Metro chief counsel Paula Alexander said in the response letter. Metro sent the eight-page letter, along with a binder containing 32 supporting exhibits, to the FTA on Friday.

In the end, Metro lost its appeal — even though the regular fleet would have been assembled in the US. With the vehicle procurement scrapped, the project got delayed. All because of two test vehicles!

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