Why Congress’ refusal to act on freight since 1993 is costing taxpayers over $40 billion a year

The piece argues U.S. freight policy heavily subsidizes trucking while rail privately funds virtually all track investment, noting rail firms invest over $23 billion annually (nearly $170,000 per track mile) across ~140,000 miles versus trucks using 4 million miles of publicly funded roads. Key data: the interstate gas/diesel tax has been fixed at $0.22/gal since 1993; governments spend ~$250 billion a year on roads with truck freight responsible for 40% of maintenance costs and about $10 billion of annual direct subsidy to trucking via general-fund transfers to the Highway Trust Fund. The article highlights safety, congestion, and emissions disparities—trucks caused 13% of over 40,000 highway deaths in 2023, account for 7% of miles but 28% of congestion time, and are materially less fuel-efficient than rail—and recommends replacing the diesel tax with a truck VMT fee and rolling back costly rail regulations to align costs with societal impacts.

Analysis

Market structure: Policy that internalizes truck externalities (replace diesel tax with a truck VMT fee or higher targeted user fees) would directly reprice trucking unit economics and shift margin to rail. Winners: Class I rails (UNP, CSX, NSC, KSU) and rail-equipment suppliers (WAB, TRN) which gain pricing power and volume; losers: asset-light and truckload carriers (KNX, ODFL, XPO) and refiners with diesel exposure (PBF, VLO) that could see fuel demand soften. The government currently transfers >$40B/year to highways (~$10B implicit trucking subsidy); even a modest VMT that raises trucking unit costs by 5–10% would accelerate modal share shift to rail over 2–5 years.

Risk assessment: Tail risks include political failure (VMT never passes) or opposite policy outcomes (new rail crew/operational regs that raise rail costs), each of which could reverse winners in 3–12 months. Short-term (0–6 months) volatility will center on legislative headlines and DOT pilot data; medium-term (6–24 months) impacts arrive via capex reallocation and freight-agility limits (rail capacity/backlog). Hidden dependencies: intermodal terminal capacity, labor availability in rail, and port congestion create bottlenecks that cap rail upside and can cause transient price spikes.

Trade implications: Establish concentrated exposures to capture a multi-quarter re-rating: long UNP/CSX and long rail-equipment (WAB) while hedging or shorting truckload names (KNX, ODFL) and selective refiners (PBF) if diesel demand trends down 2% YoY. Use 6–12 month options to express convexity (buy-call spreads on UNP, buy put spreads on KNX) and consider pair trades (long UNP / short KNX) to neutralize macro risk. Entry: scale in on committee bill progress or DOT pilot approvals within 60–180 days; exit on legislative defeat or rail-capacity red flags.

Contrarian angles: Consensus underestimates execution friction — shifting 10–20% of freight to rail requires years of terminal capex and coordination; rail pricing power may be limited if regulators cap toll-like increases. Electrification of trucking and improvements in truck platooning could blunt long-term diesel demand effects; conversely, overly rapid VMT implementation risks bankrupting smaller carriers and causing short-term supply shocks that lift freight rates and benefit asset-light intermodal players (JBHT). Monitor three triggers: Congressional floor votes, DOT VMT pilot metrics, and EPA heavy-duty rules — any one can materially alter the trade within 90–180 days.

Key Decisions for Investors

• Establish a 2–3% long position split equally between UNP and CSX (1–1.5% each). Time horizon 6–12 months; target 15–25% upside if VMT progress (committee passage or DOT pilot approval) within 90 days; set stop-loss at -12% or exit on clear regulatory rollback that raises rail costs.
• Enter a pair trade: long UNP (1.5%) / short KNX (1.5%). Rationale: capture modal shift margin. Use a 6–12 month horizon; unwind if spread narrows >10% or if Congressional VMT legislation fails to reach committee vote in 120 days.
• Allocate 0.5–1% of portfolio to options: buy 9–12 month UNP call spreads (buy ATM, sell +20% strike) sized to cap max loss to premium; simultaneously buy 3–6 month KNX put spreads as a hedge against short-term downside in trucking names ahead of legislative catalyst.
• Reduce exposure to pure truckload and LTL equities by 25–50% vs benchmark (target KNX, ODFL, XPO). Reallocate proceeds into rail-equipment suppliers (WAB, TRN) and selected railroads; revisit if diesel demand (DOE weekly) falls >2% YoY for two consecutive months or if EPA issues stricter heavy-duty electrification mandates within 180 days.
• Establish a tactical -1% short position in PBF (or equivalent diesel-refiner) if DOE/weekly diesel demand shows sustained decline >2% YoY over 8 weeks; cover if crude spreads widen >$5/barrel or diesel crack spreads improve by >$3/bbl, which would indicate refiner resiliency.