Rail Tonnage Stats...help needed

The railroad industry is hardly a dying business. Due to continued operational efficiencies, maximum usage of the physical plant, reduced employee headcounts, the industry is producing profits comparable to the pharmaceutical industry. That would be in the 15% range (by way of comparison, the enormous grocery store industry produces profits in the 2% range). All the big carriers are regularly mentioned in the financial press, both electronic and print. In past years they were utterly ignored.      Containerization, slimmed down physical plant, unit trains and freedom to price their service (Staggers Act) have contributed mightily to greater efficiency and profitability. And having a monopoly on heavy haul transportation, since no new railroads can be built, undergirds their success. Oh, and toss in cheaper fuel costs!

       Another tidbit: there was much talk of BNSF CEO Matt Rose being under consideration for successor to Warren Buffett at Berkshire Hathaway. In past years headhunters looked way beyond railroads for talent!

Mike:

Try contacting the AAR in Washington.  They provided me with some stats from the World War II era a number of years ago for use in a speech I gave to the Pacific Northwest Association of Rail Shippers.  I'd be reasonably sure they can provide you with this info although there may be a nominal charge to do so.

And I would caution you that AAR's claims that rates have fallen under deregulation were true only up until about 15 years ago.  Rail rates have increased at a pace well above inflation since.  Fred Fraily's column in the most recent TRAINS magazine touches on this.  I can state from personal experience that while rates have continued to increase, rail service today is worse than it was a decade ago despite the billions the railroads have spent on capex.

Curt

Thanks for the info.  Yeah no doubt to both comments...rates are higher and volumes are higher.  I just hope they can provide annual data to show how much higher volumes are now than at any time during the good ole days.  

Rail volumes actually peaked back about 2006/2007 and then dropped during the Great Recession.  While volumes have grown since the recession ended, they still haven't recovered to where they were in 06/07.

Curt

Curt - Might the deterioration in railroad service (surprised to hear this!) be a product of too much traffic on a smaller physical plant? Congestion, in other words?

Mark:

 

Insofar as crude oil traffic, yes.  The areas in North Dakota from which oil is now moving, historically were granger operations.  The rail network up there reflected the sparse business and the boom in crude oil traffic overloaded those lines.  BNSF is putting a considerable percentage of their capex into improving capacity in that area.

 

Elsewhere though, insufficient plant to handle the traffic doesn't ring true.  As I mentioned in an earlier post, traffic levels today are still at a lower level than they were at the peak in 2006.  If railroads such as UP, NS and CSX are moving less traffic over the same physical plant they had in 2006, you would think service would have improved but, it has not.  Cycle times on private equipment are longer now than they were 10 years ago.

 

The Fred Frailey column I mentioned earlier asks whether railroads have become so focused on trying to please Wall Street that they no longer care about satisfying their customers.  I think he has hit the nail on the head.  Despite the recession in 2008 and 2009 when traffic levels dropped precipitously, railroads continued to raise rates on their captive traffic.  Think about that for a minute.  When every other business was lowering their prices in an effort to retain business, the railroads continued to raise their prices despite a drop in their overall traffic levels. 

 

Fred's column also notes that the railroads are borrowing money right now to repurchase shares.  And if you actually look at the capex they are spending, only a small portion of it (BNSF excepted) is actually going to growing capacity.  In most cases, the money being spent is going to maintain the existing plant.

 

Lastly, I'll note how all the railroads liked to talk about how they were adding T&E employees to recover from the service meltdowns that occurred in 2014.  Those same railroads are now furloughing the new T&E employees they just spent so much money recruiting, hiring and training.  They aren't doing that for their customers.  They are doing it to please Wall Street whose only real concern is earnings for this quarter.

 

I've been in this business for 36 years and still love the industry but, the current business model is broken and needs to be revamped.

 

Curt

 

 

Curt - Thank you for the thoughtful response. A most disturbing trend in the industry, one which may well bite the industry in the pants. There was a reason those fellows way back in 1890 created the Sherman Anti-Trust Act! Of course, now it's too late.....the railroads have an almost insurmountable monopoly for heavy haul. The railroads may some time in the future suffer re-regulation if the poor service disturbs too many industries.

Fred frailey has a most interesting column month to month, as did John Kneiling.