Industry Up To the Challenge?

According to this Associated Press material (courtesy of The New York Times), the railroad industry is going to confronted with traffic volume over the next 25 years that, to put it mildly, could result in a nationwide "meltdown".

http://www.nytimes.com/aponline/us/AP-R ... stion.html

Brief passage:

• CHICAGO (AP) -- Railway executive Matthew Rose stood before fellow industry leaders, pointing to a map meant to tell the future of the U.S. rail freight network. It was drenched in red -- east to west, north to south.
  
  The blotches illustrated areas where, by 2035, traffic jams could be so severe trains would grind to a halt for days with nowhere to go.
  
  ''For those of you who've ever seen a good rail meltdown, this is what it looks like,'' Rose, CEO of Burlington Northern Santa Fe Corp., said as the crowded hall shifted uncomfortably in their chairs. ''It's literally chaos in the supply chain

It certainly sppears that the least of concerns for those entering the industry today will be employment security. Let's hope the industry's managers and craft employees are up to the challenge.

no doubt Gilbert , our views would differ on this , but i would say if there is so much potential traffic avaliable , then any government funding should be with a view to opening up the railroads to some form of competition .
My other comment would be that i hope the railroads keep up their capital spending through the present slight downturn . to me a downturn ( as we are having here as well ) is a opportunity to have more time to lok at ways to improve your business , and catch up on deferred maintenance .

Mr. Norman's post emphasizes what I believe will be one of the central theatres of this nation's redevelopment over the next thirty years or so. This is a challenge greater in scope than the redevelopment of the communications industry after the appearance of the Internet. And it is further complicated by the end of the Age of Petroleum and the aging of a bulge in the population reared in a completely-auto-oriented society,

As to whether the industry can adapt to these challenges, a great deal depends on how the issues of financing and societal input are addressed. The railroads represent a huge sum of immovable, and therefore politically-vulnerable capital. As to ownership, their common stock is clearly better suited to institutional holdings. Whether entrepreneurship can be allowed to flower and develop new and, hopefully, very different, alternatives, remains to be seen.

In a few more months, once the political brawl is over (for a short, precious time, anyway), a major article addressing the same iisues ought to appear in Time, Newesweek, or better still, Wired. The issue should then evolve to cover-story status, with major attention on the public-affairs broadcast media.

I've been waiting for an opportunity like this all my adult life....bring it on!

In a perfect world (which ours isn't), government would stick to what it does best (i.e., infrastructure, public safety, defense, and national security) and let the private sector handle everything else (including social needs). Then we wouldn't have this potential meltdown in a major part of our country's freight transport system because the government would plan, construct, and maintain a network of highways, freight railways, and passenger railways that meets the country's transportation needs. Moreover, this network would be relocated, expanded, or contracted as population shifts and economic changes occur.

Unfortunately, because our world is imperfect, we have a government that doesn't believe in funding rail construction at all and also doesn't spend enough money on other infrastructure construction and maintenance because this generally doesn't bring the politicians many votes. Instead, the politicians overspend on social programs (since these are what deliver votes) and ignore the country's transportation needs until a problem develops. Hence, we end up with the potential scenario that Mr. Rose describes in his speech.

The terms infrastructure and social needs in this discussion are interesting. So where to you put transportation? Rail transportation is addressed here but shouldn't, under the need to prepare, all forms be included? We have come through a period of private enterprise owning and operating railroads as businesses. Government land grants, charters, and subscriptions all helped build them, so how "private" are they? And with the growing needs of this country how much should the governments put into one form of transportation at the expense of another. That also has been a long term arguement. The fact is that you can't have it both ways. Either give in to the fact that the private industry cannot, and will not, do it for the entire population but only for the most lucrative portions. If the government takes over after that should it be an extension of the railroad track or build a new highway? Are not the railroads as much a constituant of the government as any citizen? In the long run we have to stop making these mental divisions of private and public sectors in transportation and move toward a system that serves the needs of both which is economically and environmentally viable and which allows national growth. A factory in Megacity can load a hundred cars of product a day but if it can't be delivered to Minihamlet and unloaded, what good is the system? And the reverse is also true, if something is produced in Minihamlet how can it be delivered in Megacity most ecnomically for all? Passengers have to be dealt with in the same frame of reference. We have to stop parsing words and social and political concepts and get down to work dealing with the transportation (and economic) needs of our Country in order that it have sustainable business climate and economy. There always has been a mutual working relationship between governments and industry which has varied for many reasons. Too often this relationship has been swept under the rug so that the populace doesn't find out. Well, it is time to bring it all out in the open and move forward in acknowledging that relationship and then work for the future in the strongest mode possible.

Well , i guess we have tried almost al possible public/private mixes here in New Zealand . except one , which hopefully is coming .
We started with govt owned track and operations , for over a hundred years , which worked ok , but was somewhat inefficent . we then moved to total private ownership , which was operationally more efficent , but led to the stripping of assets , and neglect of maintenance . when then had the govt buy the track back , whilst the private operator kept the operations side of things . this would have worked ok , but the operator and the govt were unable to agree on track access charges , so no progress was made . The operator also had a 70 year monopoly , so noone else could agree to use the tracks .
Now the government has brought the operations side back as well . they have not yet announced how they will run the operations side of it . I am hoping for some form of open access , hopefully theyve learnt the mistake of granting long monopolies . the problem in NZ will always be low population density .
In my view the best solution for the usa is govt ownership (or control ) of the track , allowing open access for anyone to compete over those lines . If the forecast are correct , there is enough trafic avalaible to duplicate the railroad network , if the railroads are not willing to sell . presumably such lines would be built to high speed standards , leaving the exisitng railroads for the heavy freight drags .

Wall Street seems to be bullish on the industry's prospects:

http://www.nytimes.com/2008/06/01/business/01rail.html

Brief passage:

• THE gyrations in the stock market this year may have prompted more than a few investors to reach for the Pepto-Bismol — unless, of course, they were invested in oil wells, coal mines or cornfields.
  
  And then there were the railroads. The major railroad stocks have chugged far ahead of the stock market this year. Shares of CSX, the railroad company based in Jacksonville, Fla., are up more than 50 percent, and even the laggard in the group, Union Pacific, has risen more than 30 percent, compared with a decline of more than 4.6 percent in the Standard & Poor’s 500-stock index.
  
  “The rails have been carried on this upward trend by their exposure to coal and grains,” said Kevin Kirkeby, a transportation stock analyst at S.& P.

Disclaimer: author holds positions in BNI and NSC

Here's more "upbeat" reporting on the "bullish" outlook for the industry appearing in Today's Barrons (subscription site):

http://online.barrons.com/article/SB121 ... 05999.html

Brief passage:

• Freight trains, too, are barreling into a new, more promising future. The nation needs an economical way to move its burgeoning volume of imports, and trains can do the job better than trucks. Trains use fuel more efficiently and avoid the costly delays caused by traffic. And of course they are also greener than smoke-belching 18-wheelers.
  
  With Gas prices high, both passenger and freight trains are finding new life. Why Warren Buffet has hopped aboard.
  Little wonder the U.S. Chamber of Commerce expects freight railroads to see an 88% increase in demand over the next quarter-century.
  
  "All the evidence is there that the train is returning to a degree once never expected [and that] an economic and cultural tsunami is about to transform the United States," says Harvard professor John Stilgoe, author of the recently published book Train Time. "Change is everywhere along the railroads....Track is being expanded, modernized and relaid, and once-abandoned rail right-of-ways are being reclaimed. And what you are seeing now is only the beginning. The best is yet to come."
  
  Investors may want to hop aboard before the train leaves the station. Warren Buffett, for one, already has done so. Over the past 18 months, his Berkshire Hathaway (ticker: BRK.A) has built up an 18% equity stake in the Burlington Northern Santa Fe (BNI), the second largest of the publicly traded U.S. freight railroads, along with smaller but substantial holdings in a number of other lines.
  
  Even as the economy has slumped, curtailing freight volumes, the stocks of many freight railways have moved up markedly, as investors look down the tracks to better days. Burlington Northern is up 26% since the start of this year; Union Pacific (UNP), the No. 1 freight line, is up 32%. But given the growth prospects of these and other leading railways, the group still looks reasonably priced.

At the moment, I'm expecting that the recession will slow the growth in freight traffic -- but the gas prices will cause a continued modal shift from road to rail. Which will leave the freight rail companies room to breathe (unlike the totally-congested conditions lately), but also room to profit.

I expect federal, state, and local funding to provide a large portion of infrastructure development. The result will be transfer of ownership of many tracks to the public sector.

Given Amtrak's experience, Mr. Neroden, I''d be more than a little wary of turning another substatntial portion of our rail system over to the public sector; here's why.

The passenger operations run by the individual railoads seldom "made money", and that unhappy situation had existed ever since the development of personal auto use in the 1920's, but their managers did find ways to minimalize the drain on their funds -- mostly by carrying mail and express. In addition, the trains sometimes served the travel needs of company personnel, and the services most likely to be viewed positively by the public, the handful of streamliners, were viewed as a public relations asset.

The wholesale loss of mail contracts in the mid-1960's took away the source of "passenger' revenue expected to contribute the most toward the overhead, and the replacement of the Railway Express Agency by United Parcel Sservice and others, in the public mindset, was another blow.

With no prospect of returning to a point anywhere near "break-even" status,the individual roads now had a strong incentive to exit the passenger market. Only the legislators' sympathy toward a portion of the public, much of it elderly, which refused to embrace the auto/air culture, kept the trains runniing, but the re-design of the service around a model that was never anything but a "loss leader" to begin with guaranteed that it would turn into a money pit.

So those of us with a sound knowledge of economics can show little enthusiasm for turning another portion of our rail system to the type of thinking demonstrated in the previous paragraphs.

I no longer subscribe to Trains, but this month's technology-oriented issue was too good to pass up.

Looking through both the articles and the advertisements, it's plain to see that the image of the railroads as a slow growth/no growth industry has finally been dispelled. The evolution of rail rolling stock and infrastructure into a global industry deserves some of the credit, but demographic factors are also making their presence known. Assuming a median age of 32 years and the formation of basic economic knowledge at age 12, the average American formed his her view of the industry in the late 1980's a couple of years into the industry's recovery and after the cleanup of most of the redundant plant and deferred maintenence.

The article on Hoosac Tunnel also plays a pivotal role. Financed and buit entirely in the age of private capital. That project took over 30 years to complete (if dated from the first serious proposals), turned into the anchor of a successful New England rail system, declined as alternative forms of transport arose post-1920, and is now enjoying a revival as competition between rail carriers intensifies in a region that waswritten off.

The natural, physical cometitive adavantage of the industry is hard to beat, but the shifting winds of economics and politics can threw some very powerful curves. And like it or not, the end of the petroleum-centered economy and the fundamental changes in evryone's lifestyle that it entails will force the transportation issue further into the glare of public scrutiny.

My biggest regret is that DPM and John Kneiling aren't around to see thier views vindicated.