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Railroad investment levels continue to impress

By Jeff Berman, Group News Editor
March 14, 2014

The capital expenditure outlay freight railroads make on their networks is a number that seems to grow on an annual basis. Scratch that, it does not seem to grow, it definitely does.

Where these investments go is typically for things like infrastructure improvements and upgrades, IT systems, equipment, among other things. And just how much freight railroads collectively invest in these things each year simply cannot be underestimated.

That is especially true when you see the actual tally. Earlier this week, the Association of American Railroads (AAR) said that U.S. freight railroads estimate they will dole out about $26 billion to build, maintain, and upgrade their nationwide rail network.

While that is an impressive figure, consider this: going back to 1980, the AAR said that freight railroads have anted up about $550 billion into their rail networks, with about $115 billion of that being spent just in the last five years. Other items this money goes toward, said the AAR, are bridge and tunnel upgrades, and new tracks and facilities, too. These investments are made to meet the demands of a growing economy and also to meet increasing intermodal demand, and domestic energy (i.e. moving crude oil by rail).

“This year’s projected record investments continue a decades-long trend of private railroad dollars that sustain America’s freight rail network, so taxpayer’s don’t have to,” said AAR President and CEO Edward R. Hamberger.  “The result is a rail network that is the envy of the world, serving both freight and passenger railroads, and this massive private financial commitment is a demonstration of the industry’s resolve to never stop improving.”

In recent years, in recent years railroads have spent about 17 percent on annual revenue on capital expenditures, whereas the average U.S. manufacturer spends about 3 percent.

Examples of this spending at work include:
-the Heartland Corridor, a public-private partnership between NS and Virginia, West Virginia, Ohio, and the federal government to create the shortest, fastest route for double-stack containers moving between the Port of Virginia and the Midwest; and
-the National Gateway, a roughly $850 million public-private partnership (PPP) infrastructure initiative designed to provide a highly efficient freight transportation link between the Mid-Atlantic ports and the Midwest. Class I railroad CSX is a major stakeholder in this effort.

In a previous interview with LM, the AAR’s Hamberger explained that it is not entirely surprising that the cumulative capital expenditure figure of the Class I railroads continues to be so high on an annual basis.

“If it were another industry perhaps, but not when you consider it is the freight rail industry with long-term assets that must be continuously maintained and upgraded,” he said. “Our industry’s leaders and investors know that ‘deferred maintenance’ is not a winning strategy, so these vital capital expenditures and maintenance investments will continue, particularly given railroads are growing market share to move even more freight in the future.”

What’s more, the benefits of these investments to rail shippers are also evident, he said.

These investments have benefitted rail customers in a number of ways, Hamberger explained, including significant advances in reliability and efficiency.  He cited intermodal investments as one example in this area, where on-time windows for shipments have narrowed to meet the needs of trucking and logistics customers, coupled with the fact that railroads are reporting customer satisfaction has never been higher.

When asked what the top benefits of this spending from the perspective of your Class I members, Hamberger said that these investments are essential to meeting not only the customer needs of today, but also the future needs of customers.

“Keep in mind, too, that many of these investments are made in coordination with customers—whether it involves custom facilities and track, special types of cars and equipment or investments that support improved means of loading and unloading shipments,” he explained.

When it comes to railroads investing into their networks, the overarching theme seems to remain the same in that the investments keep coming and the final tally continues to grow on an annual basis. That is and continues to be a good thing for rail carriers and other industry stakeholders, too.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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