Sun, 24 Jan 2021

The Second Golden Age of Railways Comes to an End

25 Dec 2020, 04:42 GMT+10

During the 2008-2009 crisis, Warren Buffett placed two big bets amid the panic. He bought a good deal of preferred shares at Goldman Sachs and took control of BNSF, a huge railway company.

Goldman's 32,500 bankers and 51,500 miles of tracks, stretching from the Pacific to Texas, had nothing in common, except that it was impossible to imagine American capitalism without them.

'It's a total bet on America's economic future,' Buffett said when he bought the railroads, which was naturally advised by bankers working for a certain vampire squid,' as Goldman was once called By Rolling Stone.

A new Beginning to Railways

How right Buffett was. The last decade has been golden for the transport of products in the world's largest economy. The consumption of goods and energy of each citizen requires the transfer of 36 tons of cargo per year. American railroads have been a rare example of well-functioning capitalism, with a virtuous cycle of demand, gigantic profits, and huge investment in vibrant stocks and pathways.


Foreigners targeting America's airports, smelly subways, and bumpy highways that date back to the late Brezhnev's era, should, as the Proclaimers sang, take a look at the railroads from Miami to Canada.

Fixed assets at the six largest Rail Freight of companies in North America rose 58 percent between 2004 and 2014, to $ 250 billion. Private companies have been spending nearly the same amount each year to modernize American locomotives and tracks as the federal government on highways. Waste on infrastructure has also helped the environment, as trains are four times more fuel-efficient than trucks. America's freight railroads are more efficient and busier than their counterparts in Europe.

'America's railroads have been a rare example of well-functioning capitalism, with a virtuous cycle of demand, gigantic profits, and huge investment in vibrant stocks and tracks.'

Now, however, this private equity-fuelled locomotive has derailed. In the last quarter of 2015, the combined revenues of large US and Canadian companies of rail freight fell by 25 percent, compared to a year earlier, mainly due to the slump in commodity prices. The industry has tried to downplay this as a passing incident. If the decline persists, however, the great investment show will be over.

Tougher times also raise the specter of rail mergers, a phenomenon that has plagued the United States since the first transcontinental line was laid in the Utah desert in 1869 by CSX Corporation. Pact negotiations are already in the air, with Canadian Pacific going. after a reluctant Norfolk Southern. This week, Csx announced that it would propose a shareholder's resolution asking the Norfolk board to negotiate a merger. The deal is backed by Bill Ackman, an activist investor. He has excited Wall Street, annoyed rival companies, and put regulators on red alert. Checkout CSX Stock Has Plenty of Upside.

Raw Materials

However, before asking how the fate of the industry could have gone wrong, how did it all turn out right? Since they were deregulated in 1980, America's railroads have gradually been organized and operated more efficiently. They had many winds in their favor. Freight volumes typically grow with GDP, and railways, with a market share of around 40 percent, should shut down road transport, now with more than 50 percent of traffic, which faces emissions rules. more stringent and difficult in recruiting drivers.

The commodities bubble greased the tracks in the last decade. Freshly extracted shale oil needed to be transported from remote basins, and coal had to be moved to power stations and ports as US coal exports doubled between 2005 and 2011, thanks to demand from East Asia. and in Europe. Intermodal transport - the containers moved from ships to trains, and from there to trucks - also rose rapidly, and now accounts for a fifth of sales.

Railroad managers discovered their inner Rottweilers. Hunter Harrison, who runs Csx - and before this was at Canadian National - is praised by investors for his relentless planning: He is said to monitor individual trains as they cross the continent. Most important of all, after steadily declining since the 1980s, freight prices have risen modestly, rising 42 percent in real terms since 2004.

The railroads could be accused of imposing excessive prices on their customers - the pre-tax return on capital for the big six companies rose from 10 percent in 2004 to 19 percent in 2014. But that misses the main thing. For every dollar of gross cash flow in 2014, 67 cents were reinvested.

The industry's appetite for capital spending is almost unique in the United States, where most companies spend large profits on share buybacks to boost their stock price. The resistance of the railroad companies to this corporate crack cocaine is difficult to explain, but it could reflect the persistent presence in their boardrooms of knotty railroaders with a love for locomotive boards and connectors, rather than improved earnings per share.

Public Tools available in CSX

An employee gets access to various tools at Csx Gateway. Some of them include:

  • Service Schedules
  • Rail Car Specs
  • Intermodal Schedules
  • Rail Mileage Look-up
  • Railroad Junctions
  • Reporting Marks
  • Curfew Map
  • Intermodal Shipment Inquiry
  • Intermodal Storage Payment
  • Intermodal Lift Payment
  • J1 (Gate Receipt) Retrieval
  • Equipment Repair Billing

Employees can open Csx Crew Life to access the above tools of CSX.


What is clear is that the investment streak is now under threat from declining profits. The shale industry is reeling. Coal volumes have fallen as domestic power generators switch to less dirty and cheaper natural gas and the strong dollar hurts coal exports. The industry has balance sheets strong enough to weather a storm, with net debt 1.8 times its gross operating profit, but a time of austerity is ahead.

Capital investment fell 15 percent in the last quarter of 2015 compared to a year earlier. In 2016, it could drop by 20 percent.

The industry's unspoken plan is probably to keep raising prices while investing less and returning more cash to shareholders to keep them happy. This approach is probably going to upset everyone else. Customers like automakers, power companies, and transportation companies will complain that they are being squeezed. Despite a decade of massive investments, pressing congestion problems remain, particularly in Chicago, a bottleneck through which much of America's cargo passes.

CSX has been transporting products and raw materials for centuries. Now more than ever, the Enterprise is trained to provide Safe, Efficient, and Environment's friendly Rail transport.

How can the industry continue to satisfy investors and society if demand and profits are lower and the need for capital spending remains high? Perhaps turning the six big rail companies into four or even two.

How great the merger rewards would be is hotly debated?

Harrison says it could cut Norfolk's costs by $ 1.8 billion a year, or a quarter of the total, though most of those gains would come from being better managed, not from synergies through its merger with CP. Norfolk says it is exaggerating.

How to improve the system?

Railroad mergers have been an explosive topic for more than a century, as fear of isolation or exploitation at the hands of robber railroad tycoons is deeply ingrained in America's subconscious. The last round of deals was allowed in the 1990s when the number of large rail companies fell by half.

The antitrust apparatus today is inadequate. The federal Land Transportation Board (STB) has had broad powers to block rail mergers on the basis of the public interest since 2001. but struggles to articulate a rationale to assess what it thinks it is. Makes a System Better - Do you want options, modest returns on capital, many carriers, many route combinations, or low prices?

The industry already consists of three geographic duopolies: the west, where BNSF and Union Pacific dominate, the east, controlled by Norfolk and CSX, and Canada and its links with the industrial north of the United States, domain of CP and Canada. It is not obvious why linking two non-overlapping rail networks would make either area less competitive.

However, even saying that is a crew and a gigantic resistance is building across the country against the CP-Norfolk pact. The Alabama State Port Authority is skeptical, Ohio soybean growers are furious, eastern Kentucky coal miners are concerned. The Brotherhood of Railroad and Locomotive engineers foresees a 'downhill slope.' Most are concerned about the services and jobs that would be cut.

Union Pacific and CSX oppose the deal. All the details can be found on Csx Crew Life.

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