You just don't get it

Posted by Fred Frailey
on Monday, September 29, 2014

The reaction to my blog on letting the Chinese develop our railroad infrastructure (go here) has been uniformly negative. That is the good news. I agree, the Chinese government is a dictatorial regime whose nose you should not want inside your tent, because like the camel it will soon enough occupy the tent.

What distresses me is that so few of you understood the intent of the blog. So I will try again. In my opinion, railroads are under-investing in capacity. This is hard for people to understand when almost 20 cents of every dollar of revenue goes into capital spending. But if you look at the meltdowns occurring on almost a daily basis on parts of all of the Big Four U.S. railroads, it’s obvious they are not prepared for today’s prosperity. Instead, they increase dividends while (in the case of CSX and Norfolk Southern in particular) making minimal capacity-expansion investments as they wait for government financing to bail them out. CSX and its tunnel-clearing project in the east is a classic business-school case study. It has waited a decade for government handouts, all the while incurring ongoing opportunity costs from not being able to operate double-stack trains. Talk about shooting yourself in the foot! Far better, I say, to spend your own dime, get the job done, and enjoy the cascading revenue benefits.

But no, the industry says it cannot afford more capacity, except in baby steps. So I challenged the Big Four in that blog: If you cannot do this, maybe the Chinese can. To which I see in response a deserved condemnation of the Chinese government whose dollars would finance such investment, but no better alternative. You are blinded.

You just don’t get it. Opportunity can be passing the railroad industry by, as issues those dividend checks and watches its trains sit still in meltdowns. We need bold strokes. What we get are baby steps. — Fred W. Frailey

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