Railroads and prospects for the future

[Junctionfan]

What do the CEOs, Chairmans, Board of Directors and other executives have in the way of plans for the railroads? Where do they see the rail industry a decade or more from now?

I know it might be better to ask them if you can but does anybody know what they have in store for the shareholders, customers and even us railfans?

[oltmannd]

Go to http://freight.transportation.org/doc/FreightRailReport.pdf and take a look at the report. It will give an idea of what the frt RRs see in the future and what the obstacles are.

[Junctionfan]

Thankyou for the link.

[Anonymous]

Wow, that's one mighty extensive report.

It's gonna take me a while to get through that one.

[Anonymous]

Junctionfan,

It is hard to say what the respective executives have in store for their railroads, but in my opinion the next five years will be a time of slow, but steady growth. If you look at the year end and quarterly statements for the some of the class one railroads and run the ratios, it appears that some of the railroads need to start working on the management of assets a little better. It is interesting some of the decisions railroads have made over the past ten years, namely the overkill price Norfolk Southern and CSX paid for Conrail. I understand the Conrail deal was a all or nothing deal between the two buyers, but deals like that have left the railroad industry unattractive to many prospective shareholders. As a result, it is difficult to raise capital quickly through selling of equity. That leaves railroads the alternative of using retained assets or lending through financial institutions for funds toward capital improvements. Major capital improvements are what is needed in many sectors of the railroad industry, but since major capital is not readily available to many of the Class I’s, for their retain earnings status is relatively low compared to liabilities and adding more liabilities through borrowing from banks just makes the industry more unattractive.

In a nutshell, railroad management has created an environment in which they are not attractive to the average prospective shareholder and as of right now there is no Powder River Basin to cause the market to get excited about. So, for capital improvements to take place they will need to work off retained earnings, but this will be a slow process for they must reduce liabilities ( Conrail purchase, cost of Union Pacific’s meltdown) before company’s will feel safe in heavy improvements. Basically railroads are paying for their major decisions in the late 1990’s and will continue to pay for some time.