News Wire: Leaders say time is ripe for private infrastructure investment

[466lex]

MidlandMike said:  “Rail's revenue growth slightly beat inflation with 21%”

The reality is much more negative:  “Tons Originated” declined 21%, but “Revenue” increased 21%.

 

                 Thus, “Revenue per Ton Originated” increased 52%.  (Math verified.)

 

Further, the more appropriate measure of “industrial” inflation is the “Producer Price Index.”  It rose only 13%, 2016 vs. 2006.  Thus, as a broad generalization with a very important core of reality for many railroad shippers, railroad “rates” (“yield”) rose four times (4X) faster than the prices received by shippers for their products. 

Think “coal” for CSX shippers, for example:  “Yield” up 61%, yet “CAPP” price = $40/ton in 2006, and about the same today.  Lots of factors, of course.  Rail rates unimportant?

The pattern prevails across virtually all commodity groups, with the notable exception of “Intermodal.”

There, the “yield” rose only 20%, tempered explicitly by truck competition.  (The negative impact on IM margins has been dramatic.)

 

The industry has adopted (implicitly) a “going out of business” strategy by absolutely maximizing cash flow.  To wit, the pricing strategy I have outlined, combined with the service-killing “monster train” cost-minimization strategy.

 

The volume collapse is almost certainly irreversible given the dramatic logistics demands of the new “Amazon economy” for unheard-of service levels.

 

 

(Funny, sorta:  Just posted here on the Forum is the AAR’s weekly carloading report.  It notes dramatic gains for all groups except Petroleum (DAPL has killed the CBR sector).  The phrase “Dead Cat Bounce” comes to mind.)

[MidlandMike]

466lex

Current (nominal) dollars.  "As recorded" on the books.

 

Using the bls.gov inflation calculator, inflation rose 19.6% between Dec 2006 and Dec 2016.  Rail's revenue growth slightly beat inflation with 21%

https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=100&year1=200612&year2=201612

 

[466lex]

Current (nominal) dollars.  "As recorded" on the books.

[MidlandMike]

466lex

...

                                             2006                  2016               %chg.

Revenue:                           $48.2 billion         $58.1 billion         +21

...

 

Was that in constant or inflated dollars ?

[Paul_D_North_Jr]

Thanks for those thoughtful comments above, esp. the info from 466lex.  

Note that the referenced 2007 study and report were before the circa 2008 'unfunded mandate' for PTC installation, which includes freight railroads.  It's widely viewed to have been a major diversion of capital expenditures that could have been spent on capacity improvements instead (though the data suggests those might not have been necessary).

Maybe some other comments later.

- PDN. 

[schlimm]

It appears likely that infrastructure plans, etc. will be largely on hold until the investigations reach their conclusions.

[466lex]

Unbeknownst (and unknowable) to DOT, AAR, and the railroads, the year 2006 was the post-Staggers Act (1980) U.S. railroad volume “peak.”  Structural changes in the U.S. economy; modal competition; logistical innovations; and strategic railroad industry pricing decisions combined to “cap” railroad industry volumes that year.  Subsequent years, notably the recession years of 2008 and 2009 and the collapse of coal traffic in 2016, saw consistent declines.

 

Some data:  (U.S. Class 1s)

 

                                            2006                    2016               % Chg.

Tons Originated:                  1.956 billion       1.553 billion         -21

 

Revenue Ton-miles:             1.771 trillion       1.584 trillion        -11

 

Loads:                                35.7 million         31.9 million          -11    

 

Revenue:                           $48.2 billion         $58.1 billion         +21

 

 

 

Had the U.S. DOT demand estimate been linearly correct, U.S. railroad tonnage in 2016 would have approximated 2.5 billion tons.                  

[466lex]

Ten years ago, September 2007, this report was published:  “National Rail Freight Infrastructure Capacity and Investment Study.”  Prepared for AAR by Cambridge Systematics, Inc., the study was requested by the National Surface Transportation Policy and Revenue Study Commission.  The Commission was charged by Congress to develop a plan of improvements to the nation’s surface transportation systems that would meet the needs of the U.S. for the 21^st century.

 

“[The Study] provides a first approximation of the rail freight infrastructure improvements and investments needed to meet the U.S. Department of Transportation’s (U.S. DOT) projected demand for rail freight transportation in 2035. The U.S. DOT estimates that the demand for rail freight transportation—measured in tonnage—will increase 88 percent by 2035.”

 

A decade later, in the midst of another infrastructure “rush,” a status check may be of some interest.  (Let me hasten to emphasize the source of the “demand estimate”:  U.S. DOT, not AAR nor individual railroads.  No criticism of the report, AAR, or its authors is intended.)

 

However, it is worth noting the following description by the study’s authors:  “This study is a hallmark study, the first effort of its kind. The U.S. DOT and the Federal Highway Administration (FHWA) have developed national infrastructure needs and cost estimates for the publicly owned highway systems, but no comparable, long-term, national estimates have been developed for the rail system. The railroads are publicly traded or privately owned companies, and the planning horizons for railroad capital projects typically do not extend out 30 years. And neither the U.S. DOT nor individual state DOTs have comprehensive rail infrastructure databases suitable for long-term planning. This study is the first collective assessment by the major freight railroads of their long-term capacity expansion and investment needs.”

 

 

Some decadal statistical comparisons are made in a following post.

[samfp1943]

BaltACD

Sounds like Chao want more toll facilities to be built - for profit, not for service.

 

  And it sure sounds like the theme of the lyrics in the song " Rock Island Line"

"...Now this here's the story about the Rock Island Line
The Rock Island Line she runs down into New Orleans
It's just outside of New Orleans is a big toll gate
You know all the trains that go through the toll gate
They gotta pay the man some money
But of course, if you got certain things on board
You're okay and you don't have to pay the man nothin'
And just now we see a change comin down the line
When you come up to the toll gate
The driver, he shout down to the man and he says

I got pigs, I got horses, I got cows
I got sheep, I got all livestock, I got all livestock
I got all livestock

The man say, 'Well, you alright boy, just get on through
You don't have to pay me nothin'"
And then the train go through
And when he go through the tollgate
The train…

The man say, 'Well, you alright boy, just get on through
You don't have to pay me nothin'"
And then the train go through
And when he go through the tollgate
The train gotta have a little bit of steam and a little bit of speed
And when the driver think he safely on the other side
He shouts back down the line to the man and he says

I fooled you, I fooled you..."

 

It also could be said that the old warning applies here,about,  "...Those that do not know or understand their History, are doomed to repeat it..."

[BaltACD]

Sounds like Chao want more toll facilities to be built - for profit, not for service.

[Brian Schmidt]

WASHINGTON — Transportation Secretary Elaine L. Chao said Monday that “There has never been a more exciting time to be involved in infrastructure. It’s a national priority, and has growing public support. There is also rare bipartis...

http://trn.trains.com/news/news-wire/2017/05/15-us-infrastructure