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Two more articles on rail incapacity = trouble for RR's
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The first is a link to a ProgressiveRailroading.com commentary by rail industry analyst Tony Hatch entitled "<b>Unintended consequences: The impact of rails’ service woes could be widespread</b>" - <br /> <br />http://www.progressiverailroading.com/commentary/article.asp?id=9010 <br /> <br />The second article was posted on the TrainOrders site. Here's the link. Sorry it is a pain to get through the "previews" on the Forbes.com website! <br /> <br />http://www.forbes.com/2006/06/14/rail-profits-invest-cx_np_0615oxford.html?partner=alerts <br /> <br />Quote of Note: "<b>It is almost universally acknowledged that cutting excess capacity should not have been the primary objective of rail mergers. </b>" <br /> <br />Hmmmm, can't wait for the responses to that one! <br /> <br /> <br />Here's the text in full: <br /> <br />======= <br /> <br />Oxford Analytica <br />U.S. Railroad Profits Tied To New Investment <br />Oxford Analytica 06.15.06, 6:00 AM ET <br /> <br />With nearly 160,000 kilometers (km) of track, U.S. rail <br />infrastructure is more than double that in Russia or China. It is <br />also the most efficient and profitable network in the world. <br /> <br />However, the system suffers from increasing delays and bottlenecks. <br />Rail customers are up in arms. A cadre of company representatives <br />recently descended on Washington to lobby Congress for reforms aimed <br />at reducing and more fairly distributing the costs created by delays. <br />This capacity crunch has been caused by dramatic traffic growth, <br />reductions in infrastructure and industry consolidation: <br /> <br />Surging traffic: The main cause of the rail capacity crisis is <br />increased traffic. The principal sources of this growth are coal and <br />"inter-modal" traffic. <br /> <br />Longer-range deliveries: The problem is exacerbated because the <br />average length of each freight haul rose from 990 km in 1980 to 1,450 <br />km today. <br /> <br />Consolidation: While traffic and trip lengths have increased sharply, <br />the capacity of the freight rail network has declined. This fall in <br />infrastructure was caused by the deregulation of the industry 25 <br />years ago, and the railroads' subsequent decisions to merge their <br />operations and contract their networks. <br /> <br />In the early 1970s, the U.S. freight rail system was in disarray. <br />Clearly, the rail industry faced a choice between deregulation and <br />disaster. However, the Staggers Rail Act of 1980 allowed the industry <br />to recover, replacing the century-old regulatory structure with a <br />framework that allowed railroads to set their own shipping rates <br />based on expenses and traffic demand. <br /> <br />Following deregulation, the ICC adjusted its regulations regarding <br />railroad mergers. It encouraged linkups that would cut excess <br />capacity, as long as they did not eliminate competition. The Staggers <br />Act also resulted in the liberalization of abandonment rules, <br />enabling railroad companies to dispose of unprofitable lines more <br />easily. <br /> <br />While deregulation may have saved the industry from ruin, increased <br />profits and stimulated innovation, it is also responsible for some of <br />the current capacity problems: <br /> <br />-- <b>It is almost universally acknowledged that cutting excess capacity <br />should not have been the primary objective of rail mergers. </b> <br /> <br />-- After the spate of mergers created a small number of "mega" <br />companies, carriers concentrated their shipments on high-density <br />lines that were easy and profitable to maintain, and shed tens of <br />thousands of miles of marginal track. <br /> <br />Another disadvantage of deregulation is that while federal and state <br />governments have provided extensive funding for truck, barge and <br />airline infrastructure over the past 25 years, freight railroads <br />receive little assistance. Yet, underinvestment by the rail companies <br />themselves is also partly to blame: <br /> <br />Government neglect: The federal highway administration estimates that <br />large trucks pay only about 50-80% of the infrastructure costs <br />attributed to them, due to huge federal road-building grants. In <br />contrast, railroads pay all of their infrastructure and right-of-way <br />costs, and are responsible for the associated risks. <br /> <br />Private sector underinvestment: Nevertheless, the railroad companies <br />may also have underinvested in infrastructure. <br /> <br />Rising costs: However, infrastructure costs are rising rapidly. <br /> <br />As a result of deregulation, the number of Class One railroad <br />companies in the U.S. has declined from 73 in 1975 to seven today. <br />However, a push for further consolidation appears to be gathering <br />strength: <br /> <br />BNSF-CN deal: In late 1999, BNSF, the second largest U.S. railroad, <br />announced plans to merge with Canadian National (CN), the largest <br />railroad in Canada. The revelation touched off a firestorm of <br />opposition from federal regulators, other railroads and freight <br />business consumers. The primary concern was that the remaining North <br />American railroads would pursue their own mergers, eventually <br />producing a transcontinental rail duopoly. <br /> <br />Merger moratorium: Washington eventually slapped a 15-month <br />moratorium on all rail industry mergers while regulators reviewed and <br />strengthened the applicable rules. This moratorium killed the BNSF-CN <br />deal, and resulted in stricter merger regulations that required clear <br />demonstrations of public benefits. <br /> <br />Renewed consolidation drive: However, a new merger deal between CN <br />and BNSF, or some combination of the other major railroads, is likely <br />in the near future. Unless regulators handle these proposals <br />carefully, they could have continued deleterious effects on prices, <br />competition and rail infrastructure. <br /> <br />Many of the rail industry's current challenges were created by the <br />furious period of consolidation that followed deregulation in 1980. <br />While these mergers restored profitability, they encouraged <br />reductions in infrastructure and underinvestment that have <br />exacerbated the current capacity crunch. Although further mergers <br />attempts are likely, increased investment might lead to greater <br />improvements in performance, efficiency and profitability. <br /> <br />To read an extended version of this article, log on to Oxford <br />Analytica's Web site. <br /> <br />Oxford Analytica is an independent strategic-consulting firm drawing <br />on a network of more than 1,000 scholar experts at Oxford and other <br />leading universities and research institutions around the world. For <br />more information, please visit www.oxan.com. <br /> <br /> <br />
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