Toughest Challenge for Railroads in Coming Years ?

[Paul_D_North_Jr]

Yes - but this is Government accounting . . .   More seriously, the reason that it's only $28 B which is available to the Class I's of the $35 B authorized is that $7 B of that amount is 'set aside' for the smaller railroads - that should be somewhere in the excerpt above. 

Yes - astoundingly so.  A brief comparison, 'off the top of my head':

Amount / proportion: Up to 100% - compared to 50% for most railroad's capital structures overall, maybe up to 80% for certain projects or equipment, 100% for some rolling stock (only) that is readily resellable and still subject to prompt repossession in the event of a bankruptcy, etc.

Term: Up to 35 years, compared to 10 to 20 years, max. - again, except maybe for some rolling stock obligations.

Rate:  Currently around 3.5 % - most corporations and Class I's are typically in the 5.5 to 6 % range - the STB recently determined that the cost of capital for the railroads is in the 11 to 12 % range, if I recall correctly.  I'll see if I can post something later on on this.

Yes - aside from the philosophical / ideological/ moral aspects.  On an overall 'enterprise' basis - Railroads need large amounts of capital.  In addition to what they've retained from prior earnings, the two principal other sources are long-tem debt and stock sales/ payments = 'equity'.  A debt/equity ratio of 50% - 50% is prudent and enhances* stockholder value by lowering the cost of that proportion of the capital structure, and most of the Class I's are around that ratio.  Just like your home mortgage, if a cheaper loan or source of capital is available, you're pretty much obligated - or at least 'incentived' - to go get some of it and use it - 'Other People's Money' - instead of a more expensive or scarcer source, such as your own money.

*'Enhances' means 'improves' through the financial principle of leverage, which is common enough - not 'maximize' through the same method, which leads to excesses and abuses.  The problems come when the leverage proportions get way too large - I believe the capital structure of like the now defunct Bear Stearns investment banking house were as high as 97 % debt.  EDIT-1:  In other words, this is like owing 32 times as much money as you have in the bank.  You can figure out the equivalent for a home mortgage's 'Loan-To-Value' ratio easily enough.

The difficulty comes in either of 2 scenarios:  1. Projects that you don't have enough money for; and, 2.  Projects or a capital structure that you do have enough money for.  The former can be justified and prudent as long as the credibly projected rate of return is appropriately above the interest rate on the borrowed money - no big deal there, as long as we're careful to weed out the marginal or really speculative/ wishful thinking kinds of projects/ investments - no, gambles. 

The latter is intellectually and emotionally the more difficult one - kind of like, "Even though I have enough money to pay cash for this house or new car, should I nevertheless get a loan for most of the purchase price, just like most people do ?"  The answer depends on whether you have something better to do with your money that would - with all probabilities considered - likely earn you more than the borrowed money will cost you in interest payments.  For the railroads, that may not be much of a challenge - they usually have lots of projects that need money and will return more than the cost of the money; it's a shortage of available money that forces them to ration the money out to those projects with the highest rate of return, but that still leaves a lot of worthwhile projects on the table.  Even if they do nothing more than buy back shares of stock with it, as long as nothing else changes that will likely yield a bigger return than the loan will cost.

EDIT-2:  But should you borrow the money just to buy a new car that you weren't needing or already thinking of buying anyway ?  No.  Nor should the railroad do that for a project that it doesn't already have a clear need for.

EDIT-3: Note that I have not mentioned the benefit of the U.S. Federal income tax deduction for the interest portion of the loan payments, for both a mortgage or a railroad.  Neither you nor the railroad should borrow money just to take advantage of that.  But if you need to borrow the money anyway - and that makes the economic cost of the loan less, and/ or the benefits of the project greater - then go ahead and use that as part of the business case for the loan.

- Paul North.

[Anonymous]

Paul,

Wouldn’t $34,300,000,000 still be available if only $700,000,000 were used?  Are those loan terms significantly better than what railroads could raise as private capital?  I am wondering if there is any advantage to borrowing the money just because it is offered.

[edblysard]

Paul_D_North_Jr

Murphy Siding

Railway Man

  I don't consider these potential changes in traffic to be even in the top 10 challenges, even if they do come to pass. [snip]

    What do you see to be in the top 10 challenges?  I guess we've already seen #1 listed.  What about the other 9?

I like that approach, to provide a little more focus to this thread - thank you, Murphy.   

And we seem to have gotten back on track anyway.  To continue with that, one of the items that I had listed in the Original Post for possible discussion was 'financing'.  I believe most of us can see a need for more capital improvement money in the railroad industry, whether it is to be used for electrification, intermodal terminals, multiple-tracking, better tunnels and bridges, HSR, etc., etc.

So yesterday I was perusing the just-released Pennsylvania DOT's Draft 'Rail Plan' - more about that later, maybe.  And I was pretty surprised - shocked, even - to see that for about the last 10 years or so, the FRA has been running a financing program called the "Railroad Rehabilitation & Improvement Financing", or 'RRIF'.  Here's an excerpt that describes it [emphasis added - PDN]:

Under this program the FRA Administrator is authorized to provide direct loans and loan guarantees up to $35.0 billion. Up to $7.0 billion is reserved for projects benefiting freight railroads other than Class I carriers.

The funding may be used to:

• Acquire, improve, or rehabilitate intermodal or rail equipment or facilities, including track, components of track, bridges, yards, buildings and shops;
• Refinance outstanding debt incurred for the purposes listed above; and
• Develop or establish new intermodal or railroad facilities
  
  Direct loans can fund up to 100% of a railroad project with repayment periods of up to 35 years and interest rates equal to the cost of borrowing to the government.
  
  Eligible borrowers include railroads, state and local governments, government-sponsored authorities and corporations, joint ventures that include at least one railroad, and limited option freight shippers who intend to construct a new rail connection.

  [From: http://www.fra.dot.gov/us/content/177 ] 

  So how much of this money do you think has been actually used by the railroads - note that up to $35 Billion is available ?

  Would you believe that only about $700 Million has been drawn down ?  (per PennDOT, and the list at the bottom of the above web page link - that seems about right to me, too)  Most of that amount was by short lines, regionals, and commuter or passenger carriers, etc. too - exactly none by the Class I's, so the entire $28 Billion that they are eligible for remains fully available.

  What's up with that ?  With terms like that, why not do multiple tracks, line relocations, electrification, and intermodal terminals as much as are needed ?  Look at the terms of those loans again - 100 % financing - 35-year term loans - long-term T-bill rates for the interest.  Perhaps a case could be made that railroad managements are being negligent or not fully performing their fiduciary duties to the corporation and shareholders, if they have or can identify projects with projected rates of return higher than that, and are not taking advantage of these loans to implement them.  But I'd rather see the projects implemented than legal shenanigans and machinations wasting everyone's time and money instead.

  I know that government, money, and railroads is a potent - even flammable - mixture here, that can lead to ''Great balls of fire !''.  But as greyhounds essentially said recently somewhere else on the Forum - ''Hey, if the Government is going to be lending out the money anyway -  even though I may think it's bad fiscal and tax policy, I'm going to get in line to get my share, too''.  So why haven't the railroads done that ?

  Comments, suggestions, criticisms, etc. ?  Thanks in advance !

  - Paul North.

Paul,

In truly simplistic terms...

You don't bite off more than you can chew, and in the world of railroading, you don't build something you don't need.

You already know most railroad capital projects you see being built now were decided on years ago, simply because of the legal process and logistics involved.

Again, simplistic, but what if a Class 1 borrows a few billion to build say, a yard or double track a major line, and traffic doesn't appear or is not sufficient to pay for the upgrade?

I mean, anything they build they have to pay property taxes on and they have to maintain, and its not like they can sell it in the classified if it doesn't work out, so .....

 

 

Don,

I don't see implementation of PTC as a problem so much as the financing of the program.

As RWM has pointed out in many other posting, the hardware and the software are pretty much a done deal, about the only glitch there is all the railroads reaching a consensus on how it should operate system wide....the real problem is deciding which locomotives get it, and who or how it will be paid for.

Public funding or private financing, how much of the cost will be passed on to the end user...things of that nature.

[henry6]

There are those who seem to be only able to think of railroading as business or politics and either black and white.  They have totally mishandled the initial question. It is a given that business and politics are involved in the answers, but what are the challenges facing the business and politics of railroading?   As for "greed", I think I clarified and defined my answer for all to understand; if it is not understood, I can't help it or you.  Conrail, the pros, the cons, the did, the don'ts, the didn't, the should'ves have all been discussed and beaten to a pulp with politics and misinformation on so many threads, there is absolutely no sense starting another thread just for that. The question is: what challanges are railroads going to face in the next five to fifty years?  I have stated my thoughts as to what those challenges are to be. So have others.  But too many have beaten statements down with politics and non problems that the point of this thread has long been lost. Aside from politics being a challange for railroading, that should be the end of mentioning politics in any further answers; its been answered: politics is one of the challenges.  What's another challenge?

[Anonymous]

Murphy Siding

Bucyrus

In an analysis of what might become a problem for the railroad business, if we set aside anything to do with government regulations, public financing, railroad business practice, international trade, national business cycles, homeland security, foreign practices, management styles, or geopolitical concerns; we are kind of left with the sound of one hand clapping. 

 

Looking at the topic in that vacuum, I cannot see anything that will be a problem for railroading.  Certainly railroads have demonstrated the ability to deal with virtually any kind of operating or construction problems that have occurred since their inception.  A sudden loss of employees with not enough in the replacement pipeline could be a problem, but I can’t see it becoming a showstopper.  It may require a heroic effort to come up with a new mass production training system, but that is doable.  About the worst I can see would be the ongoing liability from grade crossing crashes, or the possibility of other types of serious accidents.

 

The one thing that has proven fatal to railroads over and over is loss if business.  However, that has its roots over in those “other” dimensions of this topic.   

     I think you're missing the point.  The point is, if we allow every thread to become simply a discussion about the government and politics, all we will have is a forum about government and politics.  By now, we're all aware of what your political beliefs are.  We hear it on every thread.  I, for one, do not feel like everything under discussion has to be seen in the black & white frame of politics that you keep interjecting.  Maybe everything in your world revolves around politics and only politics.  I know lots of folks like that.  I don't think the majority of the posters on this forum are like that.

     I for one, would like to see if we could talk about trains.

-Norris

This thread is about the toughest challenges facing the industry.  My point was that the toughest challenges are likely to come from the things outside of the industry.  Several are obvious right now, and more will probably develop.  I mentioned the economy as one of those outside things. 

I am not sure what constitutes “politics” in the context of the No Politics rule of the forum.  I see here you have included the topic of government in the prohibition of politics.  I would have assumed that politics in terms of the forum rule would mean the praise or criticism of specific politicians and their views.  I certainly would not have thought that anything I said in this thread was out of bounds. 

It seems to me that what you are accusing me of, in terms of political posting, is a set of ideas that you see as fitting a political template.  Yet others are constantly posting a set of opposite ideas that fit an opposite political template, and you don’t seem to notice that.  It is as if you have a political viewpoint, and as long as ideas agree with it, you do not see them as being political.  I see this with a lot of people. 

If we can’t talk about government, why is it okay to talk about government funding HSR?  We can talk about our desire to ride a fast, new train from here to there for whatever reason; and how HSR is good for the environment, and land use, and is safer than driving.  But if one says they don’t think it is worth spending the public’s money on it, then THAT is political! 

[Ulrich]

I'm no fan of politcial discussion either...however alot of what we're talking about here involves "the will of the people" and not necessarily what's best from our vantage point or what's best from an engineering feasibility perspective. Alot of what we have today is due to the "will of the people".. the people wanted an interstate highway system..the people want high speed rail in certain corridors...the people want gas guzzling shorthaul air service when rail might be more viable and environmentally friendly. That's one of the frustrating things about capitalism and democracy...the people may want..and  those wants drive the market...but the people may not be right or make the right choices for the long term. And so we have a patch work transportation network that works well most of the time...but which is for the most part not as coordinated and efficient as it could be. On a smaller scale I'm often confounded by what customers want. I sometimes try to offer more efficient shipping alternatives to what they want but often I have to go with what they want even though it doesn't make alot of sense..

[MP173]

Regarding greed...the railroads, at least in recent history have had fairly ethical managements.  I cannot recall anyone who has either been indicted, or under investigation by the SEC for any stock manipulation, financial shinnanigans, etc.

There was a CSX CEO about 10 years ago who became Secretary of Treasury.  According to what was written about him, his main goal was to reach that level politically.  Was that greed?  Probably not, but can it be discussed some of his decisions were based on reaching that level?  Dont know that answer.  Certainly nothing seems to have been done by him which was illegal or immoral.  But one sometimes wonders...did he do what was best for the company he ran?

Henry, if you are referring to Conrail's jettisoning of certain lines in your area as "greed", I would agree...as long as it is also referred to as "survivalist greed".  Decisions were made based on the survival of the new entity.  To have kept all of those lines would have left Conrail in the same position as before.

Remember that Chessie and NW both passed on EL to reach the NYC markets.  Greed or basic business decision?

Ed

[blownout cylinder]

I think this whole topic is not nesseccarily all about political wrangling but it sure ends up feeling this way. The challenges---in terms of technology and such--has been politicized sometimes to a degree that I wish it wasn't.

The sad thing is that much of what we are dealing with --- in terms of ROW's, environmental issues, technological solutions to safety issues like crossings, even the daily rigmarol involving customer bases etc has become a political football. It ain't that simple anymore---- Hence the constant bringing up of this stuff.

Maybe one way to deal with this is to deal only with how these challenges can be met---by just brainstorming possible solutions. WITHOUT the wrangling-----

 

[Murphy Siding]

henry6

oltmannd

henry6

Without defining the application for the word "greed" we are left up in the air. 

Greed involves a zero sum or negative sum game. The winner gets more than the fruits of his labor at the expense of somebody else. A "golden parachute" could be described as greedy (exec gets at the expense of stockholder, perhaps). The decisions to pare Conrail down to an efficient and profitable railway most certainly were not based in greed.

You double speak and contradict yourself.  By your own definititons and limits above, CR's action certainly was an act of greed. In your words: "the winner gets more than the fruits ofhis labor at the expense of somebody else."  CR certainly deprived many communities of rail service in general, mainline service in particular, by building upon the PRR and NYC bases while depriving many LV and EL communites and lines the same quality of service they had been used to having. That conclusion from your definition.

   henry6:  This is something interesting, that I've never seen mentioned before.  However,  I fear that it may fade into the background of this particular thread.  Would you consider starting it as a different thread topic?

[Murphy Siding]

Bucyrus

In an analysis of what might become a problem for the railroad business, if we set aside anything to do with government regulations, public financing, railroad business practice, international trade, national business cycles, homeland security, foreign practices, management styles, or geopolitical concerns; we are kind of left with the sound of one hand clapping. 

 

Looking at the topic in that vacuum, I cannot see anything that will be a problem for railroading.  Certainly railroads have demonstrated the ability to deal with virtually any kind of operating or construction problems that have occurred since their inception.  A sudden loss of employees with not enough in the replacement pipeline could be a problem, but I can’t see it becoming a showstopper.  It may require a heroic effort to come up with a new mass production training system, but that is doable.  About the worst I can see would be the ongoing liability from grade crossing crashes, or the possibility of other types of serious accidents.

 

The one thing that has proven fatal to railroads over and over is loss if business.  However, that has its roots over in those “other” dimensions of this topic.   

     I think you're missing the point.  The point is, if we allow every thread to become simply a discussion about the government and politics, all we will have is a forum about government and politics.  By now, we're all aware of what your political beliefs are.  We hear it on every thread.  I, for one, do not feel like everything under discussion has to be seen in the black & white frame of politics that you keep interjecting.  Maybe everything in your world revolves around politics and only politics.  I know lots of folks like that.  I don't think the majority of the posters on this forum are like that.

     I for one, would like to see if we could talk about trains.

-Norris

[Anonymous]

henry6

And with economic and transportation planners at all levels talking about the need to consolidate and cooperate and think differently, the concept of the use of Federal Funds is coming around.  All big railroads know the challanges of the next year, the next 5, ten, 10 and 50 years.  And as they've known all along,there is not enough money on Wall St. to finance those challanges.  They are slowly coming around to realizing they have to work with truck and other highway interests, that cooperative efforts and programs are what will get them all what they want and need to exist, if not prosper, over time.  Business in this country is coming around to understand that short range profits are not profitable for long term gains, they can't just think about their bank accounts this year, but also the bank accounts of the country and business for many years to come.  

So how exactly does this work?  You say that railroads are slowly coming around to realize they have to work with truck and other highway interests, and that cooperative efforts and programs are what will get them all what they want and need in order to exist over time. 

How will cooperative efforts and programs get them what they want? 

Who will they get what they want from?

[henry6]

Paul_D_North_Jr

I know that government, money, and railroads is a potent - even flammable - mixture here, that can lead to ''Great balls of fire !''.  But as greyhounds essentially said recently somewhere else on the Forum - ''Hey, if the Government is going to be lending out the money anyway -  even though I may think it's bad fiscal and tax policy, I'm going to get in line to get my share, too''.  So why haven't the railroads done that ?

• Comments, suggestions, criticisms, etc. ? 

  - Paul North.

 

The corporate world is Big Business and as such they are not quick to grab government help of anykind when 1) they know there will be strings attached and 2) their peers in the business world would think badly of them, smacks of socialism, don't you know.  They know their independence and value it.  Likewise they know their competition and yes, they respect it.  But if my experience with big busness, multi ownership philosphy in my business of broadcasting of "lets get out there and kill those sons of bitches" in reference to competition, carries over to all big business, then big rail is also struggling with its own customs and culture.  True, there have been breakthroughs, like NS looking for help with the I81 Corridor in the Shennendoha Valley to name one.  And with economic and transportation planners at all levels talking about the need to consolidate and cooperate and think differently, the concept of the use of Federal Funds is coming around.  All big railroads know the challanges of the next year, the next 5, ten, 10 and 50 years.  And as they've known all along,there is not enough money on Wall St. to finance those challanges.  They are slowly coming around to realizing they have to work with truck and other highway interests, that cooperative efforts and programs are what will get them all what they want and need to exist, if not prosper, over time.  Business in this country is coming around to understand that short range profits are not profitable for long term gains, they can't just think about their bank accounts this year, but also the bank accounts of the country and business for many years to come.  

[henry6]

oltmannd

henry6

Without defining the application for the word "greed" we are left up in the air. 

Greed involves a zero sum or negative sum game. The winner gets more than the fruits of his labor at the expense of somebody else. A "golden parachute" could be described as greedy (exec gets at the expense of stockholder, perhaps). The decisions to pare Conrail down to an efficient and profitable railway most certainly were not based in greed.

You double speak and contradict yourself.  By your own definititons and limits above, CR's action certainly was an act of greed. In your words: "the winner gets more than the fruits ofhis labor at the expense of somebody else."  CR certainly deprived many communities of rail service in general, mainline service in particular, by building upon the PRR and NYC bases while depriving many LV and EL communites and lines the same quality of service they had been used to having. That conclusion from your definition.

[Paul_D_North_Jr]

Murphy Siding

Railway Man

  I don't consider these potential changes in traffic to be even in the top 10 challenges, even if they do come to pass. [snip]

    What do you see to be in the top 10 challenges?  I guess we've already seen #1 listed.  What about the other 9?

I like that approach, to provide a little more focus to this thread - thank you, Murphy.   

And we seem to have gotten back on track anyway.  To continue with that, one of the items that I had listed in the Original Post for possible discussion was 'financing'.  I believe most of us can see a need for more capital improvement money in the railroad industry, whether it is to be used for electrification, intermodal terminals, multiple-tracking, better tunnels and bridges, HSR, etc., etc.

So yesterday I was perusing the just-released Pennsylvania DOT's Draft 'Rail Plan' - more about that later, maybe.  And I was pretty surprised - shocked, even - to see that for about the last 10 years or so, the FRA has been running a financing program called the "Railroad Rehabilitation & Improvement Financing", or 'RRIF'.  Here's an excerpt that describes it [emphasis added - PDN]:

Under this program the FRA Administrator is authorized to provide direct loans and loan guarantees up to $35.0 billion. Up to $7.0 billion is reserved for projects benefiting freight railroads other than Class I carriers.

The funding may be used to:

Acquire, improve, or rehabilitate intermodal or rail equipment or facilities, including track, components of track, bridges, yards, buildings and shops;

Refinance outstanding debt incurred for the purposes listed above; and

Develop or establish new intermodal or railroad facilities

Direct loans can fund up to 100% of a railroad project with repayment periods of up to 35 years and interest rates equal to the cost of borrowing to the government.

Eligible borrowers include railroads, state and local governments, government-sponsored authorities and corporations, joint ventures that include at least one railroad, and limited option freight shippers who intend to construct a new rail connection.

[From: http://www.fra.dot.gov/us/content/177 ] 

So how much of this money do you think has been actually used by the railroads - note that up to $35 Billion is available ?

Would you believe that only about $700 Million has been drawn down ?  (per PennDOT, and the list at the bottom of the above web page link - that seems about right to me, too)  Most of that amount was by short lines, regionals, and commuter or passenger carriers, etc. too - exactly none by the Class I's, so the entire $28 Billion that they are eligible for remains fully available.

What's up with that ?  With terms like that, why not do multiple tracks, line relocations, electrification, and intermodal terminals as much as are needed ?  Look at the terms of those loans again - 100 % financing - 35-year term loans - long-term T-bill rates for the interest.  Perhaps a case could be made that railroad managements are being negligent or not fully performing their fiduciary duties to the corporation and shareholders, if they have or can identify projects with projected rates of return higher than that, and are not taking advantage of these loans to implement them.  But I'd rather see the projects implemented than legal shenanigans and machinations wasting everyone's time and money instead.

I know that government, money, and railroads is a potent - even flammable - mixture here, that can lead to ''Great balls of fire !''.  But as greyhounds essentially said recently somewhere else on the Forum - ''Hey, if the Government is going to be lending out the money anyway -  even though I may think it's bad fiscal and tax policy, I'm going to get in line to get my share, too''.  So why haven't the railroads done that ?

Comments, suggestions, criticisms, etc. ?  Thanks in advance !

- Paul North.

[oltmannd]

I'll cast my vote for "implementation of PTC by 2015" as a challenge. There are always unintended consequences and unforeseen obstacles when doing new things and at the scale PTC is to be implemented there is certainly substantial risk.

[oltmannd]

henry6

Without defining the application for the word "greed" we are left up in the air. 

Greed involves a zero sum or negative sum game. The winner gets more than the fruits of his labor at the expense of somebody else. A "golden parachute" could be described as greedy (exec gets at the expense of stockholder, perhaps). The decisions to pare Conrail down to an efficient and profitable railway most certainly were not based in greed.

[blownout cylinder]

Challenges are always there---that is why we always see problem solvers out there----

[samfp1943]

Railway Man

Does anyone know of a forum that's about railways?

I see increasingly little point in continuing to share information about railways with a forum that seems to be far more fascinated in politics.

RWM

Spot on! RWM.

[Anonymous]

In an analysis of what might become a problem for the railroad business, if we set aside anything to do with government regulations, public financing, railroad business practice, international trade, national business cycles, homeland security, foreign practices, management styles, or geopolitical concerns; we are kind of left with the sound of one hand clapping. 

 

Looking at the topic in that vacuum, I cannot see anything that will be a problem for railroading.  Certainly railroads have demonstrated the ability to deal with virtually any kind of operating or construction problems that have occurred since their inception.  A sudden loss of employees with not enough in the replacement pipeline could be a problem, but I can’t see it becoming a showstopper.  It may require a heroic effort to come up with a new mass production training system, but that is doable.  About the worst I can see would be the ongoing liability from grade crossing crashes, or the possibility of other types of serious accidents.

 

The one thing that has proven fatal to railroads over and over is loss if business.  However, that has its roots over in those “other” dimensions of this topic.   

[henry6]

You're mincing words and concepts here, Oltman.  Without defining the application for the word "greed" we are left up in the air.  I am sure those in charge of CR at the time were making shrewed and calculated business decsions.  Did any of them get rich?  Let's not use that question or terminology and use "benefit" instead.  Now, place "benefit" alongside "greed" and see where it leads us.  CR benefited by the decsions of CR management. And probably so did the management by being successful.  So it could be argued that the decsions of CR management to exclude and destroy all they didn't want in order to achieve what they did want was greed.  They wanted it all, they did not want any competition or hint of competition.  So, yeah, by the dictionary I would say it was greed whether or not managers pocketed any extra money or not.  If you mean "greed" as in golden parachutes, huge stock accumulations, over the top salaries, and bonuses beyond comprehension, then no.

[oltmannd]

schlimm

If you can't think of decisions in business or RR's where making the quick buck took precedence over sound longer range planning, you must be joking.

I know what you are saying, but the only errors I saw in the early years of Conrail were strategic blunders, but never decisions based on greed. NOBODY in the early days of Conrail was getting rich.... It is an urban legend the the PCers had it in for the ELers

[Murphy Siding]

Railway Man

I don't consider these potential changes in traffic to be even in the top 10 challenges, even if they do come to pass. 

      Traffic change is nothing new to railroading and it's dealt with it for more than 150 years, including the complete collapse of major industries, the global economy, and entire regions.  Railroading survived and came out stronger.  Dealing with traffic change is what we do.

    What do you see to be in the top 10 challenges?  I guess we've already seen #1 listed.  What about the other 9?

[henry6]

I would like to know more about this idea.  Putting political boundries aside and assume increasingly viable technology and growing market needs...what would really prevent it.

[blownout cylinder]

henry6

But how about a major, high speed freight railroad from China to Europe for stack container trains?

I am curious about that myself----putting aside how that is to be financed (wouldn't that be a headache!!)---what routing would you take for that? Considering that there is/are certain issues that we need avoid there---

The route that seems likely to be developed could take in what was called the 'Silk Road'. Is that at all possible though?

[Railway Man]

henry6

That is a marketing problem probably assignable by the goods in question. The cost of landing and transferrng a box twice vs. time gained (or lost?) vs price is a major factor moving Asian goods to Europe.  An all water route via a larger Panama Canal vs. a rail route across the US with the double mode transfers. plus two boats and crews.  Yes, I can see the Suez Canal as being a major competitive factor.  But how about a major, high speed freight railroad from China to Europe for stack container trains? What would that do to the monkey works?

 

The math is not complicated -- it can be derived from the numbers I gave above but here's the full story.  The price differential for a 40' box through the Panama Canal vs. through a West Coast port and then rail to the U.S. Coast is about $600, including all the drays, the fuel surcharges, the port fees, ad infinitum.  That is dock (Asia) to receiver's door (U.S.).  The time differential is about five days.  For a box that can bob around in the ocean for another five days without economic harm because the stuff inside it is so inexpensive that its loss of benefical use is less than $125/day ($600 divided by five days), you would ship it via the Panama Canal.  If it is worth more than that you would ship it by rail.

A major, high-speed rail system from China to Europe -- assuming the mountain of economic, political, legal, and environmental challenges of crossing a few dozen borders of countries that don't seem to actually have any hope of developing within the next 20 years any sort of government any reasonable person would want to trust could be surmounted to build it -- might be a game-changer for freight moving between North Asia and Western Europe.  It would be of rail tourism interest only for the U.S.  It would never come close to the cost, for a box going to the U.S. East Coast, of any of the three active routes today -- land-bridge, Panama Canal, or Suez Canal.

RWM

[henry6]

That is a marketing problem probably assignable by the goods in question. The cost of landing and transferrng a box twice vs. time gained (or lost?) vs price is a major factor moving Asian goods to Europe.  An all water route via a larger Panama Canal vs. a rail route across the US with the double mode transfers. plus two boats and crews.  Yes, I can see the Suez Canal as being a major competitive factor.  But how about a major, high speed freight railroad from China to Europe for stack container trains? What would that do to the monkey works?

[Railway Man]

schlimm

I wonder how the transit times from Asia to Europe or even to east coast or Gulf coast would compare on an all water route vs. disembark west coast, train to east coast and on to Europe routing?    Just asking!

 

The transit time to the U.S. East Coast from North Asian ports via the Panama Canal are about 5 days longer, dock to door, than putting the box on a train at a U.S. West Coast port.

There are virtually no boxes moving Asia to U.S. to Europe via either a train or the Panama Canal, there never were, and absent the Suez Canal closing, there are unlikely to be.  If anyone wanted to do that, and I cannot imagine why they would choose to do so instead of putting it on a ship that went through the Suez Canal as they have done for more than 30 years, it would be about 5 days longer via the Panama Canal.

RWM

[schlimm]

Railway Man

Transcontinental international intermodal traffic is likely to not be affected to any significant degree by the Panama Canal.  The only goods that might benefit by the enlarged Panama Canal are those who are worth less than about $125/day, per box, to the beneficial owner.  The real threat the PC has is to the Suez Canal. There are some who believe for ideological reasons extra to railroading that the western railways, ports, longshoreman, dray operators, and states will not compete and watch their market share dwindle.  I am not one of those with that belief system. 

 

I wonder how the transit times from Asia to Europe or even to east coast or Gulf coast would compare on an all water route vs. disembark west coast, train to east coast and on to Europe routing?    Just asking!

[Railway Man]

schlimm

But along the line of medium to long range planning (I trust that is not stepping over the line), how well will two of the major revenue sources hold up in the coming years - coal and transcontinental shipment of containers?  Coal sounds like it could become less significant, but that's pretty iffy.  What about the widening of the canal and the impact on container ships?

 

Coal has between 20 and 30 years of present-day traffic levels, on a national scale, before there is likely to be any significant change.  Certain fields will show a slow but steady growth, certain fields will show a continual decline, and certain fields are just about done for.  But overall, I do not expect any substantial change for 20-30 years.  After that, it's anyone's guess.  The reason for the 20-30 year horizon is that is about the economic limit of operation for most of the coal-fired power plants; it's the economic limit for most of the coal fields; and it will probably be cheaper at that point to replace the capacity of the coal plants with either natural gas or some other type of energy.  Climate-change legislation I do not see as a factor killing coal plants within the next 20-30 years.

Transcontinental international intermodal traffic is likely to not be affected to any significant degree by the Panama Canal.  The only goods that might benefit by the enlarged Panama Canal are those who are worth less than about $125/day, per box, to the beneficial owner.  The real threat the PC has is to the Suez Canal. There are some who believe for ideological reasons extra to railroading that the western railways, ports, longshoreman, dray operators, and states will not compete and watch their market share dwindle.  I am not one of those with that belief system. 

I could be entirely wrong on all this but I take comfort that if I am wrong, Mr. Buffett is too.

I don't consider these potential changes in traffic to be even in the top 10 challenges, even if they do come to pass.  Traffic change is nothing new to railroading and it's dealt with it for more than 150 years, including the complete collapse of major industries, the global economy, and entire regions.  Railroading survived and came out stronger.  Dealing with traffic change is what we do.

RWM

[blownout cylinder]

Any kind of commodity may have their ups and downs in terms of their relative worth so the coal issue may not be as big as we think. What with the amount of research being done to burn coal even cleaner I suspect that those lines that seem to depend on coal will survive for a while yet. Before the mines in a certain area close down we'll need to look into some kind of reuse of the lines--be it by commuters or some such-- 

What I'd like to see is more work on the maintenance of the basic RR infrastructure. All the future technological advances will need some kind of infrastructure to be useful at some point. As opposed to pieces of bridges and the like crumbling away-----