The 2010 report is out and the Soo Line is back on top and is the only railroad judged "Revenue Adequate". The 2010 report is the first one wherein the DM&E financials are consolidated for the full year. What I find particularly interesting is the position of CN's US subsidiary Grand Trunk Corporation.
Soo Line Corp. 16.30%
BNSF 10.25%
Union Pacific 10.20%
Norfolk Southern 9.44%
CSX 8.54%
Grand Trunk Corp 7.84%
Kansas City Southern 6.43%
Is this annual judgment some kind of an artifact left over from ICC days? What is its practical or regulatory implication?
Additionally, I'm not at all sure that a comparison between standalone US railroads and US subsidiaries of foreign railroads yields much meaningful information. It seems to me the opportunity exists to cost or revenue shift to the point that comparisons become meaningless.
What is "revenue adequacy"? Is that money needed to maintain the railroad and the business or the money needed to satisfy shareholders' return on investment? If the former, then, looking good; if the latter, then, we are in trouble since the shareholders can't be happy with less return on investment, they must take more than is practical.
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Dakguy201 Is this annual judgment some kind of an artifact left over from ICC days? What is its practical or regulatory implication? Additionally, I'm not at all sure that a comparison between standalone US railroads and US subsidiaries of foreign railroads yields much meaningful information. It seems to me the opportunity exists to cost or revenue shift to the point that comparisons become meaningless.
The requirement in law to judge the Revenue Adequacy of Railroads dates to the Staggers Act of 1980, and as such has been handed down from the ICC. It is a judgment of the Revenues versus the Valuation of the railroads assets. There is a possibility of moving some revenue between US subsidiary and Canadian parent for shipments moving between the two countries, but that is limited by IRS tax regulations and by any implications that the subsidiary's lower tariff would have on tariffs for movements other than to its parent . The most important result of being judged Revenue Adequate is that it significantly lowers the burden of proof for Claimants before the STB in rate cases. Holding a larger portion of the revenues for shipments to the US subsidiary would increase the Revenue Adequacy standing, and also would increase the exposure to US taxes. It is possible for Soo Line's non-asset based expenses to be significantly higher than its peers (higher fuel costs, labor costs, ad velorum taxes, etc.) but it is unlikely that they are significantly different. So the judgment of revenue adequacy is a good measurement how intensely the assets are being used. Norfolk Southern normally vies with the Soo Line for top honors, likely the additions to its asset base from the Heartland Corridor improvements were the reason for its drop in standing this year.
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