Capacity today vs. WWII

[Anonymous]

The other thread concerning railroads being of importance raises a question in my head. Are railroads today competitive with their forbearers of 1945?

Eliminate comparison of passenger carriage- and concentrate on freight. I know that track mileage is much lower (because rail service is replaced by trucking), employee numbers are much smaller (changes in motive power, information processing upgrades in signalling, freight handling).

Suppose you stacked the Union Pacific of 1945 against the UP of today. The similarities are that both railroads are "at capacity"; both are making a profit; both appear to be in the business of moving bulk freight east to west and vice versa.

Just how effective is the UP today in moving freight compared to the UP of 1945?

Is there any comparison? Or has railroading changed so much that you can't make a comparison?

Erik

[gabe]

This is very interesting. I realize this supports rather than detracts from Mark's ultimate point, but is return on net investment in WWII a fair comaparison to today?

For instance, I know many of the land-grant railroads had contracts with the government that forced them to haul government freight at substantially lower rates in exchange for the government's initial land grant.

Gabe

P.S. This is to say nothing of the taxes in WWII.

[gabe]

Oh, I thought they measure ROI after taxes?

[oltmannd]

Very interesting numbers. The low ROI for 1944 shows the railroad's problems started long ago! No wonder the phyical plant of many RRs was bled dry in the 50s and 60s.

The productivity measures are stunning!

[dldance]

The physical plants of most RR's came out of WWII with 3 to 5 years of war driven deferred maintenance. Not because the RR's didn't want to invest - they needed the capacity - but because of labor and material shortages.

The army was drafting the prime labor pool. Most RR emploees of the time were too young for WWI and too old for WWII. I have a friend that dropped out of school at 15 to work for the railroad - they hired him because they could not get anyone else.

His first job related to the material shortages. He walked beside a gondola from Mt. Home to King Hill in Idaho picking up "jewelry" left over from relaying the rail on the OSL -- spikes, tie plates, joint bars, rail cutoffs. This was then sorted and anything that the OSL couldn't use was sold for scrap. Many lines abandoned during the 1030's depression were torn up to feed the need for scrap iron. Getting prime new rolled rail was almost impossible - so the railroads made due.

dd

[Anonymous]

It's amazing to me to see how much more efficient railways are today compared to the past.

Especially when you compare the ROI to see it's really not that much better.

Makes you wonder where the railways would be today if they weren't running longer trains, with fewer crew members.

....the railways wouldn't likely be here at all.

[rob_l]

QUOTE: Originally posted by M.W. Hemphill

For all U.S. Class I railroads (1944 chosen unless no data available for that year):

Revenue ton-miles per employee-hour:
1944, 194
2001, 3,516

Revenue ton-miles per gallon of fuel consumed:
1955, 184
2001, 403

Millions of revenue ton-miles per mile of road (route-mile) and mile of track:
1955: 2.95 million and 1.78 million
2001: 15.29 million and 8.94 million

Net ton-miles per train-hour:
1944: 17,623
2001: 61,802

Revenue ton-miles per carload
1944: 20,176
2001: 54,970

Average tons per trainload
1944: 1,124
2001: 3,005

Rate of return on net investment:
1944: 4.70%
2001: 6.85%

Source: AAR

Mark,

Interesting numbers. Do you have any data on equipment productivity, e.g., no. of carloads per car per year or no. of carloads per locomotive HP per year?

Best regards,

Rob L.

[TH&B]

Kneiling was right though, if the average car was gettig 15 loads a year that is not much better then 12 realy and close to one load a month. If 15 is the average then probably there was alot of cars or railroad companies that where getting only 12 loads per year. He was targeting those cars.

ps; the statistic that shows "revenue ton-miles per gallon of fuel" needs some sort of conversion or explanation if most locomotives were steam engines in 1944 (even if they burned oil).

[MP173]

Mark and Gabe:

Are you talking ROI(C) which is Return on Invested Capital or ROE - Return on Equity?

Return on Invested Capital uses operating profits after taxes, but before interest expenses. It basically is used to compare how profitable a company is compared to other companies by putting debt and equity on an equal footing in the analysis.

ROE can be squewed by a company having a large or small amount of debt. Thus, companies with high levels of debt (highly leveraged) will have very large ROE's, since there is a smaller percentage of equity in the balance sheet. The risk, of course, is debt coverage...can a company cover it's debt obligations.

ROIC essentially is a measurement that levels the playing field for measuring profitability of companies by deducting interest payments made (profit after taxes, but before interest payments) and dividing it by Invested capital or total assets minus accounts payable and excess cash which is not used in day to day operations.

A company with a low debt/equity ratio will have a considerably lower ROE than the same company with high debt/equipty ratio. They are using their own money vs. "other people's money" (bonds and debt).

ed

[Modelcar]

...With those figures it sure seems railroads are doing as well as many other businesses and better than some...Glad to see it.

[dwil89]

Well, using the Pennsy on its East-West route across its home state as an example, it was well known as the Broadway with 4 Tracks across much of it. It is down to two tracks now, with three in some areas, notably around the Horseshoe Curve area. The Pennsy was running well over 100, perhaps even more than 150 trains a day through Horseshoe up to, and during WW2. The primary reason for 4 tracks was to separate the freight traffic from passenger, as passenger trains were at least 40-50 a day in the first half of the 20th Century. Now, you can count on one hand how many passenger trains ply this line every day.... Freight trains are much longer than in Steam days, basically combining many of those old totals into fewer trains. This Railroad is hauling comparable tonnage to earlier years with longer and fewer trains,as the average traffic around Horseshoe is 50-60 per day, and with much less volume of passenger traffic, thus the capacity needed with extra trackage is no longer necessary. Dave Williams http://groups.yahoo.com/group/nsaltoonajohnstown

[rob_l]

QUOTE: Originally posted by M.W. Hemphill

Yes, on the first, partially on the second. I don't have a total number for horsepower, only units, and in 1944, we have steam comprising a majority of the fleet.

Number of carloads per car per year:
(total carloads divided by total size of freight-car fleet, all owners)
1944: 17.67
2001: 20.70

Number of carloads per locomotive per year:
(total carloads divided by total locomotive fleet)
1944: 838.23
2001: 1,377.84

You will note that these numbers went up only modestly compared to the dramatic gains in labor productivity and fuel efficiency. To a significant extent, I believe the industry's gains in labor productivity were achieved by substituting capital for labor, not just by technological improvements and elimination of featherbedding.

I bet if we could delete bulk unit train equipment and intermodal equipment and look at the productivity of loose carload equipment, we would find that freight car productivity actually is well down at present from whatever its peak was 1944 - 1974. Carload service in general is a lot slower than in the glory days.

And this relegates the RR to mostly bulk and wholesale operations far upstream from retail-type freight, and it relegates the RR to further obscurity and seemingly less importance in the minds of the public.

Best regards,

Rob L.

[MP173]

Mark:

Not only are railroads eating themselves...but they are feeding themselves back to investors, in the form of dividends.

On a somewhat related issue, I cannot get too excited about subsidies for railroads when they dont invest their cash into their own business.

In other words, they feel it is a more prudent use of ca***o return to the investors rather than invest in capacity issues. Each quarter I receive my CN dividend (with Canadian taxes withheld to boot!) which I then have to pay income taxes (albiet at a reduced rate than before) and then listen to the CN every night have a train stall on the Valpo hill and tie up the entire line.

Now granted, it is entertaining....much more so than "reality television...I guess we can call it reality railroading, but is it reasonable?

I know I keep harping on Valpo hill, but that is just one tiny portion of a huge system, that needs to be addressed...and never is. To me it is simple, take the dividend and either purchase adequate power, invest in engineering to eliminate/reduce the bottleneck, or figure out a better way.

Yes, the trend for railroad's rates of return are higher. But, as we have discussed not only on this forum, but other places, efficiency and capacity today are NOT major issue, it is efficiency and capacity in 5, 10, and 20 years.

Remember the advertisements that Southern Railway used to run back inthe 70's in Trains and other magazines in which Stanley Crain would be pictured with a crewman and the crewman would ask about the future and Stanley would proudly discuss where Southern Railway would be when railroad's share of freight doubled?

The industry KNEW it was coming. They knew it and still are not ready.

ed

[Anonymous]

Today's capacity is almost insufficient for today's traffic needs. Too much track has been torn up , thus leaving many railroads without secondary lines for redundancy. Some examples include the former Lackawanna main line west of Corning NY, particularly between Groveland and Wayland, portions of Milwaukee Road's Pacific Extension, the Lehigh Valley main line in Western New York, to name a few lines that should have at least been railbanked for future use as rail lines should the need arise. Moreover, a number of mainlines that have been single tracked with passing sidings ought to be restored to double track to reduce the expense and aggravation of having to recrew trains enroute due to delays caused by insufficient line capacities. It is time to stop letting the Wall Street idiots dictate how a railroad is run and let people who know the business best run it the best they know how. These smart aleck MBAs are not quite as smart as they may think they are. Just look at the service meltdowns that Union Pacific has experienced in recent years and similar problems that occurred when CSX and Norfolk Southern digested, or indigested large portions of Conrail, which was largely an east-west railroad and try to fit its operating patterns into what amounts to two basically north-south oriented railroads. And those crew shortages. While Union Pacific may have the right idea about hiring needed crews. Norfolk Southern is said to be making a big mistake by replacing experienced crews who know a given territory best with youngsters who do not know the territory they are to operate over that well, let alone barely know how to operate a locomotive. Rather than dump the experienced guys abruptly as NS seems to have done, why not use them to train their replacements? Not only that, the railroads that use them, should get rid of the remote controlled locos, as they have turned out to be more trouble than they are worth. Look at all the accidents involving remotes. CSX has had some fatal accidents with them in upstate New York. With the accidents Union Pacific has been having, not only with remote controlled locos, but overtired crews trying to function properly, it is no wonder Union Pacific has been getting referred to as Union Pathetic. The recent safety record sure seems pathatic. The wrecked equipment and injured or killed personnel say it all.

[ajmiller]

QUOTE: Originally posted by rangerjim94

Today's capacity is almost insufficient for today's traffic needs. Too much track has been torn up , thus leaving many railroads without secondary lines for redundancy. Some examples include the former Lackawanna main line west of Corning NY, particularly between Groveland and Wayland, portions of Milwaukee Road's Pacific Extension, the Lehigh Valley main line in Western New York, to name a few lines that should have at least been railbanked for future use as rail lines should the need arise.

There were at least 5 major routes between New York City and Buffalo, NYC, LV, DLW, Erie and PRR. Three of those routes still exist. Just how many routes do you think they need? Everything that I've heard about the NS Buffalo line tells me that it isn't used that much anyway between Keating PA and New York state.

[Anonymous]

Here are a bunch of random thoughts on this thread:

A comparison of the power of steam vs diesel is difficult. Steam engines were often classified by tractive force or drawbar pull. Diesels are classified by horsepower of the prime mover. Although there are equations to convert tractive force or drawbar pull to horsepower, the conversion is not straight foreward.. Therefore a direct comparison of steam vs diesel is difficult at best.

It was commoon to double head or triple head steam locomotives to increase power for heavy loads or to get over mountains. The same is done for diesels with the MU technology. The big difference is in labor. Each steam engine requires an engineer and fireman, whereas a string of diesels with distributed power and even pushers only requires one engineer. A hugh labor savings. Also steam engines needed significantly more servicing than diesels. Tis meant more shops and service crews. Again a higher cost factor.

Moving a given weight over a rail line will require a certain amount of horsepower. This can easily be converted into energy such as BTU required. A perfect example is diesel vs natural gas powered buses. Using the same bus frame, transmission, engine block, etc, the diesel powered bus will get about 30% more miles per gallon than a natural gas bus (natural gas is assumed to be in the liquid state for this comparison at a ratio of 600 standard cubic feet of gas to one gallon of liquified natural gas). The reason for the lower miles per gallion for natural gas is the BTU content of the fuel. Natural gas has approximately 600,000 BTU per gallon while diesel has approximately one million BTU per gallion. Diesel itself also varies. There are various grades and blends of diesel on the market. The railroad may opt for a lower grade of diesel (#2 vs #1) which has less energy content and possible more pollutants vs the higher cost of a higher grade of fuel. The energy in a ton or cubic foot of coal also can be determined through laboratory measurements. Unfortunately all coal is not the same. We have bituminous, sub bituminous, lignite, anthricite, etc and all have different energy content. The powder rover basin coal that UP & BNSF are moving today do not have as much energy as the Applachian coals and the lignite that Texas Utilities burns in Texas has even a lower energy content. So in order to estimate the fuel effeciency of a particular engine (steam or diesel) the sourcing of the fuel used must be known.

Another comparisom could be with electrical power. This represents a insignificant railroad power source in the US (Northwest Corridor and most light rail), but in Europe it is a significant rail energy source. Germany, for example, has approximately 93% of their system electrically powered and the power generation when using dynamic brakes accounts for approximately 17% of their energy consumption. Yes, electrification is expensive. The catenary and substations will cost almost as much as the rail and civil works of a rail line. Electrical power is not pollution free, Except for wind and hydro sources electrical power only displaces the source of pollution from the city to the remote power station. How about more hydro power? We all would like more recreation lakes and water supply sources so build more dams. There is a flaw in this analogy. Hydro sources are a finite commodity. In the US almost all of the possible hydro sources have already been utilized and those that remain cannot be touched for environmental reasons. Think what the outcry would be if Yosemite valley were flooded for a hydro project as was done in the neighboring valley for the Hetch Hetchy reservoir by the City of San Francisco about 80 years ago. Even worse think about stopping all flow over Niagra Falls and running it through turbines to generate electricity. Where would the honeymooners go then?

Energy is not a simple thing. Our world supply is shrinking and becoming harder and more expensive to obrain. What we in the energy industry are seeing is oil and gas comiong from more remote and politically unstable regions of the world. The days of the mid-70s gas lines are just around the corner.

*** Watkins, professional engineer and energy consultant

Pollution concerns enter the picture here. Cities with electric trains have considerable reduced the pollution from railroads by having electric vs hydrocarbon powered trains. This is why New York City outlawed coal fired trains about 100 years ago.

[MP173]

Mark:

Thanks for the explanation regarding the dividend policy. You have had a bit closer access to CEO's than I have regarding their feelings for the dividends. My guess is this...if a railroad's leadership, let me make clearer LEADERship, would approach the investment community...and today that community is institutions, rather than widows needing dividends and if they made their case for reducing the dividends based on investment into the company, it could be done.

Note I said dividend reduction, not elimination. There are a number of mutual funds which require a company to issue dividends in order for that company to be included inthe portfolio....so a reduction would be more appropriate.

It would take a good sell by the LEADERship of a railroad to convince the investment MBA community of the merits. MBA's love two things, reduction of costs (already achieved) or growth. I believe, based strongly Mark on your statements, which I trust, that we are at a point that can turn either way not only for the railroads, but the transportation system. I see the congestion.

Now, regarding Valpo hill and an extra unit...I know I beat this into the ground and I promise to cease and desist (until the next stall!), but they cut out 40 cars on that train and still stalled. Today, they are picking up the 40 and my guess is there will be another stall. This is not a quiet little branch line but a mainline seeing over 30 trains daily, with quite a bit of time sensitive auto traffic. Ok...enough of Valpo Hill.

Regarding mailing back my dividend check....glad you asked. No, I didnt mail it back. What I do ask, at least twice a year is "when are you going to institute a dividend reinvestment program, allowing those dividends to re-invest into CN?"

The answer is a curt "we have no plans and never will."

Perhaps it has something to do with it being a Canadian company ( no offense here to Canadians, but perhaps a government regulation making it difficult), but they dont want my dividend to invest. I have offered, they dont want it.

ed

[oltmannd]

rangerjim-

Most of the attrition of "old heads" at NS was due to the change in the Railroad Retirement law, allowing full retirement at 60 instead of 62.

The safety stats I've seen in the past regarding remotes have shown, at worst, they are a wash. Do you know something new?

[rob_l]

QUOTE: Originally posted by M.W. Hemphill

The fleet in 1944 was comprised of very few car types vs. today's specialization, and the empty miles that inevitably result. I don't know how assiduously railroads moved foreign-road empties to connection in that era, rather than reloading them, so the lack of specialization may not have mattered much. I assume that except in times of car shortage empties went to connection.

RRs always had the right to re-load foreign-owned equipment with loads heading in the direction of the owning carrier, and they always aggressively did this (at least the roads that were on-the-ball). One didn't hold foreign equipment for the prospect of loads, but if there were car orders on hand and suitable foreign equipment on hand, it was dispatched to pick up the freight. This was simply a matter of good car utilization. (Take it from an old car distributor.) If you look a photos of EB lumber drags in the 50s, 60s and even the 70s in which the freight cars are visible, you'll see lots of Eaastern Road box cars that have been re-loaded for the trip East.

Back to my main point. Over the last thirty years, carload service has slowed down seriously. Nowadays, locals don't make various blocks for the various carload trains to pick up, carload trains generally do not pick up en route (or in the rare instances they do, they don't cut them into block), carload trains don't swap blocks outside of terminals, there are fewer classification terminals and much longer average terminal dwell times, carload trains are much heavier and slower, and they are much less frequent. It takes much more rolling stock to handle a given number of carloads now. (Granted, the cars are much bigger now, but that is no-brainer-type productivity improvement.) Partially this is a result of getting rid of brakemen, switchmen and station agents, and partially this is a result of much more onerous FRA safety rules on air tests.

It all adds up to improved labor productiity, worse captial productivity and, most seriously, reduced competitiveness for anything trucks can economically haul. Basically, our RRs have become carriers competitive only for bulk unit trains, ramp-to-ramp intermodal trains (where somebody else sells, manages, delivers and gets paid for the transportation), and carload service of bulk commodities not in any hurry for which the huge cube or weight capacity or the safety regulations of rail vehicles are an advantage.

Best regards,

Rob L.

[SALfan]

During WWII, the government put in place something called the Excess Profits Tax. Profits above a certain level were taxed at very high rates (I believe 90%+). RR's got out of paying the tax by spending their money on track or equipment. KCS put in literally millions of crossties during the war, then didn't replace enough over the next 30+ years, resulting in a rash of derailments in the late 1970's.

The danger of buying new RR cars during the war was that cars were in such short supply that if other RR's got hold of a good car they kept it as long as possible; their earnings for doing so outweighed the per diem charges, and they could actually fill orders for cars. ACL bought about 300 hopper cars for phosphate service in FL, because they could run those cars from the mines to the docks in Tampa without letting them loose into interchange service. Many RR's wanted diesels but bought steam because diesels were in limited supply, and only lines that already had diesels were allowed to purchase them. I think most roads ended the war in better shape than they started it - they finally had money to spend on maintenance deferred during the lean years of the Depression.

[MP173]

Mark:

It does appear that Matt Rose did get the investment done, based on what I have recently read. In that case...he is a LEADER. It also appears that investment was just in time, based on the growth.

I wish I were going to be downtown on Saturday, but my son has a basketball game...and this Indiana. Sounds like a good time.

ed

[Anonymous]

QUOTE: Originally posted by rob_l

Basically, our RRs have become carriers competitive only for bulk unit trains, ramp-to-ramp intermodal trains (where somebody else sells, manages, delivers and gets paid for the transportation), and carload service of bulk commodities not in any hurry for which the huge cube or weight capacity or the safety regulations of rail vehicles are an advantage.

The economy is relentlessly moving to smaller, higher value products delivered faster. If heavy rail can't or won't adapt they will forfeit shipment of almost all future products to trucks and will only be able to compete with river barges.

[CSSHEGEWISCH]

Investing capital into the firm instead of paying it to stockholders as dividends is becoming more common in a lot of other businesses besides railroads. Some of this is fallout from the leveraged buyout binge of the 1980's, in which the mantra was maximizing shareholder value at that moment. It wasn't always good for the firm in the long run (see TWA) but the courts have ruled that the interests of the shareholders are paramount.

[Anonymous]

Mark:: I was trying to show that comparison of steam vs diesel is difficult outside the box as it is inside. The performance of same model steam engine is a function of many factors including the fuel used. As I pointed out all coals are not the same, so you will require more tons of low grade coal to move the same weight over the same track than if you used a high grade coal. The ton miles moved per ton of coal will vary with the grade selected. It is a function of energy content of the fuel used. Nitro methane has a lot more power than traditional gasoline. Just ask any NASCAR affinio.

*** Watkins