Railroads Overview of Railroads Railroad Problems Causes of Railroad Problems Solutions to...

Railroads

Overview of RailroadsRailroad ProblemsCauses of Railroad ProblemsSolutions to Managerial ProblemsResolution of Labor ProblemsDeregulationGovernment PromotionMergersOperational Issues

Railroads

Overview of Railroads

Number of Class I RR (2010) 7

ResourcesMiles of Road

95,700Miles of Track

161,926Miles of High-Density "A" Track

65,119(20 million gross T-M/track mile/year)

Locomotives in Service 23,893

Freight Cars in Service (January1, 2011)

Class I397,730Other RR101,755Shipper & Car Companies 809,544

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2011 2012Number of Railroads 7 7ResourcesMiles of Road Operated Less Trackage Rights 95,514 95,391Miles of Track Operated Less Trackage Rights 162,393 162,306Miles of High-Density "A" Track Maintained * 65,745 66,213Locomotives in Service 24,250 24,707Freight Cars in Service (Class I) 380,699 364,025Other Railroads 90,502Car Companies and Shippers 792,100

EmploymentNumber of Employees 158,623 163,464Average Wages $76,574 $78,085Average Total Compensation Including Benefits $111,968 $112,600

* High-Density track has a freight density of at least 20 million gross ton-miles per track mile per year.

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Traffic 2009 2010Carloads Originated (million) 26.01 29.21Intermodal Units* (million):Containers 8.24 9.60Trailers 1.64 1.68

Total 9.88 11.28 Tons Originated (billion) 1.668 1.851Ton-miles (trillion) 1.532 1.691

Operating StatisticsFreight Revenue Per Ton-Mile 3.011¢ 3.330¢Average Tons Per Carload 64.1 63.4 Average Tons Per Train 3,546 3,585 Average Length of Haul (miles) 918.5 913.6

Railroads

Traffic 2010 2011 2012Carloads Originated (million) 29.21 30.00 28.37 *Intermodal Units (million):Containers 9.60 10.19 10.73Trailers 1.68 1.70 1.54Total (see notes) 11.28 11.89 12.27Tons Originated (billion) 1.851 1.885 1.760 *Ton-miles (trillion) 1.691 1.729 1.713Operating StatisticsFreight Revenue Per Ton-Mile 3.330¢ 3.760¢ 3.961¢Average Tons Per Carload 63.4 62.9 62.0Average Tons Per Train 3,585 3,538 3,458Average Length of Haul (miles) 913.6 917.2 973.2 *


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Financial 2010 2011 2012Freight Revenue (billion) $56.3 $65.0 $67.8Operating Revenue (billion) $58.4 $67.4 $70.1Operating Expense (billion) $42.7 $49.3 $50.6Net Income (billion) $9.2 $11.0 $12.0Operating Ratio 73.1% 73.2% 72.1%Return on Average Equity 11.23% 11.13% 11.57%

* Part of the decrease in originated tons and carloads was caused by new treatment of certain rebilled shipments, where traffic is now considered received instead of originated. The shift in traffic classification is responsible for the large increase in average length of haul.


Railroads


Operating Statistics 2009 2010Freight Revenue Per Ton-Mile 3.011¢ 3.330¢Average Tons Per Carload 64.1 63.4Average Tons Per Train 3,546 3,585Average Length of Haul (miles) 918.5 913.6

FinancialFreight Revenue (billion) $46.1 $56.3Operating Revenue (billion) $47.8 $58.4Operating Expense (billion) $37.2 $42.7Net Income (billion) $6.4 $9.2Operating Ratio 77.8% 73.1%Return on Average Equity 9.79% 11.23%

RailroadsType of Freight Carried for Year 2010

Tons Gross Originated % of Revenue % of

Commodity Group (000) Total (millions) TotalCoal 814,467 44.0 $13,914 24.2Chemicals & allied prod. 187,388 10.1 8,178 14.2Farm products 158,705 8.6 5,281 9.2Non-metallic minerals 122,525 6.6 1,817 3.2Misc. mixed shipments* 109,895 5.9 7,121 12.4Food & kindred products 109,320 5.9 4,794 8.3Metallic ores 71,446 3.9 605 1.1Metals & products 45,028 2.4 2,081 3.6Waste & scrap materials 42,673 2.3 1,206 2.1Petroleum & coke 42,369 2.3 1,771 3.1Stone, clay & glass prod. 39,831 2.2 1,424 2.5Pulp, paper & allied prod. 30,558 1.7 1,883 3.3Lumber & wood products 24,616 1.3 1,252 2.2Motor vehicles & equip. 21,353 1.2 3,402 5.9All other commodities 30,822 1.7 2,708 4.7Total 1,850,996 100.0% $57,438 100.0 %

Railroads

30.9%

42.7%

0.4%

13.1% 13.0%

Trucks RRs Air (Dom) Oil PL Water

U.S. Revenue Ton-Miles - 2007

Source: Bureau of Transportation Statistics

Railroads

Railroad Problems

Return on InvestmentCost Recovery IndexAbility to Attract InvestmentBankruptciesCost to the Public

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Causes of Railroad Problems

Historical PerspectiveManagementLaborRegulationPromotionChanges in the Economy and Competition

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ManagementLaborRegulationPromotionChanges in the Economy and Competition

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Management

Deferred MaintenancePayment of Large DividendsPoor Equipment UtilizationPoor Customer ServiceFailure to Respond to ChangePoor Labor RelationsPoor Business Knowledge

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Managements’ Solutions Hiring Business Graduates and MBALess Promotion from withinMore Innovative ManagementElimination of Holding Companies

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ManagementLaborRegulationPromotionChanges in the EconomyCompetition

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Labor

UnionizationNumber of Unions Obsolete Work Rules

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Labor

Number of Unions More than 20 Different UnionsVirtually Every Craft RepresentedConstant Labor Issues

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Labor

Obsolete Work Rules Yard Crews vs Road Crews100 Mile Rule Crew Consists

Typically 4 or 5 Person CrewsConductors, Engineers, Brakemen, Switchmen, Firemen“Lonesome Pay”

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Resolution of Labor Problems

Elimination of CaboosesChanges in Crew ConsistsChanges in Pay Scale

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Changes in Crew Consists

1990: Less than 10% had 2 Person Crews About Half had 3 Person Crews Remainder (40%) had 4 Person Crews

Now: Mostly 2 Person Crews 8-10% 3 Person Crews

Fought to Eliminate Firemen well into the 1990s

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Changes in Pay Scale100 Mile Rule Eliminated in Late 1980sWent to 108 miles/dayThen to 114 miles/daySince 1995 it has been 130 miles per day

Railroads

Engineers $57,577 $53,681 $66,042 $68,936 $67,200 $73,900Conductors 55,002 50,897 63,403 62,211 61,100 67,100Brakemen 48,186 45,767 52,840 57,306 58,100 58,700


Average Wages 1990, 1996, 1999

1990 1996 1999Through Local Through Local Through Local

Railroads


Average Wages 1990, 1999(Yard Crews)

1990 1999Engineers $41,574 $17/hr $61,400 $25/hrConductors 40,411 16/hr 53,500 22/hrBrakemen 35,589 14/hr 40,800 17/hr

Hourly assumes 15% overtime.

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Average Wages February 2009

Average all 25th Percentile Median 75th PercentileRail Workers $35,627 $39,345 $43,083

Conductors/Yard Masters $33,825 $41,664 $50,592

Locomotive Engineer $50,292 $60,878 $74,872

Average Compensation 2010Average Wages $73,843Average Total Compensation with Benefits $105,948

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Regulation

Inflexible Pricing Abandonments Regulatory Delay Passenger Deficit

Railroads

Solutions to Railroad Problems

Deregulation

4-R Act (1976) Staggers Act (1980)

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4-R Act (1976) Rates

Zone of Reason Market Dominance Merger Decisions (2.5 years)

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Staggers Act (1980)

Entry Exit (Abandonments) Exemptions Rates Zone of Reason Notice of Change Contract Rates No ICC Compelled Rates No Single Line Discussions San Antonio

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Promotion Too Little Help Too Late Unfair Promotion of Other Modes

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Promotion

Amtrak Conrail 3-R Act (1973) USRA 4-R Act (1976) Other

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AMTRAK (Rail Passenger Corporation Act of 1970)

Benefits of Joining AmtrakRelieved of Common Carrier Obligation to Serve the PublicDeduct Portion of 1969 Deficit from Taxes orAccept Stock in Amtrak

Cost to Join AmtrakPay CashProvide EquipmentProvide Future Services

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ManagementLaborRegulationPromotionChanges in the Economy and Competition

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Changes in the Economy Shifts in Industry to Sunbelt Inflation Demand for Smaller, Faster Shipments

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Competition

Intramodal Excess Capacity (Overbuilt System) Excessive Use of Differential Pricing

Intermodal

Motor Carriers Pipelines Barge Operators Passenger Services (Private Auto/Airlines)

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Attempts to Recapture High Value Traffic

IntermodalDouble StackingDedicated TrainsImproved PerformanceReturn of the Boxcar

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Mergers

Economics of Mergers

Side-by-SideEnd-to-EndEconomies of ScaleEconomies of DensityEconomies of Distance

Recent Mergers

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Recent Mergers

Penn Central (Conrail)BN-Frisco (BN)UP-MP-WP (UP)Chessie-Seaboard (CSX)NW-Southern (NS)SF-SP (Proposed - Not Approved)BN-SF (BNSF)UP-SP (UP)Conrail Carve-Up (Parts to CSX and NS)BNSF – CN (Withdrawn)

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Conrail Created by Merging Bankrupt Railroads in the Northeast

Penn CentralLehigh Valley,Lehigh and Hudson RiverReadingCentral of New JerseyErie LackawannaBoston and Maine

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Other Solutions to Railroad Problems

Total Nationalization of the Rail IndustryNationalization of RoadbedsOpen Access

Railroads

Nationalization of Railroads

Advantages

Greater Source of Capital Works on Public Need Rather than Profit Better Planning and Coordination Elimination of Duplicate Facilities May Lead to Lower Rates for Shippers May Lead to Improved Service

Railroads

Nationalization of Railroads Disadvantages

Lack of Profit Incentive Leads to Inefficiency Political Decisions are not Always Rational Loss of Tax Revenue May Lead to Discrimination Toward Other Modes May Lead to Over Employment Retain too Much Unneeded Track

Railroads Overview of Railroads Railroad Problems Causes of Railroad Problems Solutions to...

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