U.S. Rail News
Vol. 26 No. 1
Published Jan. 1, 2003
U.S. Rail News, in Vol. 26 No. 1, published Jan. 1, 2003, reported on the year ahead in the railroad industry. Hoey & Farina hopes you find the article informative.
Industry analysts predict the year ahead for freight railroads will largely follow trends of the nation's economy. In other words, it will start out slow but gain momentum later in 2003.
For passenger railroads, the year is expected to be much more momentous, with decisions coming from the federal government on the fate of Amtrak and regional high-speed rail projects.
Most economists predict about 2.9 percent growth in the nation's economy during 2003, spurred by an expected $45 billion tax cut and more government spending on defense and security.
A Robert Hall Management Resources survey of chief financial officers found 51 percent said they believe the nation’s economy will begin improving in the second quarter. Forty-one percent said they planned business expansions. Only 8 percent planned cutbacks.
Spending plans by Class I railroads for 2003 generally reflect similar trends. They are making bigger plans for capital projects despite what Norfolk Southern Railway Chief Executive Officer David Goode calls "challenging economic times."
Spending Plans are Cautious but Hopeful
Norfolk Southern plans to spend $798 million for capital improvements in 2003, which is $100 million more than in 2002. Although acknowledging a weak economy, railroads are pinning their hopes on predictions of slow but steady economic growth throughout 2003.
Goode said Norfolk Southern is "improving the utilization of the assets we already have, which will allow us to handle increased levels of business in the future."
Economic trends controlling Class I railroads are having a similar effect on short lines and regional railroads. RailAmerica, Inc., the world's largest short line and regional operator, said its 2003 revenue and earnings are projected to improve slightly over 2002. Its North American rail operations, which generate about 75 percent of its revenue, are expected to grow both "same railroad" carloads and revenue in the 5 percent to 6 percent range in 2003, compared with 2002. "Despite the outlook for a continuing weak domestic economy, improved shipments will be driven by the company's diverse commodity base and improved service from our Class I interchange partners, while cost cutting initiatives should allow for improved operating margins," a RailAmerica statement said.
The biggest growth sectors for railroads are expected in intermodal and coal shipments. Intermodal traffic on U.S. railroads set an annual record during 2002 for the sixth time in seven years, according to the Association of American Railroads. The same trend is expected to continue in 2003. Intermodal traffic grew 4.5 percent in 2002.
Rail coal traffic is expected to grow in volume between 4 percent and 7 percent, according to analysts from the Wall Street investment firm Morgan Stanley. Part of the growth results from the fact utilities’ coal stockpiles were largely depleted during 2002.
"At some point in the next quarter or two, utilities will likely need to step up shipment levels to keep up with electricity demand that is up 3.5 percent year-to-date," according to Morgan Stanley railroad analyst James Valentine.
Among major railroad projects in 2003, the biggest is expected to be the start of construction on Dakota, Minnesota & Eastern Railroad’s expansion from Wyoming's Powder River Basin to connections to Eastern railroads.
Passenger Rail at Turning Point
Meanwhile, Amtrak is again expected to go begging to Congress for more money to keep operating its national passenger rail system. Meanwhile, the switch to a Republican-controlled Congress in the November election is adding to political momentum for a major restructuring of Amtrak.
Rather than continuing with the minimum of $1.2 billion in annual subsidies Amtrak says it needs, Congress is expected to put its money into developing regional high-speed rail corridors. Among them will be the choice of a site for the nation’s first magnetically-levitated passenger rail system.
Transportation Secretary Norman Mineta hinted at the federal policy switch to regional high-speed rail at a transportation seminar in Washington, D.C. "The freight railroads are not interested in going any faster than 79 mph," Mineta said. "If we want a good system, we’ve got to get it up to 135 [mph] at least." Contact: Tom White, AAR, at (202) 639-2556.