U.S. railroads continue to step up when it comes to capital expenditures

If you did not know that freight railroads invest, to put it mildly, heavily, into their networks, then you are not paying attention really.

Even though the seemingly annual record-breaking investments the railroads make every year are impressive and receive a fair amount of attention, when you see the actual spend figures, it really puts the investments into perspective.

Data issued by the Association of American Railroads (AAR) earlier this week helps to make that case.

The AAR said that U.S. freight railroads are set to spend an estimated $29 billion on the country’s rail network, ahead of 2014’s $27 billion, along with hiring roughly 15,000 people, too.

Looking at the planned $29 million in projected 2015 spending, the AAR said that equates to roughly $79 million a day, while bringing the total investment made by freight railroads going back to 1980 to $575 billion, with the spending going towards things like upgraded track, new locomotives, and freight cars–things required to meet increasing demand and make a safe network more safe, it noted.

“Unlike most other transportation modes, freight railroads rely on their own funds, not taxpayer dollars, to build and maintain their networks,” AAR President and CEO Ed Hamberger said. “The result of spending more than half-a-trillion dollars of private funds over the last couple of decades makes this country’s freight rail system the envy of the world.”

For the four U.S.-based Class I railroads, announced 2015 projected capital spending plans include: CSX at $2.5 billion; Norfolk Southern at $2.4 billion; Union Pacific at $4.3 billion; and BNSF at $6 billion.

For those not entirely sold on the railroads’ investments into their own networks, it stands to reason that numbers like that can truly help to clarify any leftover confusion.

What’s more, the AAR pointed out that freight railroads spend 18 percent of their revenues on capital investment compared to 3 percent invested by the average U.S. manufacturer.

And it is also worth noting that U.S. freight railroads have for years been facing ongoing pushes by various rail shipper groups determined to obtain price caps and force changes to rail operations through new regulations, according to the AAR’s 2015 Outlook report.

The AAR maintains that these types of actions and proposals would significantly expand government’s role in day-to-day railroad operations, while simultaneously hindering the railroads’ ability to bring in the revenue needed to maintain infrastructure spending at its current levels. The railroads need to be able to do this, especially when one considers that based on Department of Transportation data rail tonnage is expected to increase 37 percent from 2.0 billion tons in 2012 to 2.8 billion tons in 2040. 

With shipper groups noting that price caps i.e. rate relief is needed, the AAR said in the report that railroads are not allocating enough capital to meet increased demand for rail service and also improve network efficiency.

“Shippers cannot have it both ways,” the AAR says. “The U.S. rail network survives and grows overwhelmingly on private investment-its own. Imposing price caps, rather than letting the marketplace work, will mean there is an increased demand to move more to power the recovering economy. The current economic regulatory structure works, providing multiple avenues for shippers to seek regulatory review of concerns, while giving railroads the opportunity to earn revenue needed to spend and reinvest in the network.”

At the RailTrends conference last November in New York, BNSF Executive Chairman Matt Rose said that making these types of capital expenditures investments is the optimal approach to take for handling growing volumes and increasing demand that BNSF (and the rail sector) sees going forward.

Taking that a step further, Rose noted that it is not as if railroads are standing still not stepping up to the plate to make investments. He explained that over all economic growth is the driver for railroads cumulatively spending more than $20 billion annually of their own funds, not taxpayer dollars, to improve safety and the reliability of the rail networks and to expand capacity and accommodate customer growth. From 1982 through 2013,

Rose said freight railroads have invested about $550 billion, and since the recession have spent record amounts on track and signaling systems, locomotives, freight cars, and more, topped $25 billion in investment in both 2012 and 2013.

“This high level of investment by the industry needs not only to be sustained but increased as volumes continue to increase and over all capacity decreases,” Rose said. “Collectively as an industry we must invest at higher levels than we ever have in our industry to build sufficient capacity to implement and handle this future growth. BNSF was the first to see this growth, and we have been the most aggressive to respond. Since 2000, BNSF has invested more than $47 billion into our network.”

Rose’s comments carry more than a little weight and should be recognized for highlighting the fact that rail investment matters. When it comes to disputes between rail shippers and carriers, things will never be perfect. Maybe that is why the same arguments have been rehashed for decades. Regardless of what side you may be on, one thing that cannot be dismissed is that the rails are doing what it takes to make the investments needed to keep the wheels turning in the name of efficiency and safety for today and beyond.