Transportation Regulation

STB: Railroad Finances on Upswing

By Steven Johnson | ECT Staff Writer Published: October 23rd, 2013

Federal regulators have given an upbeat report on the health of the nation’s freight railroad industry, a longstanding source of contention between industry and shippers.

Two of the nation’s freight rates made more than adequate returns on investment in 2012, regulators say. (Photo By: Washington State DOT)

Two of the nation’s freight rates made more than adequate returns on investment in 2012, regulators say. (Photo By: Washington State DOT)

In an Oct. 17 decision, the Surface Transportation Board said two large carriers passed its test for returns on their investments in 2012, while two others came close.

Omaha, Neb.-based Union Pacific recorded a 14.7 percent rate of return and Norfolk Southern registered an 11.5 percent rate, according to the STB’s calculations.

The three-member panel, which oversees the freight railroad business, had set an 11.1 percent threshold for declaring carriers to be “revenue adequate.” That’s the point at which railroads report a rate of return equal to or greater than the industry’s average cost of capital for the year.

CSX Transportation was just 0.3 percent off the mark at 10.8 percent, followed by Grand Trunk Corp. at 10.2 percent.

The annual report is important because it factors into rate challenges by filed by electric cooperatives and other captive shippers. They contend railroads are fattening their profits by charging excessive rates to shippers who lack access to competitive rail service.

The board did not calculate a total for BNSF Railway Co. because the carrier has to refile its reports from 2010, 2011 and 2012 in the wake of a recent rate case ruling.

Generally, the outlook for railroads is on the upswing. As recently as 2009, no carrier was judged to be revenue adequate, and Union Pacific’s 14.7 percent return on investment in 2012 is the highest for any railroad in recent years.

The STB report came the same day that Union Pacific announced a 10 percent increase in its profit for the third quarter of 2013, compared with 2012.

Coal carloads fell by 6.6 percent in the quarter in part because of flooding in Colorado and low prices for natural gas. Still, the nation’s largest Class 1 railroad reported record revenue of $5.6 billion and net income of $1.15 billion.

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