North American Freight Rail Industry. Transportation Research Board Washington, DC March 14, 2014

Transcription

1 North American Freight Rail Industry Transportation Research Board Washington, DC March 14, 2014

2 Railroads Help Keep Coal- Based Electricity BNSF CN CP CSX FXE KCS/KCSM NS UP Other RRs Freight Railroads in North America SLIDE 2

3 General Characteristics of North American Freight Railroads Vast majority privatelyowned Typically, the same company owns the track and operates trains over it One railroad does not have automatic access to another railroad s tracks Little government funding; income is from freight revenue Don t carry passengers SLIDE 3

4 Total $69 billion 1.8 bil. tons U.S. Railroad Commodity Mix - Minerals & mineral products $4.3 bil., 176 mil. tons Coal $14.7 bil., 727 mil. tons *Some intermodal is also included in individual commodities. Data are Class I railroads only. Source: AAR (FCS) Petrol. & Chemicals $12.7 bil., 258 mil. tons 2012 Intermodal* $14.6 bil., 135 mil. tons Food $5.4 bil., 108 mil. tons Grain - $4.8 bil., 144 mil. tons Lumber & paper $3.8 bil., 59 mil. tons Ores & metals $3.3 bil., 125 mil. tons Autos & auto parts $4.9 bil., 26 mil tons SLIDE 4

5 Railroads and the Economy Are Tightly Intertwined Manuf. Output vs. Rail Carloads Excl. Coal & Grain bars = manuf. output (2007=100, left scale) line = rail carloads (right scale) *Data are seasonally adjusted. Source: Federal Reserve, AAR 170, , , , , , , , ,000 98,000 90,000 SLIDE 5

6 Total U.S. Rail Carloads + Intermodal Units 625, , , , , , , , , , (peak year) 2014 (average weekly originations) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Excludes U.S. operations of Canadian railroads. Source: AAR Weekly Railroad Traffic / Rail Time Indicators 2012 SLIDE 6

7 U.S. Rail Intermodal Traffic (Containers and Trailers) 270, , , , , , , , , , , (average weekly originations) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Excludes U.S. operations of Canadian railroads. Source: AAR Weekly Railroad Traffic / Rail Time Indicators SLIDE 7

8 U.S. Rail Carloads of Coal 160, ,000 (average weekly originations) 2008 (peak year) 140, , , , ,000 90, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec *Chemicals; paper; metal products; autos; crushed stone & gravel; metallic ores; and stone & glass products. Excludes U.S. operations of Canadian railroads. Source: AAR Weekly Railroad Traffic SLIDE 8

9 Originated Carloads of Crude Oil on U.S. Class I Railroads 407, ,819 5,912 9,500 10,840 29,605 65, *estimate based on first three quarters annualized Source: AAR SLIDE 9

10 Total Cost Volume Handled Volume Must be Carefully Managed to Maintain a Fluid Network As volume on rail networks approaches 100% of theoretical capacity, fluidity of the network deteriorates. 0% 75% 100% Theoretical Throughput Capacity If volume offered exceeds 100% of theoretical capacity, maximum throughput capability actually declines. Comfortable capacity is generally about 70% to 80% of maximum theoretical capacity. 0% 75% 100% Theoretical Throughput Capacity Both total and average unit cost increases rapidly after comfortable capacity is exceeded. SLIDE 10

11 Input Factor Cost History SLIDE 11

12 1990Q1 1991Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q : Rail Production Input Factor Cost Trends Labor Fuel M&S Equip. Rental Deprec. Interest Other 0.0 Source- R-1 Reports to STB; Rail Cost Recovery Index Publication SLIDE 12

13 Current Weight of Cost Components Cost Component Weight Labor 31.2% Fuel 22.3% Materials & Supplies 4.9% Equipment Rents 5.6% Depreciation 11.9% Interest 2.0% Other 22.1% Source- Quarterly RCAF Filing, Second Quarter 2014 SLIDE 13

14 : Rail Cost Adjustment Factor (All Inclusive Index) Cost Index = Rail Cost Addjustment Factor (RCAF) Source- R-1 Reports to STB; Rail Cost Recovery Index Publication SLIDE 14

15 Rail Cost Adjustment Factor (RCAF) vs. Consumer Price Index (CPI) (Index 2000 = 100) RCAF CPI 90 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 *The RCAF measures changes in the price levels of inputs to railroad operations. Data are averages of quarterly values for each year. Source: AAR, BLS SLIDE 15

16 : Cost and Price Trends Price measured as Revenue per Revenue Ton- Mile RCAF Revenue per Revenue Ton- Mile, All Commodities Source- R-1 Reports to STB; Rail Cost Recovery Index Publication, STB Waybill Sample SLIDE 16

17 Why Use the Ton-Mile as the Primary Price Measure? Average Length of Haul - up 26% Average Freight Car Capacity - up 16% Average Car Capacity Length of Haul 0.9 Per Car Price Measure Ignores both increase in average capacity and increasing length of haul. Per Ton Price Measure Ignores increasing length of haul. 0.8 Source- R-1 Reports to STB; Rail Cost Recovery Index Publication, STB Waybill Sample SLIDE 17

18 Recent RR Rate Increases Largely a Function of Higher RR Input Costs RR Cost Recovery Index* vs. RR Rates** (Index 2003 = 100) RR cost recovery index RR revenue per ton-mile 80 correlation = 99% *The Railroad Cost Recovery Index measures changes in the price levels of inputs to railroad operations. Data are averages for all commodities for Class I railroads. **As measured by average revenue per ton-mile for all commodities. Source: AAR SLIDE 18

19 : Commodity Price Trends RCAF Metals Intermodal Petroleum Products Grain Price measured as Revenue per Revenue Ton- Mile Minerals Source- R-1 Reports to STB; Rail Cost Recovery Index Publication, STB Waybill Sample SLIDE 19

20 : Commodity Price Trends Price measured as Revenue per Revenue Ton- Mile RCAF Chemicals Paper Food Products Mineral Products Motor Vehicles 0.50 Source- R-1 Reports to STB; Rail Cost Recovery Index Publication; STB Waybill Sample SLIDE 20

21 : Commodity Price Trends Price measured as Revenue per Revenue Ton- Mile RCAF Wood Products Ore Coal Waste & Scrap Source- R-1 Reports to STB; Rail Cost Recovery Index Publication, STB Waybill Sample SLIDE 21

22 Productivity: Key to Improved Rail Network Performance SLIDE 22

23 Overall Freight Railroad Productivity (revenue ton-miles per constant dollar operating expense*) '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 *Using this measure, productivity can be negatively affected when railroad input costs (e.g., fuel) increase, as they have in recent years. Source: AAR SLIDE 23

24 Overall Freight Railroad Productivity Excluding Fuel (revenue ton-miles per constant dollar operating expense*) '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 *excludes fuel. Source: AAR SLIDE 24

25 Class I Railroad Employment 500, , , , , , , , ,000 50,000 0 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: AAR SLIDE 25

26 Revenue Ton-Miles Per Employee (millions) '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Data are for Class I railroads. Source: AAR SLIDE 26

27 Sharp Increase in Rail Traffic Density (millions of revenue ton-miles per mile of railroad) Up 238% '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Miles = route-miles owned Data are for Class I railroads. Source: AAR SLIDE 27

28 High Density* Rail Miles Have Increased 75,000 70,000 65,000 60,000 55,000 50,000 45,000 40,000 35,000 (miles) '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 *Track with freight density of at least 20 million gross ton-miles. Excludes way and yard switching tracks. Source: AAR SLIDE 28

29 Average Freight Train Load 3,800 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000 1,800 1,600 The average freight train carried a near-record 3,458 tons of freight in 2012, up 56% since 1980 and up 18% since (tons) '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Data are for Class I railroads. Source: AAR SLIDE 29

30 Revenue Ton-Miles Per Locomotive (millions) '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Data are for Class I railroads. Source: AAR SLIDE 30

31 Freight Rail Fuel Efficiency Is Up 102% Since (revenue ton-miles per gallon) '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: AAR SLIDE 31

32 Fuel Use vs. Volume Handled (1980 = 100) RR Fuel Consumption* RR Volume '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 *in freight service volume = revenue ton-miles. Source: AAR SLIDE 32

33 How Have the Productivity Benefits Been Distributed? Customer Share Railroad Share 161% 74% 127% -37% 85% -61% 26% -27% 137% 15% Source- B. Kelly Eakin & Philip E. Schoech, The Distribution of the Post-Staggers Act Railroad Productivity Gains, Christensen Associates, Madison, Wisconsin, December SLIDE 33

34 Profitability and Investment SLIDE 34

35 Rail Profits Only Recently Becoming Average 16% 14% 12% 10% 8% 6% 4% 2% 0% Return on Equity: Freight RRs vs. Fortune Class I RRs Median Fortune 500 Return on equity = net profit / shareholders' equity. Source: AAR, Fortune magazine SLIDE 35

36 UPS vs. 4 Largest U.S. Freight Railroads UPS vs. Four Largest U.S. Freight RRs ($ billions) UPS RRs Revenue $55.4 $67.2 Net income $4.4 $12.0 Avg. total assets $36.2 $189.0 Profit margin 7.9% 17.8% Return on assets 12.1% 6.3% Data are Source: company 10-Ks The four largest U.S. freight railroads combined need an asset base more than five times that required by UPS to generate only moderately more revenue. In order for the four railroads to have been as profitable as UPS (measured by return on assets) in 2013, their net income would have needed to be $22.8 billion. SLIDE 36

37 Close Correlation Between RR Earnings and Reinvestments $13 $12 $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 Net income (left scale, $ bil) Rail spending on infrastructure and equipment* (right scale, $ bil) *Capital spending plus maintenance expenses. Data are current dollars and are for Class I railroads. Source: AAR $26 $25 $24 $23 $22 $21 $20 $19 $18 $17 $16 $15 SLIDE 37

38 Record Investments in Recent Years Despite the Economy Railroad Spending on Infrastructure and Equipment* ($ billions) $23.3 $21.5 $20.2 $20.2 $20.7 $19.3 $25.5 $25.6 $26.0+ $ e 2014e *Capital spending + maintenance expenses. Data are for Class I railroads. Source: AAR SLIDE 38

39 Railroad Capital Spending ($ billions, current dollars) $14 $12 $10 Roadway and Structures Equipment $8 $6 $4 $2 $0 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Data are for Class I railroads. Source: AAR SLIDE 39

40 Spending by U.S. Freight Railroads on Infrastructure Total spending Total $8.6 $8.8 $8.0 $10.6 $10.7 ($ billions) $11.9 $11.1 $7.9 $7.0 $6.9 $7.4 $4.6 $4.9 $5.4 Maintenance expenses $3.4 $3.7 $3.4 $3.6 $3.7 $4.0 $3.7 $14.0 $12.1 $12.5 $9.2 $7.9 $7.9 Capital spending $4.2 $4.6 $ Data are for Class I railroads. Source: AAR SLIDE 40

41 Spending by U.S. Freight Railroads on Equipment $7.6 Total spending $8.1 $7.9 $8.7 ($ billions) $9.5 $9.7 $9.1 $8.7 $10.8 $11.5 $6.8 $6.9 $7.2 $7.3 $7.3 $6.3 $6.5 $6.8 $7.2 $7.2 Maintenance expenses $2.2 $2.3 $2.6 $4.3 $1.9 $3.7 $1.3 $1.3 $1.5 $1.0 Capital spending Data are for Class I railroads. Source: AAR SLIDE 41

42 Net Results SLIDE 42

43 Staggers Act: An Unqualified Success Staggers Act Passed Oct '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12 Source: AAR (index 1981 = 100) Productivity up 135% Rates down 42% Volume up 88% Revenue up 3% SLIDE 43

44 Finally Closer to Earning Cost of Capital 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Class I RR Cost of Capital vs. Return on Investment RR Cost of Capital RR Return on Investment '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12p Note: In 2006, the Surface Transportation Board significantly changed the method by which it calculates the rail industry cost of capital. p preliminary Source: STB SLIDE 44

45 Association of American Railroads SLIDE 45