with the newest section 6 notices out and the waiting on the ruling from federal judge to see if the crew constist can be brought up in the section 6 notices. i poze this question, if the class one railroads can modify the crew constist to were they do not have call a road conductor on all threw freights will this pu***he class one railroads to earn cost of capital?
No.
Best regards, Michael Sol
what would the operating ratio have to be to be at cost of capital
It’s not as simple as operating ratio = cost of capital, but for the major roads, an OR of 70-75 or better would likely do the trick.
so i poze another question what would pu***he class ones to earn cost of capital
Wall Street
Higher rates would do wonders. Problem is you can not get them in most markets and when you can you are accused of being an evil monopolist.
This is a real catch 22 and the railroads continually have shot themselves in the feet with it. The latest “classic” example is TOFC. Started out as a premium product at a premium price, but because the railroads insisted on operating it like any other freight, the service was so bad that the rates dropped to below commodity rate basis. Had the service level stayed high, so would have the rate stayed high.
US railroads still haven’t learned that reliability is job one. Speed is job two. You combine the two and the customer will gladly pay a higher rate without complaining. The latest chorus from the coal people started only after the service level declined.
Amen to that. As a now former user of rail service I can definately say that we stopped using rail delivery because we could not depend on consistant deliveries. We use about one railcar of corn starch a day but with rail delivery we had to keep at least two weeks of inventory so we could be sure that we wouldn’t shut down. With truck delivery we only have to have 2 days inventory on hand, which we raise to 3 days in the winter. If you factor in the interest cost of the extra inventory and the extra taxes the state requires, it works out that truck delivery is less expensive.
Honestly, I don’t care if delivery is in one day, one week or one month. Just so when I order 1 car a day I get 1 car a day delivered, every day. The railroad just doesn’t seem to understand that concept.
rdganthracite
Reliable transit has been the holy grail of railroad shippers and consignees for the last 50 years. Railroads do understand the concept, but the chance of mass transportation rail service accomplishing a level of reliability equal to trucks is about as good as finding a certain wine glass.
To illustrate in another form, consider two neighbors who commute accross town to the same work location. One drives a car, the other takes public bus service, but has to transfer twice enroute. Who do you think shows up at work just about the same time every day?
More to the original question here. The reduction to the one man crew on road trains has a high probability of some improvement in the railroads’ efficiency (as measured by the financial results), but there is something else that is driving the improved results. In the last couple of years about 50% of the traffic moving under contract has rolled over and the railroads are getting nice rate increases on the new contracts. I recently attended a presentation by a Wall Street analyst who covers railroads, and he noted that the most of the rest of the contracts will be up for renewal in the next two years. He forecasts that the current pattern of rate increases on these contracts will continue and the resulting ROI’s for the Class 1’s will be close and in some cases over the cost of capital.
Jay
jay,
when does this analyst think this will happen? and who is pogo possum?
He is the character for which the comic strip “Pogo” was named. You are probably too young to remember or maybe just forgot…[?]