Executive Briefings

Are U.S. Rail Firms' Fortunes About to Go Off the Rails?

The last decade has been a golden one for shipping goods around the world's biggest economy, and American railways have been a rare example of capitalism working well, with a virtuous cycle of demand, giant profits, and vast investment in rolling stock and tracks.

Are U.S. Rail Firms' Fortunes About to Go Off the Rails?

Fixed assets at North America's six biggest freight-rail firms rose by 58 percent between 2004 and 2014, to $250bn. Private firms have been spending almost as much each year on modernizing American locomotives and tracks as the federal government has on roads. The infrastructure splurge has helped the environment, too, since trains are about four times as fuel-efficient as lorries. America's freight railways are more efficient and far busier than their counterparts in Europe.

But now this privately fueled locomotive has been derailed. In the last quarter of 2015 the combined earnings of the big American and Canadian freight-rail firms fell by a fifth, compared with a year earlier, mainly because of the commodity-price crash. The industry has tried to shrug this off as a temporary blip. But if the downturn persists, the investment extravaganza will be over.

Tougher times also raise the specter of rail mergers, a phenomenon that has vexed America ever since the first transcontinental line was hammered together in the Utah desert in 1869.

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Fixed assets at North America's six biggest freight-rail firms rose by 58 percent between 2004 and 2014, to $250bn. Private firms have been spending almost as much each year on modernizing American locomotives and tracks as the federal government has on roads. The infrastructure splurge has helped the environment, too, since trains are about four times as fuel-efficient as lorries. America's freight railways are more efficient and far busier than their counterparts in Europe.

But now this privately fueled locomotive has been derailed. In the last quarter of 2015 the combined earnings of the big American and Canadian freight-rail firms fell by a fifth, compared with a year earlier, mainly because of the commodity-price crash. The industry has tried to shrug this off as a temporary blip. But if the downturn persists, the investment extravaganza will be over.

Tougher times also raise the specter of rail mergers, a phenomenon that has vexed America ever since the first transcontinental line was hammered together in the Utah desert in 1869.

Read Full Article

Are U.S. Rail Firms' Fortunes About to Go Off the Rails?