Re: rationale ?
Author: J
Date: 03-22-2007 - 04:45
A Senior VP of Service Design for another railroad made a statement several years ago (before the unprecedented uptick in growth since about 2003) that has stayed with me. At that time he said the railroads continue to slowly go out of business because they were not earning their cost of capital. In orther words, up until a few years ago you could earn a better return in a money market account than you could investing in a railroad. With higher fuel costs, highway congestion and commercial driver shortages, things are brighter now. However, there is no magic faucet that is raining down unlimited dollars for railroads to spend.
We've talked about other capital projects on the UP that compete for available dollars. There are other demands on funds as well. Care to consider rising insurance costs to handle some hazardous materials? What about higher fuel costs as hedge contracts expire? Or, how about the rising cost of steel due to increased consumption in China and India? This last factor, by the way, will make a lot of those older leased locomotives disappear if the current slump in traffic continues much longer.