Class I railroads are on track to spend $13 billion in 2012 capital expenditures, says AAR

TheAssociation of American Railroads(AAR) said today that the seven North America-based Class I freight railroads are on track to invest a record $13 billion in capital expenditures for 2012, with the capital going towards expanding, upgrading, and enhancing the U.S. freight rail network.

The AAR also reported that these seven railroads plan to hire more than 15,000 employees in 2012, with many of these positions allocated towards replacing retired workers and new positions.

In May 2011, the AAR released a report, entitled “Great Expectations 2011, Railroads and Continued U.S. Economic Recovery,” which stated that the seven Class I’s were planning to spend $12 billion in 2011 capital expenditures, following a $10.7 billion investment in 2010.

An AAR spokesperson told LM that a final 2011 figure was not available at this time, adding that a figure may be available later in the fourth quarter.

“Unlike trucks, barges or airlines, America’s freight railroads operate on infrastructure they own, build and maintain themselves so taxpayers don’t have to. And this year they are investing at a record rate to meet the demands of the recovering economy,” said Edward R. Hamberger, AAR President and CEO, in a statement. “These investments help businesses get their goods to market more efficiently and affordably, so they too can innovate, invest and hire. That’s how freight rail spurs the American economy and supports jobs all across the country.”

AAR officials added that with hundreds of infrastructure projects underway, privately-owned freight rail networks are maintained through these capital expenditures that have been at record levels for the last three years. And they explained that these investments have gone towards things like intermodal terminals that facilitate truck to train transport; new track, bridges, and tunnels, modernized safety equipment; and new locomotives and rail cars, among others.

Some notable examples of this spending at work include:
-the Heartland Corridor, a public-private partnership between NS and Virginia, West Virginia, Ohio, and the federal government to create the shortest, fastest route for double-stack containers moving between the Port of Virginia and the Midwest; and
-the National Gateway, a roughly $850 million public-private partnership (PPP) infrastructure initiative designed to provide a highly efficient freight transportation link between the Mid-Atlantic ports and the Midwest. Class I railroad CSX is a major stakeholder in this effort.

The AAR also pointed out that over the past few years these Class I railroads have invested about 17 percent of their annual revenue on capital expenditures, whereas the average U.S. manufacturer spends about 3 percent on capital expenditures.

These capital expenditure investments, said the AAR, are funded by private capital and not taxpayer funding, adding that the railroad industry owns, maintains, improves and pays taxes on their rights-of-way.

Other costs included in capital expenditures include maintenance, with 20 cents of every revenue dollar going back into maintaining, expanding, and improving the U.S. rail network over the last ten years.

What’s more, these investments come at a time when the AAR has voiced concern over myriad pieces of legislation that threaten their ability to continue to make investments at these levels. Examples of this legislation include the Positive Train Control mandate, legislation attempting to remove antitrust exemptions currently only granted to the railroad industry; and an ongoing push to expand truck size and weight.

While the railroads continue to plead their case for federal regulations to remain in their current form, railroad shippers and rail shipper groups continue to maintain that they are suffering from increased rates and decreased quality of service.

“For too long, the market has been blocked from setting fair prices for shipping products via rail, which has hurt shoppers, exporters, farmers and manufacturers,” said Glenn English, chairman of Consumers United for Rail Equity (CURE), a railroad shipper group.

But railroad executives continue to counter that theory, explaining that the existing regulatory railroad environment for has produced—for North American railroad shippers—a freight railroad system that is the best in the world. And if the railroad industry lost the ability to earn its cost of capital it could have a negative effect on capital investments to support traffic growth and reverse the strides made post-Staggers Act in the areas of rail safety and service reliability.