INTRO: Although investment may have passed its peak as North America's railways complete capacity enhancement programmes, spending levels remain high following recognition that deferral of expenditure on infrastructure and motive power is a false economy. Julian Wolinksy reports
THE HEADLONG rush of capital spending by North America's Class I railways during the late 1990s appears to be tapering off now that many of their expansion goals are being reached. Investment in rolling stock and additional capacity was triggered by a flood of new business that caught several carriers at the nadir of a downsizing campaign intended to cut costs, raise profits and increase shareholder value. The recent spate of mega-mergers, especially that of Union Pacific with Southern Pacific, also exposed glaring gaps in motive power, staff and line capacity.
Figures from the Association of America Railroads show a steady and substantial increase in carload freight, intermodal traffic and revenue tonne-km over the last 11 years. But capital expenditures only began rising significantly in 1993. In 1989 Class I railways spent $3·7bn on improvements, an amount that held steady until 1993 when it jumped to $4·17bn. By 1999, the annual sum had reached nearly $6·6bn.
Meanwhile, the amount of track owned declined from 335250 km in 1989 to 275350 km nine years later, although in 1998 this reduced network was carrying over 37% more tonne-km.
Capacity at a premium
But despite this year's diminished level of investment, considerable sums are still being devoted to equipment and infrastructure, with the highest level at the continent's largest railway, Union Pacific. The company is continuing a rolling programme of improvements and is planning to spend $1·9bn, $100m above 1999. The largest portion, $1·4bn, will go towards upgraded right-of-way, track maintenance and capacity improvements on a network totalling nearly 55000 km. All this, in part, is a continuing reaction to UP's year-long near-gridlock beginning in autumn 1997 following the merger with Southern Pacific, a deal which exposed a woeful deficit in locomotives, crews, dispatching and an inability to co-ordinate the two networks efficiently.
Much of the infrastructure work will be concentrated on former SP main lines, including the Sunset and the Tucumcari, and substantial new sections of double track will be added. With demand increasing from electric utilities for low-sulphur coal, UP must expand its ability to handle heavy-haul unit trains from the Powder River Basin in Wyoming. For example, a $60m, 60 km double-tracking project is under way in Nebraska and Wyoming that, upon completion in February 2001, will form part of a 170 km two track corridor. In addition, a $14·6m project will increase capacity at the South Morrill (Nebraska) yard thanks to lengthening of five tracks and the addition of six new tracks. UP is now in the fourth year of a multi-year upgrade of the 900 km former Kansas Pacific main line between Denver and Topeka, to handle changing traffic flows following the 1996 SP merger.
UP also went on a hiring and locomotive acquisition binge, with the latter getting under way at the moment. The railway took delivery in late April of the first five of 1000 leased SD70Ms from EMD that will be arriving over the next three years. In addition, UP is purchasing 125 more 4400hp AC units from General Electric for delivery in 2001. This will allow the retirement of around 1500 life-expired units. Also on UP's equipment agenda is $400m for new wagons. These will include about 1000 bi-level auto carriers, 200 hoppers and 810 leased aluminium coal cars.
Burlington Northern Santa Fe is planning to dole out nearly $1·5bn during 2000, but none of it will go into new rolling stock. More than half of the programme, $865m, will be spent on maintaining and upgrading right-of-way. An example of the type of work being planned occurred during a two-week period beginning late in January when over 200 km of main line in California's San Joaquin Valley was subjected to a maintenance blitz. While the route was shut down, much of the track was resurfaced, new sleepers installed, level crossings improved, bridges rebuilt and two new turnouts added.
Another $218m will go towards terminal and track expansion, $209m will be expended on mechanical equipment and $58m on information services, including computer system improvements. This compares with a total capital budget of $2·15bn in 1998 and nearly $1·8 in 1999, with $600m put into new locomotives, which helped the railway achieve a new record for locomotive reliability earlier this year. During the 1996-99 period BNSF acquired 1407 new locos, and total capital spending was roughly 2·5 times the amount allocated during the previous four years. Since the 1994 merger between Burlington Northern and the Santa Fe, invested capital has increased by 44%.
Consolidation in Canada
Canadian National is planning a C$1bn programme this year with 46% going towards basic maintenance and upgrades to the physical plant. Fully 18% will be invested in enhancements to line and yard capacity and specialised equipment such as grain storage elevators and intermodal transfer facilities. No double tracking is scheduled, but CTC will be installed between Port Huron and Toronto to increase train throughput.
Only 40 locomotives are scheduled to be purchased, all General Electric Dash 9s, and none are due for refurbishing. This reflects a downsizing of the motive power fleet by 500 units since the fall of 1998, a feat achieved by more intensive use.
CN will spend 12% of its budget on new wagons, primarily RoadRailers, auto racks and intermodal cars, and for modification and renovation of automobile carriers. Another 13% will be spent on information technology, including expansion of electronic commerce and the integration of the recently acquired Illinois Central into Canadian National to create a standardised system.
Canadian Pacific is another primary example of how the industry is reining in its capital costs. During an average year CPR budgets C$500m to C$600m. However, between 1997 and 1999, a staggering C$2·8bn was spent. In 1999, CPR's cash outlay totalled C$843m, but just one year later it has fallen back to C$575m, which will mainly be used for routine infrastructure maintenance. The company says this is because a five-year rebuilding and rejuvenation plan directed toward key assets that began in 1995 has been all but completed. As elsewhere, additional capacity was the goal, and to that end the company purchased 346 new AC locos, all of which have been delivered.
CPR's infrastructure was given special attention with sidings added, bridges and track smartened up and new intermodal terminals built. Several yards were expanded and there were significant outlays for modernising communications and information technology. That has provided the railway with a tremendous new ability to improve service and reliability while reaching new markets, primarily in the arena of intermodal shipments. In the three-year period beginning in 1997, the modal split of cargo carried by CPR has shifted from 45% intermodal and 55% carload freight, such as automobiles, forest products and coal, to a ratio of 53% to 47%. Much of the new traffic is goods that could be moved by truck, but shippers are now finding improved rail service more attractive.
Kansas City Southern will be expending a modest $109m for capital projects this year. The big-ticket item is a tranche of 50 new General Electric AC4400CW locomotives, all equipped with fuel monitors and global positioning satellite apparatus. A number of new facilities to improve traffic volume are planned, including a new manifest yard opening in mid-year near Dallas, an upgraded and expanded yard at Port Arthur, Texas, and a large-scale development in Kansas City that will include an intermodal terminal, a centre for the distribution of Mazda cars and a workshop for the GE locos.
Rehabilitation and upgrading of track and right-of-way will continue system-wide, including 30 km of new CWR and the rebuilding of the main line between Pittsburg, Kansas and Heavener, Oklahoma. Installation of a new computer network, the Management Control System, will be completed during the second half of 2000. It provides an automated, integrated data service that will better manage the workload, reducing errors, improving productivity and enhancing service to shippers.
At the other end of the financial scale, CSX has a $900m plan under way that the company says is 'strongly focused on improving service'. Here again, the emphasis is on capacity improvements and benefits to customers through the repair, upgrading and expansion of yards, signals and intermodal facilities plus more double track and additional sidings.
Receiving the most attention will be main lines in the northeast and those connecting Chicago with New York, Nashville, Tennessee and Jacksonville, Florida; New Jersey with Richmond, Virginia; and Greenwood, Ohio with Washington, DC. Significant sums were spent in the past two years on facilities designed to ease the integration of former Conrail routes acquired last year.
CSX has purchased 36 locomotives since January 1, 19 GE 6 000hp AC units and 20 GM SD70s of 4 400hp. There are no plans to add any more, although the company says a few may be leased later this year. More than 460 locos were added in 1996-99. No wagon acquisitions have been announced other than for some multi-level auto carriers. The railway will also increase its investment in automated equipment identification.
Norfolk Southern has substantially reduced its spending level in 2000, with $747m budgeted compared with $1·07bn last year and $903m in 1998. A significant portion of the railway's investment over the past two years was dedicated to helping NS absorb its portion of Conrail. The programme calls for $576m in right-of-way work plus $110m to add more double track and passing sidings along key routes. Other projects include $75m for expanded intermodal facilities and $30m for signalling and electrical gear. NS plans to purchase 255 multi-level auto carriers and lease another 475 similar units. In an effort to streamline its data handling, the railway will spend $23m on computer-related projects.
Another $72m will be put into upgrading the locomotive fleet. Not included in the budget is the planned leasing of 150 new six-axle, high-adhesion locos. 'Our projected 2000 capital spending reflects our efforts to obtain more productivity from our existing assets while continuing to maintain the highest levels of safety and customer service,' said NS Chairman, President & CEO David R Goode.
North America's hundreds of regional and short line railways are, in general, planning a modest degree of capital spending, the amount in proportion to their often limited resources. Of the larger carriers, the Midwest's Wisconsin Central has identified a $100m programme, two-thirds of which will be spent on badly needed track improvements and expansion, including converting the entire main line to CTC. No rolling stock orders are planned but wagons and locomotives will be rebuilt, although the company is not revealing specifics.
In the west, Montana Rail Link has a capital budget of just over $14·2m, with nearly $10m targeted at infrastructure. The largest item is the installation of 100000 new sleepers system-wide at a cost of $4·7m, followed by the resurfacing of 346 km of track ($1·4m) and the installation of almost 17 km of curve rail ($3·2m).
As these figures indicate, the North American railway industry is in good financial health and for the most part has caught up on capital spending that, in some cases, had been deferred for too long. However, cash outlays are continuing at a pace that will keep the network in top physical condition and ready to accept anticipated growth in the volume of traffic. n
Passenger operators make a comeback
For many years successive Canadian governments have refused to sanction capital spending for VIA Rail, but on April 12 Minister of Transport David Collenette announced a C$400m capital injection over the next five years. Still modest compared with the railway's needs, this sum will be used to update the railway's ageing passenger fleet, for new motive power and for improvements to stations, track and signalling.
In the USA, Amtrak has launched a major route expansion programme (RG 5.00 p305), and in the initial phase it intends to do this without major capital expenditure. Pulling locomotives and coaches out of store, the national passenger operator aims to build passenger business in line with its rapidly expanding mail and express service.
If this proves as successful as it hopes, the way will be clear for Amtrak to launch longer-term capital investment programme. This is likely to include the launch of high speed services in selected corridors - an ambition dating back at least 20 years.
CAPTION: Above: North America's Class I railroads are continuing to invest heavily in their infrastructure, adding capacity to overcome bottlenecks created by decades of downsizing
CAPTION: Union Pacific is rapidly modernising its diesel loco fleet. In April UP took delivery of the first five units from an order for 1 000 General Motors SD70s which are being supplied under a leasing deal. Together with a further 125 GE-built AC-4400CWs (right), they will replace 1 500 older units
CAPTION: Intermodal freight accounts for a key part of Canadian National's capital budget, including terminal improvements and new rolling stock
CAPTION: After a major programme of locomotive acquisitions, CSX is concentrating on infrastructure upgrading to relievecapacity problems and address FRA concerns about safety
CAPTION: Regional operator Montana Rail Link is concentrating its spending on trackwork, including new rail, resleepering and resurfacing
CAPTION: Typical of Via Rail's ageing fleet, a GM F40PH diesel heads refurbished 1950s stock on the Skeena between Jasper, Prince George and Prince Rupert, British Columbia