Crystal Ball Look at 2018 and Railroads

With a new year upon us, it’s time to look ahead to what 2018 might bring in the railroad industry. Such predictions are fraught with peril given that unexpected developments can occur at any time that dramatically changes the trajectory of the industry or its individual components.

A year ago at this time we thought E. Hunter Harrison was living out his days as CEO of Canadian Pacific. Few knew that he was plotting with a hedge fund to take over CSX.

Even fewer knew that Harrison was in his final days of overseeing any railroad and would die before the year ended.

With that in mind I press ahead in reviewing four stories to watch in 2018.

What now for CSX? The patriarch of precision scheduled railroading left before his model could be fully implemented.

Look for CSX to continue the PSR model under new CEO James M. Foote, although with some modifications.

Much of the early months of 2018 will see Foote finding his way at CSX while assuring investors that he was a wise choice to replace Harrison.

Industry analysts have pointed out that Foote is thin in operating experience. Much of his industry time has been spent in marketing and sales.

That could turn out to be a good thing for CSX because customer relations was not Harrison’s strong suit. He was an old school operating man who wanted to dictate terms to shippers not the other way around.

Look for CSX to appoint an operations vice president so that Foote can focus on what he knows best.

Both Canadian National and CP have done quite well post-Harrison. Will the same be true for CSX? Perhaps, but if that is the case it will be due to Harrison having laid the foundation not from having built the house as was the case at CN and CP.

What now for Amtrak? Richard Anderson is firmly in control of the nation’s rail passenger carrier with Charles “Wick” Moorman having retired.

Anderson, the former CEO at Delta Air Lines, has hired a supporting team that includes former airline executives. It remains to be seen what that means.

These airline executives cut their teeth during the airline deregulation era when airlines learned ways to squeeze every last dollar out of passengers through such things as baggage fees and seat assignment fees, among others.

Remember the last time that an airline served you a not meal in coach as part of your fare? Yeah, it’s been a while.

Anderson won’t necessarily remake Amtrak in that model but look for him to move in that direction.

The name of the game will be maximizing revenue yield – something Amtrak has already been doing – as the carrier seeks to recover even more of its expenses from the fare box.

Anderson will have his hands full this year attending to matters that grabbed a disproportionate number of headlines in 2017. This includes the rebuilding of New York’s Penn Station and dealing with the aftermath of the derailment of a Cascades Service train in Washington State.

Much of the latter has focused on the fact that positive train control was not yet in operation on the route. Questions are being raised about the adequacy of training of Amtrak operating employees and the railroad’s safety culture.

These matters will continue to attract attention in 2018 and take up much of Anderson’s time.

Rail passenger advocates in places such as Ohio will continue to be disappointed in Amtrak in 2018. But that is nothing new.

Little, if any, progress will be made in terms of route expansion, new equipment for long-distance trains or expanding the frequency of such tri-weekly services as the Chicago-Washington Cardinal.

Perhaps the best that can be hoped for is that the aging Superliners will get a new interior look starting later in the year.

Will Railroads Make the PTC Deadline? The last day of 2018 is the deadline for the railroad industry to implement positive train control systems on routes that handle passengers and/or carry hazardous cargo. The deadline has been moved once already.

The Federal Railroad Administration has warned that waivers won’t be issued again, but that was during a different administration.

The Trump administration might be far more sympathetic to railroad industry pleas for a little more time due to the expense and complexity of PTC systems.

Some railroads will make the deadline, but others are going to be cutting it close.

Will the Trump Infrastructure Plan See the Light of Day? Candidate Donald Trump liked to talk about his big plans to revamp the nation’s infrastructure. President Donald Trump has barely mentioned it other than to pay it lip service on occasion.

The administration has been tight lipped about the scope of the plan other than a few broad details, such as $200 billion in federal funds will be used to leverage $1 trillion worth of infrastructure improvements.

Supposedly, the infrastructure plan was being held in abeyance until Congress passed a tax bill, which it did in late December.

In theory, an infrastructure improvement plan should have bi-partisan support. But in a hyper partisan environment during a midterm election year bi-partisan support might be hard to come by. Political hardball will be the rule.

There remains the question of how much the railroad industry would benefit from an infrastructure plan once or even if it is implemented. Few rail infrastructure plans come with a private developer other than than the railroad itself to provide matching funds.

Passenger rail should be a prime beneficiary of an infrastructure plan, but given the current political climate it might find little to feed on except for a few token crumbs that will be eaten by Northeast Corridor infrastructure needs, of which there are many.

Freight railroads might fare a little better in getting funds for some projects, e.g., enlarging tunnels or replacing bridges that they agree to help fund.

But don’t be surprised if the infrastructure plan winds up benefiting highways and even some areas that only a strained definition of infrastructure would incorporate, e.g., a veteran’s hospital. It will hinge on how the terms of the plan are written.

A lot of hungry government agencies and private companies are going to be looking for a slice of the infrastructure pie and might provide tortuous explanations as to how their project constitutes infrastructure.

I’m reminded of that famous response from bank robber Willie Sutton in the Saturday Evening Post as to why he robbed banks: “I rob banks because that’s where the money is.”

The infrastructure plan might make available money not available otherwise so there are going to be a lot of hand out seeking a part of it.

Conservatives in Congress will not necessarily offer automatic support for an infrastructure plan, which they might fame as a stimulus plan. That would remind them too much of something they despised during the early years of the Obama administration.

And conservatives absolutely, positively dislike spending federal money on passenger rail. They are not all that more supportive of public transportation even when it uses rubber tires on asphalt and concrete surfaces.

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