Blame Wall Street. That is the major takeaway from an analysis published on the website of Trains magazine that explains why U.S. Class 1 railroads are having crew shortages, service problems, and paltry traffic growth.
The points made in the analysis are not new. Much has been written in various publications, including Trains, about how Class 1 railroads have reacted to relentless pressure from Wall Street investors demanding that railroads continue to lower their operating ratio, which is the percentage of revenue devoted to expenses.
But the Trains analysis explains it in easy-to-understand language.
The crux of the matter is that railroads are caught betwixt and between.
To achieve traffic growth, particularly by diverting traffic away from trucks, would require spending more money which in turn would drive up the operating ratio. But Wall Street investors are loath to accept that.
It has become a vicious cycle that has played out many times during the past decade and it shows no signs of relenting.
To be sure, there have been mitigating factors that have exacerbated the situation, including the COVID-19 pandemic triggering supply chain issues and heavy-handed attendance policies that have driven many operating employees into retirement or seeking employment elsewhere.
But in the end it comes down to the unbreakable thirst of Wall Street investors for cost cutting in order to drive up profits.
Railroads have also raised rates faster than costs have risen, which brought hearty applause from investors.
It led to a golden age for railroad investors, but that has reached the territory where the law of diminishing returns has kicked in.
“The party is over,” wrote Trains correspondent Bill Stephens. “Investors still push for lower operating ratios, but there’s not much juice left to squeeze.”
The article can be read at https://www.trains.com/trn/news-reviews/news-wire/how-wall-street-holds-railroads-hostage-analysis/
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