Short Line Holding Companies Describe Capital Spending Plans for 2023

Executives of three short line holding companies that do business in Ohio and its surrounding states outlined their respective capital spending plans for this year during a conference of the National Railroad Construction and Maintenance Association.

The executives noted in their remarks that fueling their plans has been the availability of new federal grants for infrastructure projects.

Kristine Storm, Genesee & Wyoming’s vice president, procurement, said plans include replacement of 875,000 ties and 437 miles of rail.

G&W infrastructure spending for 2023 is $473 million, up from $410 million in 2022. The distribution of the engineering and mechanical funds will see 31 percent go to ties, 22 percent to rail, 12 percent to mechanical, 10 percent to surfacing, 8 percent to bridges, and the remainder to six other categories.

Other work to be done this year includes more than, 2,000 miles of track surfacing, $45 million in bridge work, replacement of 90 turnouts, rebuilding more than 300 grade crossings, and more than 100 new grade crossing signals.

G&W plans to install 54,000 feet of new track in six sidings and two yard projects.

Watco expects to increase spending on maintenance capital from $97.2 million in 2022 to $132 million in 2023.

Tom Holmes, Watco’s vice president, purchasing and materials, said that will include $42.1 million for ties and surfacing, and $12.5 million for bridges.

Watco has been awarded $155 million in Consolidated Rail Infrastructure and Safety Improvement grants with five of those grants devoted to rail infrasture projects. The other grant is for a battery locomotive project.

OmniTRAX plans to allot 80 percent of its capital budget to track, crossings, and signals. Bridges will receive half of the remaining funds, with 6 percent for buildings, 3 percent for locomotives and 1 percent for other items.

G&W Plans 2 Ohio Capital Projects in 2022

Short line holding company Genesee & Wyoming plans two major capital projects in Ohio this year, Trains magazine reported on its website.

G&W has received a $7.8 million grant that will be used to make improvements in Delta on the Indiana & Ohio.

The work includes installing 40,000 feet of rail, 1,5000 ties, 10 miles of surfacing, 10 turnouts, and a 7,450-foot siding.

In Lima on the Chicago, Fort Wayne & Eastern, G&W will undertake a $9 million project to install 10.85 miles of welded rail at eight locations, and reconfigure a yard.

In all, G&W plans to spend $375 million in North America this year for capital projects, which railroad officials said is the highest capital spending figure in any of the past six years.

Much of that work will involve ties and rail for 900,000 ties and 336 miles of rail.

Pandemic Suppressing Some Rail Capital Projects

An economic downturn combined with stay home orders designed to stop the spread of COVID-19 has resulted in a significant scaling back of railroad capital projects this year.

The National Railroad Construction and Maintenance Association said a quarter of its members reported seeing a decrease in business although a majority said they have experienced no change.

Matt Ginsberg, who heads NRC’s management and lobbying firm, said a complete picture of how the pandemic has affected capital projects won’t be available until June and July during the height of construction season.

Some freight railroads have already announced cuts in capital spending with Norfolk Southern saying it will cut its capital program by $500 million.

Union Pacific announced a 6 percent reduction while CSX spoke of reducing its capital spending.

Yet Canadian Pacific said it plans to forge ahead with its planned $1.6 billion capital spending plans for this year.

For some railroads and transit systems, the pandemic has provided an opportunity to increase planned work.

A downturn in passenger traffic that prompted Amtrak to suspend the operation of dozens of trains, particularly in the Northeast Corridor, has also led to the passenger carrier accelerating the pace of some repair and maintenance projects.

One of those is in Michigan where 19 miles of rail have been replaced between New Buffalo and Galien on an Amtrak-owned line.

Workers on the Amtrak Michigan Line improved 11,088 feet of rail in one night by laying 4,615 feet of rail.

Service reductions have allowed surfacing crews to increase their nightly track outages, which allows them to surface greater sections of track at a time.

Additional track inspections also have also been made in Michigan and Indiana on the Amtrak Michigan Line which begins in Porter, Indiana.

One challenge of continuing or speeding up the pace of construction work is that there are fewer hotels in which to house construction workers temporarily and fewer restaurants open at which they can eat. Fast food and gas station restrooms may be inaccessible.

Canadian National CEO J.J. Ruest said at investor conferences this week his company would continue with capacity expansion projects as it looks toward the longer term even as it trims other capital spending.

CN did reduce its capital budget due to the pandemic, trimming it to $2.9 billion from a planned $3 billion.

But Ruest said CN spends 20 percent of its revenue on capital expenses, putting it at the high end of the industry.

Other railroads have reduced capital spending to 14 percent of their revenue.

“That’s not what we want to do,” Ruest said. “We believe the pandemic will change the world, but there is a world beyond the pandemic.”

Reust said during the Bank of America and RBC investor conferences that CN doesn’t want to get caught short of capacity as it did in 2017 and 2018.

He said CN suspended expansion projects during a traffic downturn in 2016, then lacked the track, crew, and locomotive capacity required to handle an unexpected surge of traffic in Western Canada that began in 2017 and continued into 2018.

“Having learned from that, that’s why we continue to expand some capacity . . . right now,” Ruest said.

FRA Announces Rail Grant Program

The Federal Railroad Administration is seeking applications for a $73 million grant program that is designed to strengthen intercity passenger rail, support capital projects, and boost safety initiatives that may include the implementation of positive train control, improved highway-rail grade crossings, and congestion mitigation.

The grant funding was authorized by the Fixing America’s Surface Transportation Act and funded through the Consolidated Appropriations Act of 2017.

The funds are being channeled through the Consolidated Rail Infrastructure and Safety Improvements grant program and the Restoration and Enhancement Grants program.

In a news release, the FRA said at least 25 percent, or $17 million, of the improvement grant program’s funding will be used for rural projects such as highway-rail grade crossing improvement projects.

Another $10 million is available for capital projects such as rail line relocation and improvement or grade separation projects that contribute to the safe initiation or restoration of intercity passenger rail service.

A portion of funding from the improvement grant and restoration programs — $2.2 million set-aside for special transportation circumstances — is directed to grants for freight or intercity passenger rail capital projects in Alaska, South Dakota and Wyoming.

Class 1 Capital Budgets Are Mixed Bag

North America’s Class 1 Railroads have varying plans for capital spending in 2018.

At one extreme, Canadian National plans spend a record $C3.2 billion for capital spending, which includes laying new track and buying new locomotives.

That is an increase of C$500 million over what CN spent last year.

On the other extreme are CSX and Kansas City Southern, both of which have cut their capital spending budget.

Compared with its peers, CSX is taking a meat axe to its capital budget, slashing it by $400 million to $1.6 billion for the year.

KCS is reducing its capital budget by $30 million and will spend between $530 million and $550 million.

Union Pacific and Norfolk Southern are planning to increase their capital spending while BNSF and Canadian Pacific have announced flat capital budget.

NS will spend an additional $100 million on a $1.8 billion capital budget while UP is increasing capital spending by $200 million to $3.3 billion.

The BNSF 2018 capital budget is $3.3 billion while CP will spend between C$1.45 billion and C$1.5 billion.

CN plans to spend C$1.6 billion on track and other infrastructure, including replacing 2.1 million ties and more than 600 miles of rail.

It also plans to plunk down C$400 million on equipment acquisitions, including 60 high-horsepower locomotives as part of a three-year, 200-unit order from GE.

At NS, track maintenance projects are budgeted at $930 million this year while it will spend $345 million for locomotives and $50 million for cars.

“Locomotive capital will be focused on the rebuild and conversion of locomotives from DC to AC power,” said NS Executive Vice President and Chief Operating Officer Cynthia Earhart.

With CSX mothballing numerous locomotives and freight cars, it sees no need to acquire new equipment.

KCS said its capital budget is down largely because it won’t be buying any locomotives.

U.S. Railroads Expect to Hire 15,000 This Year

The freight railroads in the United States are going on a hiring binge this year. The Association of American Railroads said railroads expect to hire about 15,000 new workers and spend $29 billion on capital projects.

The AAR said in a news release that an estimated 20 percent of those hired will be will be military veterans. These new railroad workers will earn on average $109,700 per year with benefits.

The capital spending will be primarily for track rehabilitation and new locomotives and freight cars.

AAR said the projected capital spending amounts to about $79 million a day. The freight railroads have spent $575 billion on capital projuects since 1980.

“By providing affordable, efficient and reliable transportation of goods, from lumber to oil to auto parts and grain, freight railroads continue to play a vital role in the positive economic trends rippling through the U.S. economy – including rising gross domestic product, improving employment statistics and plummeting gasoline and heating prices,” said AAR President and CEO Edward R. Hamberger.