The Railroad Revenue Adequacy list was just released. What are your thoughts? (Tony Hatch)

Hatch Anthony

The STB releases its Railroad Revenue Adequacy list….for 2019. Yes, the Surface Transportation Board released its list of those rails whose returns (ROIC) exceeded their Cost-of-Capital, and the total was five. The very announcement points out the inadequacies of the list itself, with the greatest of respect (it is slow/late; it counts only the US as per the STB being, of course, and American government body even if the freight rail system is continental and it shows that ROIC/CoC is very much an art, maybe even a dark art, and not a science. For example, is the CoC really 9.34%? Isn’t that perhaps one-third too high? Yes, it seems closer to the mark than 12.2% for last (2018) year. Does this matter? Well, maybe not today. But with the very nature - and use - of “revenue adequacy” up for debate in the future, it does bear watching.

Note that the two Canadian lines system-wide would have ranked number 1 & 2….Anyway, those getting passing grades were:

  1. UNP 15.6%
  2. CSX 12.8%
  3. BNSF 12%
  4. NSC 11.6%
  5. Soo Line (AKA “CP-USA”)

Both the KSU (6.2% - assuming US only and yet still seeming unrealistic), and CN-USA (7.4%) fell below the….target.