(The following story by Robert Wright appeared on the Financial Times website on January 21, 2010.)
LONDON — Investment in US freight railways will fall if proposed federal rail legislation is passed in its present form, the chief executive of the sector’s third-largest company has warned after announcing improved fourth-quarter net earnings.
Michael Ward was speaking yesterday after CSX, the larger of two big railways in the eastern US, became the first major US-based rail company to announce 2009 results. Union Pacific BNSFNorfolk SouthernKansas City Southern Berkshire Hathaway
CSX reported net earnings for the three months to December 25 up 23 per cent over the same quarter of 2008 to $305m on revenue down 13 per cent to $2.32bn. Full-year net earnings fell 16 per cent to $1.15bn on revenue down 20 per cent to $9.04bn.
CSX had demonstrated its operating capability by withstanding the worst economic recession of recent times and emerging stronger, Mr Ward said. However, he expressed concern about the potential effects of legislation being debated to strengthen the powers of the Surface Transportation Board, the industry’s regulator.
The main railways have long been concerned that tightening regulation could reduce the incentives for large investments in improved infrastructure and rolling stock. Some railway customers – particularly those that have no choice of operator – have complained about steep price rises.
CSX is due to make $1.7bn capital investment this year.
“We are concerned about threatened federal regulations that will without doubt cut investment in freight rail systems,” Mr Ward said.
The company would comply with new federal regulations on rail signalling – expected to cost CSX $750m by 2015.
But Mr Ward went on: “At the same time, we see other substantial federal demands on the horizon which could negatively impact the financial health of the industry. The current Senate version of the STB re-authorisation bill is not balanced.”
Fuel – one of CSX’s largest outgoings – cost $250m in 2009, down 24 per cent on the year before. However, revenue from fuel surcharges also fell. Revenues and profitability were also hit by a 24 per cent fall in revenues from coal, the single biggest commodity for most freight railways and one of the most profitable cargoes.