It’s been a rough winter in logistics- UPS and FDX’s late holiday deliveries, stuck and dead trucks, pipeline and oil train spills and fires, passenger trains cancelled. Now rail is usually the relief valve that gets the freight and passengers through when the highways and airports are closed… But increasingly, the failure of other modes like trucking and pipeline is further overloading the railroads, and they’re now maybe starting to fail too. Even BNSF, who set the standard by reinvesting over half of profits in maintaining and upgrading their railroad, has been impacted- On the High Line that runs through the oil rich Bakken, they recently had 150 trains parked in yards and sidings and not movin’ an inch. Got so bad that even on the double track northwest of Minneapolis, they had trains die on both tracks and block the Northstar commuter trains that had already left the station!

How did the railroads get here? Rail was the dominant mode for the 19th century, and looks to be returning to that dominant role in the 21st, thanks to the incredible efficiency of steel wheel on rail and the drafting abilities of mile long trains. But in between, much of the 20th century was a bad one for railroads. That century of the highway began with railroads overbuilding, and the cost of maintaining that excess infrastructure as customers deserted rail for the highways drove many a railroad to bankruptcy by the 1980s. The executives of today’s surviving railroads learned the ropes in those days when the major goal of a railroad was survival, and investment in increased capacity was a forbidden dream. It got so bad that some railroads even sold their tracks for scrap just to hopefully pay the bills. Thus the very idea of another rail building boom is a largely foreign one to today’s rail executives.

So railroads begin the 21st century with booming freight volumes… And then came the Bakken oil boom that broke the railroads back! BNSF is the primary railroad that serves the Bakken, and while they’ve invested heavily in transloads and yards to serve the Bakken, they’re dependent on the largely single track High Line that hasn’t seen much double track added in decades. Not surprising, given that only a couple years ago freight volumes were so low on the increasingly flooded out tracks through Devils Lake that abandonment was the likely option. Those tracks have gotten so busy with Bakken crude and supplies that Amtrak and North Dakota split the cost of raising the tracks with BNSF. Meanwhile, much smaller CP is even more overwhelmed by the Bakken boom, being hobbled by a CEO who thinks the route to higher profits is to shrink the railroad. To make matters worse, I’m hearing rumors of a likely strike at CP, not surprising given the second tier union contract on CP’s U.S. tracks… While that’d give BNSF even more business, it’d also even further clog BNSF. On the Canadian end of the Bakken, CN is the dominant railroad, and they’re still recovering from the same railroad strangling manager that’s now strangling CP. 

So we’ve got an overloaded rail system in the upper left quadrant of the continent… How do we fix that? Railroads are a capital intensive business, and Wall Street seems more interested in short term profits, as we’ve seen at CP and CN. BNSF had the good fortune of becoming a big chunk of Berkshire Hathaway, Warren Buffet’s little collection of undervalued corporations that’s now something like the country’s fifth largest corporation. Buffet and companies are big into long term investment, and he’s attracted shareholders like me with similar long haul perspectives and patience. As a result, BNSF will plow 5 billion of it’s 7 billion in profits back into the railroad in 2014. That 5 billion dwarfs many states annual transportation budgets, and is darn near as much money as shrinking CP’s gross revenue. BNSF will be a blur of construction this summer, and next winter will be better.

But I can’t even find a budget entry for reinvestment on CPs financials, though they’re bragging about their operating ratio in the 60s. Give CP’s current management enough time, and they’ll shrink the railroad to a model train running the length of the boardroom table… And it’ll have an incredible operating ratio, ’til the transformer or whatever burns out and they can’t finance a new one.

So while BNSF is being a good corporate citizen and adding capacity to handle the increased freight demand, CP and similar railroads are closing yards and trying to fit more freight through the same single track railroad they’ve had for over a century, and has yet to reinstall the double track Milwaukee line that was torn out in the 80s. Worse yet, branch lines that served as bypasses and shortcuts have been abandoned and torn up, forcing increased freight volumes through the same jammed up pinch points. Its amazing that a corporation that was chartered by  Canada itself is allowed to destroy itself and cripple two nations in such a manner.

Which begs the question… Should railroads as regulated monopolies that were given unusual powers such as eminent domain and their own police forces be required to reinvest profits in needed infrastructure? And should cooperating railroads also be given public funding to increase capacity in the public interest? I don’t know, but it’s an issue we need to consider…

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