Thursday, March 19, 2009

Rail rate of return rises to 11.21% in 2008

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The Class I railroad rate of return on net investment increased to 11.21% in 2008 from 10.10% in 2007, according to statistics released by the Surface Transportation Board on Thursday, March 19.

ns_norfolk_southern_gp50u_5819_left_2006.jpgAmong individual railroads, Norfolk Southern was the ROI leader in 2008, with a return of 15.19%, compared with 13.42% in 2007. CP/Soo Line had a return of 14.78%, down from 16.24%. BNSF earned a return in 2008 of 11.11% vs. 10.4% in 2008. Union Pacific earned 10.57% vs. 8.8%. CSX Transportation had a return of 9.60%, up from 7.16%. CN/Grand Trunk Corp. earned 9.74%, up from 10.84%. Kansas City Southern's ROI was 8.31%, compared with 10.14%.

Class I operating revenues reached $61.24 billion in 2008, up from $54.32 billion in 2007. Net railway operating income in 2008 was $9.32 billion compared with $7.85 billion in 2007. Net income in 2008 was $8.04 billion, up from $6.72 billion.

STB uses return on net investment and an annual industry cost of capital figure in evaluating the adequacy of individual railroads' revenues each year, as well as in various types of regulatory proceedings (such as determining the reasonableness of a challenged rail rate, considering a proposal to abandon a rail line, or valuing a particular railroad operation in certain other types of cases). STB, using the Capital Asset Pricing Method to calculate the cost of equity (a key component of the cost of capital), found that the rail industry's after-tax cost of capital for 2007 was 11.33%. In 2007, only NS and Soo Line were determined revenue adequate.