Eastern Railroad Discussion > Amtrak Payments to Freight Railroads

Cross-posting from the Passenger Forum:

Hi guys,

I know this whole concept has been discussed ad-nauseum on here, but could somebody give me a link to the actual figures somewhere as to how much Amtrak pays the freight Class 1's for the right to access their tracks?

This relates to a discussion I'm having at work with a coworker of mine, and trying to counter his arguement that the freight railroads would not be profitable without government subsidization. I know this is 100% NOT true, but the annual reports (both Amtrak's and, in my case, Norfolk Southern's) don't break the data down that far.

We're both professionals at an investment management company, so links to reputable sources of some sort would be very preferable (no blogs and the like). The discussion is informal though...

One last note - no political posts or opinions please!

Thank you all!!


P.S. Yes, I know federal, state, and local governments frequently provide support for capital projects that they believe to be a beneficial impact for the affected communities at large, but I'm focusing on Amtrak payments for now as they are the only CONSISTENT cash stream that, indirectly, comes from the public.

According to a public letter from the USDOT OIG to Congress in April 2010, "During fiscal year (FY) 2009, Amtrak paid $115.4 million in track usage payments to owning freight railroads to access their rights-of-way. These track usage payments accounted for roughly 3.3 percent of Amtrak's total operating costs for FY 2009."

There is no breakout by railroad, but you could approximate it by looking at the Amtrak train-miles spread across freight railroad -- primarily BNSF, UP, NS, CSX, and CN/IC.

I think you'll find that it's ludicrous to assert that these five railroads are kept afloat by Amtrak payments. Even if the entire $100-150M in the current calendar year were paid to NS, for example, it would be spit in the ocean compared to the $10+ billion total annual revenue of NS.



Edited 1 time(s). Last edit at 11/08/12 08:44 by ctillnc.

"We're both professionals at an investment management company, so links to reputable sources of some sort would be very preferable (no blogs and the like). The discussion is informal though..."

Would you mind sharing what "investment management company" you guys are working for?

The reason I ask is I am quite troubled by the thought that there are investment managers out there that can't look at the investors information provided by the major railroads and see the profits these companies are reporting and what a small source of revenue Amtrak is to ANY of them...

Andy

wheel_slip Wrote:
-------------------------------------------------------
> "We're both professionals at an investment
> management company, so links to reputable sources
> of some sort would be very preferable (no blogs
> and the like). The discussion is informal
> though..."
>
> Would you mind sharing what "investment management
> company" you guys are working for?
>
> The reason I ask is I am quite troubled by the
> thought that there are investment managers out
> there that can't look at the investors information
> provided by the major railroads and see the
> profits these companies are reporting and what a
> small source of revenue Amtrak is to ANY of
> them...
>


Andy, neither of us are portfolio managers of any type. Our whole company doesn't really do portfolio management per se, but provides services to our "subadvisors" who are the actual portfolio managers (and do the related research). We're both Analysts, and this was just an office kitchen discussion on market conditions and the like.

My co-worker, while being highly-intelligent, is also very opinionated on certain things and is pompous at times, so I agreed to provide him with figures (especially since railroads are one of my core interests). Plus he's been there longer than I have.... :))

Here are some references for you:

Association of American Railroads Web site: http://www.aar.org/

Surface Transportation Board Web site: http://www.stb.dot.gov/stb/index.html

Between the two of them, you should be able to find enough financial and operating statistics to refute your co-worker. Railroads are private, railroads are profitable, and railroads pay for their own capital investments out of revenues earned for carrying freight. What Amtrak pays them, as I said in my other post, is almost inconsequential compared to the size of the industry.

Just have the guy research Warren Buffett or Bill Gates and ask him if he thinks either got where they are being stupid. They both have substantial rail holdings which make them a fortune.

Bill Miller
Galt, ON

wheel_slip Wrote:
-------------------------------------------------------
> "We're both professionals at an investment
> management company, so links to reputable sources
> of some sort would be very preferable (no blogs
> and the like). The discussion is informal
> though..."
>
> Would you mind sharing what "investment management
> company" you guys are working for?
>
> The reason I ask is I am quite troubled by the
> thought that there are investment managers out
> there that can't look at the investors information
> provided by the major railroads and see the
> profits these companies are reporting and what a
> small source of revenue Amtrak is to ANY of
> them...
>
> Andy


Bill Gates is a good example of an intelligent investor. His main investment firm, Cascade Investments, hires sub-advisors to invest various parts of his fortune in various strategies. Cascade hires other firms to keep an eye on the sub-advisors and monitor how they are performing relative to others in the same business. There are often two or three firms between the investor and the person who actually makes the buy or sell a security decision.

Cascade allocates money to the sub-advisors based on broad concepts ("inflation will rise over the next five years" or "smaller Asian countries will strengthen their currencies") and on particular initiatives. The Bill and Melinda Gates Foundation has bankrolled programs to provide clean water in Africa, eliminate malaria, and increase female access to education. To meet their ambitious goals, the foundation needs income, and assets that will support that mission well into the future. I believe Cascade also provides services to the Foundation, but I'm not positive of that. There are income targets that have to be met.

In the ideal, you want your managers doing what they do best, and not drifting off into hot areas where they don't know much. That's usually called "style drift" and it will get you fired off an account, or your allocation reduced. And, you need investment managers watching the other guys...

Lackawanna484 Wrote:
> In the ideal, you want your managers doing what
> they do best, and not drifting off into hot areas
> where they don't know much. That's usually called
> "style drift" and it will get you fired off an
> account, or your allocation reduced. And, you need
> investment managers watching the other guys...

Excellent points. Careful and continuous monitoring and review of program costs is the hallmark of the corporations I'm familiar with, and they are financially stable and successful (and have been over the long term). Meanwhile, in Montreal, we are now being treated daily to a commission looking into how major municipal contracts are routinely priced 30% over "market value", with the proceeds being split between the mayor's political party, the city's senior engineers and the mob (Montreal's 11-year mayor resigned earlier this week; Laval's 28-year mayor is expected to resign today). And don't get me started on the major European banks that have permitted so-called "rogue traders" to lose billions upon billions of their assets without anyone senior knowng a thing (and the "rogue traders" take the fall)...

Ray