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February 2016

Rail News: Rail Industry Trends

From the editor: Class I 2016 capex plans in context

by Pat Foran, editor

In January, Class Is confirmed what North American rail market observers had been expecting: The six biggest freight railroads have budgeted less for capital expenditures this year than they did in 2015, and two of the six set aside a lot less. Managing Editor Jeff Stagl breaks down the 2016 data here.

Pat Foran

In the aggregate, though, the 2016 budgeted amounts are similar to the spending plans the six largest of them issued in early 2014. Exception: BNSF Railway Co.’s 2016 budget. At $4.3 billion, this year’s capex plan is down quite a bit from the $5 billion BNSF budgeted in 2014. Union Pacific Railroad’s 2016 capex ($3.75 billion), too, is less than the 2014 amount ($3.9 billion). Norfolk Southern Railway’s $2.1 billion plan is slightly less than the $2.2 billion it budgeted two years ago. Canadian Pacific also plans to spend less ($1.1 billion in Canadian dollars) in 2016 than it budgeted in 2014 ($1.3 billion). Meanwhile, CSX’s $2.4 billion is a tad more than the $2.3 billion the railroad allocated in 2014. And CN plans to spend a lot more this year ($2.9 billion in Canadian dollars) than it budgeted for 2014 ($2.2 billion).

Whether these six railroads actually spend what they’ve set aside this year remains to be seen; railroads revise their budgets as business ebbs and flows. In the weeks ahead, we’ll learn a bit more about their spending-plan specifics — particularly in the maintenance-of-way (MOW) realm as we prepare our 2016 MOW Spending Report, which will be published in our April issue.

Rough sledding for the finance and leasing set?

Class I capex numbers are down this year, and so are the near-term prospects of the rail finance and leasing sector, if an informal survey we conducted last month is any indication.

Last month, we asked a cross section of rail finance and leasing execs a couple of big-picture questions, including this multiparter: “Will 2016 be better than 2016? Same? Worse? Why?”

Although their responses were varied and typically nuanced, nearly all of the respondents were firmly in the “worse” camp and suggested rough sledding ahead for the rail finance and leasing set — an uneven year, at best. As one respondent soberly put it: “The leasing environment will be very mixed this year as we transition away from crude-focused investment to a broader base. Volumes are flat or down and velocity is up, making the demand equation challenging.” Read their responses here.


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