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Rail News: Rail Industry Trends

Three of seven Class Is made 'revenue adequacy' grade in '06, STB says


Three out of seven. That's how many Class Is the Surface Transportation Board (STB) has determined were "revenue adequate" in 2006.

According to the board's annual decision on revenue adequacy among the seven Class Is, only BNSF Railway Co., Norfolk Southern Corp. and Canadian Pacific Railway subsidiary the Soo Line Railroad Co. made the grade in '06.

The STB determined the large roads' rate of return on net investment (ROI) as follows: BNSF, 11.43 percent; CSX Transportation, 8.15 percent; Grand Trunk Corp. Consolidated (Including all Canadian National Railway Co. U.S. affiliates), 9.47 percent; Kansas City Southern Railway Co., 9.31 percent; NS, 14.36 percent; Soo Line, 11.6 percent; and Union Pacific Railroad, 8.21 percent.

The STB considers a railroad to be revenue adequate if it achieves an ROI equal to the current cost of capital (i.e., the cost of borrowing). Congress directed the board to conduct revenue adequacy determinations on an annual basis. The STB recently determined that the rail industry's cost of capital in 2006 was 9.94 percent.