The Railroad Week in Review:
Week ending September 16, 2000

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Companies typically install intranets top-down to distribute HR policies and other corporate information that workers are doing their best to ignore. Intranets naturally tend to route around boredom. The best are built bottom-up by engaged individuals cooperating to construct something far more valuable: an intranetworked corporate conversation. Cluetrain Clues No. 44, 45

Web-zine reports that "The killer business model for the next decade is one that builds internal processes that optimize the delivery of complete solutions and services to the customer. This entire new e-conomy shtick starts with the fundamental notion that improving how a customer or their company operates, now and in the future, is the single aspect driving the entire value chain."

In other words, users care less about hardware bells and whistles than they do about solutions. The railroads are still talking about running trains, not offering supply chain solutions. And the talk is falling on increasingly deaf ears. In the last ten years revenues per carload have hardly changed in 1989 dollars and have actually fallen with inflation.

The spread between capex and depreciation has widened, too. At the same time cash flow has been essentially flat so increased debt levels are taken on to pay for the capex. Investors began to take note in early 1997 at which point the rails stock prices ceased to grow along with the broader indices and began a precipitous drop. As a result, for the ten years the rails were up a paltry 20% vs. the DJIA's 260% increase.

Perhaps the time has come to rethink the paradigm in terms of where the money's coming from and where it's going. Your comments are invited.

Want another reason why RR stocks are doing poorly? It's partly because there are many better places to put your money. Consider this: software giant Oracle doubled quarterly earnings on just 15% more revenue. Estimates called for 13 cents a share yet ORCL came in at 17 cents on $501 mm net income vs. $237 mm or eight cents a share a year ago. The killer: QTQ revenues were $2.3 bn vs. $2.0 bn a year ago.

And how did they do this? Chief Executive Larry Ellison blithely said in the conference call that there was no real secret. Said he, "We've been changing our business practices and selling what a customer needs when they need it." Amazing.

Contrast the Oracle story with the rails' third quarter railroad carloadings to date -- up just 90 basis points over the prior year period. YTD the figure is only 20 BP better. Among carriers, CN and IC did best QTQ, up 10.9% and 5.3% respectively; bottom honors went to KSU and WC, off 6.4% and 3.2% respectively. Carrier performance YTD is not meaningful due to merger effects. It's bad enough the industry is essentially flat YTD in the face of a GNP growth rate three times the RR industry performance. Could it be the Railroad Industry Model is broken?

Opinions may vary; however, the "Railroad Industry Model" connotes to me selling a transportation service at a competitive price high enough to run the needed trains at a profit, repair and replace the infrastructure, and create shareholder value. Revenue growth rates equal to or less than the inflation rate will not do. Look for further discourse on this thread in coming weeks.

NS reports that on-time performance has "improved significantly" at major yards (, following comments made here regarding Allentown ( ). The news regarding improvement across the system is key because late trains from one yard impact the next yard's ability to get its own trains out on time. The option is either to hold trains for late cars or let trains depart on schedule and if connections are missed, it's too bad.

Actually, it's the same situation faced by airline hubs. Do you hold flights delaying the many for a few connecting passengers? Or do you launch on time and avoid the risk of cascading delays? You know the old saw about airline departures: the later in the day the later things get. SAS determined a long time ago that on-time departures garner the most points for overall customer satisfaction. Seems NS follows suit.

The CSX oversight filing arrived on my desk this week. It, like the NS report ( ), indicates a generally positive tone in the comments received. Said CSX, "In several areas, the Comments (or lack of them) indicated that major aspects of the Conrail Transaction had gone well. A number of the Commenters remarked positively on the fact that the implementation of the split of Conrail's routes had been accomplished in a safe manner. No comments taking exception by labor interests were filed."

The major challenge faced by both CSXT and NS has been separating the operational comments from the comments relating to the competitive impacts of the transaction. Thus CSX writes in its covering remarks that it "will reply herein to commenters concerning observance of the conditions imposed by the Board in [Decision 89]." That document is available at the and notes, in part, that "We are establishing oversight for 5 years so that we may assess the… workings of the various conditions we have imposed. (emphasis added)." Operational and service issues are separately addressed elsewhere.

Last week's cover note re bikes on trains drew a mixed bag of responses. On the positive side, a friend with NS DOT refers to a web page (ttp:// on the subject. In part, the NC DOT site tells bicyclists, "Specially fitted bike racks in the baggage car [of The Piedmont] can carry up to 20 bikes at a time unboxed." The Piedmont is a train sponsored and funded in part by North Carolina. Reservations must still be made by calling Amtrak and there is a $5 per bike fee. I tried it and found that although it took four minutes to get an agent the call was handled promptly and courteously.

A chap who lives just outside Philadelphia has kind things to say about SEPTA crews and bikes; however, a reader in NYC notes, "Metro North treats bikes badly. While in technical compliance, bikes are still discriminated against, especially in the attitudes of the train crew, who look upon bikes as an excuse to play tough guy." Like we said before, it's a cultural thing indicating a lack of leadership from the top.

(FWIW, the federal bike-rail references may be found in "The National Biking and Walking Study" from DOT. Specifically, page 46 under Federal Action Item #2, "Fully integrate consideration of bicyclist needs into operational policies and procedures...Encourage liberalized policies by Amtrak for bicycle carriage...")

--Roy Blanchard

P.S. My good friend Bill Vantuono, Editor of Railway Age, and father of twins, has finished his first book, All About Railroading, from Simmons-Boardman Books. The book is written for young adults who want to learn about today's fascinating, high-tech railroad industry. It illustrates every aspect of the North American railroad industry with copious use of photographs, charts, and drawings. There's even a glossary of railroad terms and an information resource directory listing dozens of websites.

Says Bill, "There's lots of books on trains, yet too few the story of today's railroad industry and the many things in their everyday lives are shipped by rail. Kids need to learn that automobiles and airplanes aren't the only way to travel and that modern train control technology makes the railroad one of the safest modes of transportation. It's my hope that All About Railroading will help inspire the next generation of railroaders."

For details, go to

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