Railroads Look to the Public's Purse to Fund Their Expansion

Thursday, September 18, 2008 by: Barbara L. Minton
Tags: railroads, health news, Natural News

(NewsTarget) We hear a lot about food shortages, but in the U.S. there is plenty to go around. It just can't be moved quickly enough. Grain is being left to rot on the ground because of crumbling infrastructure, particularly of the rails. As a result, the railroads will need massive cash infusions to bring the infrastructure up to speed. If Americans have a dime left in their pockets after bailing out those involved in the collapse of the mortgage industry, they will most likely have to give it to the railroads.

Ground work is now being laid for public subsidy to the rails. In a recent CNBC televised interview, Oklahoma Wheat Commissioner Mark Hodges talked about the need for America to compete in the global economy for agriculture based on price, quality and service, with quality being paramount. When the crops mature and there is no quality transportation system in place to move them to market, the quality can only go down.

Once grain is harvested it is delivered to silos commonly referred to as elevators, where the grain is dumped. The people who manage these elevators are experts at keeping grain in good shape, so while grain is stored in the elevators it is not a problem. But once it leaves the elevators it must be sped quickly to its destination. As harvest moves from start to finish, each additional load of grain has to move out of the elevators and into export locations or mills in order to accommodate the new loads coming into the elevators from the fields. The principal way this is done is by train or truck. If the trains or trucks are not available, the grain is going to end up being left on the ground to rot. This is already happening. When the grain is put on the ground it is subject to the elements and there is about a 10 percent loss.

The rush to join in the globalization frenzy is to blame for this loss of produced grain according to Peter Freeman, Executive Director of the Agricultural Transport Coalition. For more than two decades America has had an ocean and rail transportation system that has been devoted to handling imports coming to the U.S. from Asia, such as toys, apparel and consumer electronics. But things have changed.

The dollar has fallen in value, and the people of Asia are in a better position to purchase more and better food from the U.S. And as the earnings of Asians have risen, there is more of a demand for goods made in Asia to remain at home and fulfill the burgeoning needs of Asians. This shift in shipping trends is one that Freedman sees continuing long into the future.

This new trend calls for the railroads and ocean carriers to look not only at U.S. consumer imports for their revenues, but to be able to provide the service needed to come into the U.S. warehouses and populated areas to pick up the agricultural products produced in the U.S. and to go to Asia loaded with these products. To do this will require more railroads allocating more lines to more places where lines have previously been abandoned in the rush to bring imports into the U.S.

Reinstating this previously suspended service and adding to it, along with getting ships reallocated in U.S. export areas to service and handle the massive volume of U.S. exports expected would add 20 to 30 percent to the current export figures. It would also allow for almost all agricultural production to be transported with very minimal spoilage.

The railroads have enough track and cars to handle current demand according to John Gray, Senior Vice President of American Association of Railroads. The rail industry has handled 20 percent more grain in the past few years than handled previously, mostly for the export market. Railroads have invested 40 billion dollars in infrastructure and equipment over the last 5 years. But to handle more shipments in the future will require continued investment. He sees 150 billion dollars needed over the next 30 years to get the railroads ready for their future. The railroads will be able to fund about 70 percent of that figure, but there will be a need for the public to participate to the tune of 45 billion dollars in investment tax credits.

Meanwhile, investment gurus Warren Buffett and Carl Icahn have been busy buying up shares in some of the U.S. freight hauling railroads, confident that no new railroads will try to create a competing network -- the cost would be prohibitive. Buffett's investment vehicle, Berkshire Hathaway now owns 18% of Burlington Northern Santa Fe, as well as shares in Norfolk Southern and Union Pacific. Icahn has invested in CSX.

Buffett and Icahn see the powerful trends that are working for the railroad industry now and in the future. As diesel prices continue to increase, shipping by rail instead of truck will only become more attractive. And not the least of these trends would be the influx of public money in the form of the predicted tax credits. An investment formula that has the public footing the bill while the shareholders collect the profits has always been an appealing one to investors.

Source:

Associated Press, "Buffett Climbs Aboard Railroads"

"Why Warren Buffett Is Buying Railroads" Money

About the author

Barbara is a school psychologist, a published author in the area of personal finance, a breast cancer survivor using "alternative" treatments, a born existentialist, and a student of nature and all things natural.