STB: Five Class I’s Revenue Adequate for 2020

STB determined that those railroads achieved a rate of return on net investment (ROI) equal to or greater than the agency’s calculation of the average cost of capital for the freight rail industry, which for 2020 is 7.89%. STB last month reported the annual cost of capital, which represents the STB Office of Economics’ estimate of the average rate of return needed to persuade investors to provide capital to the industry.

By comparing STB’s cost of capital figure to the 2020 ROIs—calculated from data reported in the carriers’ Annual Report R-1 Schedule 250 filings—a revenue adequacy figure has been determined for each of the Class I’s in operation as of December 31, 2020.

Here are the 2020 Class I ROIs (railroads in bold are revenue adequate):

  • BNSF: 11.60%
  • CSX: 11.35%
  • Grand Trunk Corp. (the U.S. affiliate of CN): 7.20%
  • Kansas City Southern: 8.06%
  • Norfolk Southern: 7.52%
  • Soo Line (the U.S. affiliate of Canadian Pacific): 10.68%
  • Union Pacific: 14.44%

STB also found that five Class I’s were revenue adequate for 2019. They were BNSF, CSX, Norfolk Southern, Soo Line and Union Pacific. STB’s 2019 railroad cost of capital was 9.34%. Following are the 2019 Class I ROIs (railroads in bold were revenue adequate):

  • BNSF: 12.04%
  • CSX: 12.84%
  • Grand Trunk Corp. (the U.S. affiliate of CN): 7.47%
  • Kansas City Southern: 6.20%
  • Norfolk Southern: 11.59%
  • Soo Line (the U.S. affiliate of Canadian Pacific): 11.34%
  • Union Pacific: 15.55%

In contrast, STB determined that three Class I’s—CSX, Soo Line and UP—were revenue adequate for 2018; the cost of capital for the year was 12.22%. Following are the 2018 Class I ROIs (railroads in bold were revenue adequate):

  • BNSF: 11.89%
  • CSX: 13.18%
  • Grand Trunk Corp. (the U.S. affiliate of CN): 7.69%
  • Kansas City Southern: 8.03%
  • Norfolk Southern: 11.63%
  • Soo Line (the U.S. affiliate of Canadian Pacific): 13.49%
  • Union Pacific: 15.80%

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