Climbing aboard

It may seem peculiar to many in the present era, but there is underway a revival of the railway industry. What is so surprising is that it has taken so long for everyone to climb aboard.

Two investment tycoons, Warren Buffet and Carl Icahn, have taken large stakes in railway companies. That has been a belated response to the fact that this is an industry in which share prices have more than tripled in the past four years.

It has been a long time since railways have been so fashionable as a worthwhile sector of the economy. In the aftermath of the First World War, almost all investment portfolios included representation in railway companies. The U.S. Dow Jones Index of 30 Industrials contained shares in the then-blue-chip stocks of Pennsylvania Railroad and The New York Central, while the Toronto Stock Exchange Index took in the Canadian Pacific Railway. The first two cited above disappeared into bankruptcy, and the CPR underwent a drastic overhaul.

Railroads’ share of inter-city traffic in North America declined from 75 per cent in 1929 to 58 per cent by 1980, primarily because of competition from trucking and roads. In the 1970s, about one-third of the leading railways were losing money. From then on, restructuring, consolidation, cutbacks, and public anger at the loss of railroad facilities, led to a new phase in this industry.

Now the profits are pouring in. Strong demand for coal, agricultural products, and container services, entailed trains running at capacity. The heavy volume plus price increases and cost reductions, have led to surging profit expansion. Rail equipment is being stretched. Also, as people have become conscious of environmental dangers and concerns, numbers have abandoned their automobiles in favour of rail passenger trains; that traffic is surging.

All of that evokes memories of earlier days, which to some extent, never disappeared. Youngsters always have been fascinated by trains, and at most railroad stations children were waiting for a train to appear.

What explains this renaissance? While transportation development over the past 40 years has concentrated on road and air means of travel, it became apparent that passenger rail service excelled in a variety of markets. Air service has become more unpleasant and time-consuming, with long check-in requirements and delays at air terminals. Then too, with the burgeoning Asian trade, demand for commodities shipped to the Pacific region has provided an additional boost for freight delivered over long distances.

Furthermore, now it is recognized that all transport is subsidized in North America, so the myth that railroads should pay their own way is being dispelled.

Hence, the return of the railway is unqualified good news for all of us.



Bruce Whitestone