U.S. railroads to set records for capital spending in 2012, AAR says

"Big seven" to spend $13 billion this year.

By Mark B. Solomon

The largest freight railroads operating in the United States plan to spend a record $13 billion in 2012 on capital expenditures to improve their networks, the Association of American Railroads (AAR) said today. Last year, the rails spent an estimated $12 million on capital improvements, AAR said.

Leading the way is Union Pacific Corp., which has budgeted $3.6 billion for capital expenditures, a one-year record for any railroad. UP budgeted $3.3 billion in 2011, but actually spent slightly less than that, according to Tom Lange, a company spokesman.

UP's chief rival in the West, privately held Burlington Northern Santa Fe Railway (BNSF), budgeted $3.5 billion for 2011, but never disclosed how much it spent. Krista York-Woolley, a BNSF spokeswoman, said the company hasn't disclosed 2012 capital expense estimates but said that expenditures would run close to the 2011 estimates.

The two big Eastern railroads, CSX Corp. and Norfolk Southern Corp., also raised their capital expenditure budgets for 2012. Norfolk Southern plans to spend $2.4 billion, up from $2.1 billion. CSX's increase will be more modest, up to $2.5 billion from $2.25 billion.

Kansas City Southern Railway, the fifth large U.S. railway though not officially in the same "Class I" category as the other four, said 2012 capital expenditures would be equivalent to about 17 to 18 percent of annual revenue, a similar ratio as in 2011. Kansas City Southern's 2011 revenues totaled approximately $2.1 billion.

The AAR numbers include the U.S. operations of Canadian National Railway Co. (CN) and Canadian Pacific Railway (CP). CN's expenditures are planned to be $1.75 billion Canadian dollars. CP's 2012 capital expenditures are expected to come in at about $1.2 billion Canadian dollars.

Rail capital expenditures are divided into eight areas: roadway, infrastructure, facilities and terminals, locomotives, freight cars, technology, "Positive Train Control"—a system of monitoring and controlling train movements to provide increased safety—and "other projects."

In recent years, railroads have spent about 17 percent of their annual revenue on capital expenditures, AAR said. By contrast, the typical U.S. manufacturer spends roughly 3 percent of its revenue on capital expenditures, according to the group.

In addition, the railroads this year expect to add 15,000 workers to their payrolls, both as replacements for retiring workers and to fill new positions.

"As the demand to move more freight by rail increases and a significant percentage of the rail workforce hits retirement age, freight railroads are continuing to add and fill jobs nationwide," said Edward R. Hamberger, AAR's president and CEO, in a statement. "These jobs are well paying, highly skilled careers that cannot be offshored."

Freight railroads employ about 175,000 nationwide, according to AAR data.

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