Pandemic Suppressing Some Rail Capital Projects

An economic downturn combined with stay home orders designed to stop the spread of COVID-19 has resulted in a significant scaling back of railroad capital projects this year.

The National Railroad Construction and Maintenance Association said a quarter of its members reported seeing a decrease in business although a majority said they have experienced no change.

Matt Ginsberg, who heads NRC’s management and lobbying firm, said a complete picture of how the pandemic has affected capital projects won’t be available until June and July during the height of construction season.

Some freight railroads have already announced cuts in capital spending with Norfolk Southern saying it will cut its capital program by $500 million.

Union Pacific announced a 6 percent reduction while CSX spoke of reducing its capital spending.

Yet Canadian Pacific said it plans to forge ahead with its planned $1.6 billion capital spending plans for this year.

For some railroads and transit systems, the pandemic has provided an opportunity to increase planned work.

A downturn in passenger traffic that prompted Amtrak to suspend the operation of dozens of trains, particularly in the Northeast Corridor, has also led to the passenger carrier accelerating the pace of some repair and maintenance projects.

One of those is in Michigan where 19 miles of rail have been replaced between New Buffalo and Galien on an Amtrak-owned line.

Workers on the Amtrak Michigan Line improved 11,088 feet of rail in one night by laying 4,615 feet of rail.

Service reductions have allowed surfacing crews to increase their nightly track outages, which allows them to surface greater sections of track at a time.

Additional track inspections also have also been made in Michigan and Indiana on the Amtrak Michigan Line which begins in Porter, Indiana.

One challenge of continuing or speeding up the pace of construction work is that there are fewer hotels in which to house construction workers temporarily and fewer restaurants open at which they can eat. Fast food and gas station restrooms may be inaccessible.

Canadian National CEO J.J. Ruest said at investor conferences this week his company would continue with capacity expansion projects as it looks toward the longer term even as it trims other capital spending.

CN did reduce its capital budget due to the pandemic, trimming it to $2.9 billion from a planned $3 billion.

But Ruest said CN spends 20 percent of its revenue on capital expenses, putting it at the high end of the industry.

Other railroads have reduced capital spending to 14 percent of their revenue.

“That’s not what we want to do,” Ruest said. “We believe the pandemic will change the world, but there is a world beyond the pandemic.”

Reust said during the Bank of America and RBC investor conferences that CN doesn’t want to get caught short of capacity as it did in 2017 and 2018.

He said CN suspended expansion projects during a traffic downturn in 2016, then lacked the track, crew, and locomotive capacity required to handle an unexpected surge of traffic in Western Canada that began in 2017 and continued into 2018.

“Having learned from that, that’s why we continue to expand some capacity . . . right now,” Ruest said.

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November 2023