December 7, 2011
Written by: Janet Doré, The Doré Group (San Diego, CA)
Ask any train-obsessed boy about trains and he’ll enthusiastically tell you that they’re a really cool way to move stuff and people from here to there. Ask any grown up train buff and you’ll be introduced to Richard Trervithick and walk away knowing more than you ever wanted to know about tanks, boilers, cylinders and driving wheels. Read on and you’ll be able to have your very own reasonably educated conversation about the U.S. rail transportation industry.
According to IBISWorld, the world’s largest independent publisher of U.S. industry research, the U.S. rail transportation industry includes both passenger and freight trains (consisting of national, regional and local railroads but excluding scenic/sightseeing trains, street railroads, commuter rail, and rapid transit systems). The primary industry products/services are bulk freight (raw materials and consumer goods), intermodal containers (goods transported in large containers via multiple shipping modes), passengers (homosapiens), and switching/terminal railroad services (i.e., packaging, freight forwarding, customs brokerage, etc.
Here are some pertinent industry highlights to ponder, put to immediate use, or file away for future conversations:
- Because people “need” lots of “stuff”, freight service accounts for 95% of rail transport in the U.S.
- Freight trains are responsible for moving 43% of our “stuff” across more than 140,000 miles of track, making them a crucial component of our economy.
- More than 90% of freight railroads are privately owned, even holding title to the tracks they travel on, and (surprisingly) receive very little government subsidies.
- Before 1970, freight trains were obligated to transport passengers. With the passage of the Rail Passenger Service Act of 1970, Amtrak was born and is now the only nationwide transporter of people (and their personal “stuff”). The freight railroads were so pleased about this legislation that they happily donated passenger equipment and more than $200 million in capital to assist the federally-owned and subsidized Amtrak system on track.
- Coal (used to generate electricity) accounts for 45% of “stuff” transported, followed by agricultural/food products (13%) and chemicals/petroleum (12%).
- The latest estimates indicate total industry revenue of $76.3 billion and $6.9 billion (9%) profit. The largest railroads (categorized as Class 1 systems) account for 80% of revenue with the trend toward consolidation of industry players.
- The U.S. is the only industrialized nation without a nationwide high speed rail (125+ MPH) system. Currently, 15 countries have a system already in place and others are in the planning or construction stage. (Does it surprise you that China’s has the largest with more than 5,000 miles by 2020 and a goal for 10,000 miles?)
- California continues to shine at spending money with the recent passage of a $10 billion bond to construct the first phase of a $40 billion high speed rail system. This is more than any other U.S. state has invested in high speed rail transportation to date. The state-of-the-art system will eventually span 800 miles resulting in a travel time of only 2-1/2 hours between San Francisco and Los Angeles at speeds up to 220 miles per hour.
- Singapore has only one train station.
With the exception of 2009, a sickly year for most every industry, the rail industry has been experiencing a “global renaissance” in recent years mostly due to its cost effectiveness and fuel efficiency. Increases in freight traffic and profit are continuing today stimulating investment in the industry. As the labor market improves, consumers spend more, and manufacturing increases, IBISWord projects an average annual increase in revenue of 3.7% to $91.5 billion in 2016.
The following are some of the existing railroad operators in the U.S.:
- Burlington Northern Santa Fe Corporation (26.8% market share)
- Union Pacific Corporation (24.3%)
- CSX Corporation (15.7%)
- Norfolk Southern Corporation (14.1%)
- National Railroad Passenger Corp / Amtrak (3.6%)
IBISWorld rates the rail transportation industry as follows:
- Life Cycle Stage: Mature
- Revenue Volatility: High
- Capital Intensity: Medium
- Regulation Level: Medium
- Governmental Industry Assistance: Medium
- Technology Change: High
- Barriers to Entry: High
- Industry Globalization: Low
- Competition Level: Medium
The California High Speed Rail Authority is responsible for designing, constructing, and eventually operating the rail system. They awarded a contract to JV Partners to study and design the routes through Central California (from Fresno to Palmdale). JV Partners subcontracted with Bender Rosenthal, Inc., a commercial and right-of-way valuation group based in Sacramento, to obtain right-of-entry permits from property owners along the study route. Bender Rosenthal solicited bids to provide “On Call Appraisal Review”, “On Call Appraisal”, and “On Call Specialty Appraisal” services to facilitate this process. After receiving an “incredible response” to their RFP solicitation, Bender Rosenthal recently announced their short list of approved vendors. The Doré Group is proud to be one of 39 companies to be included in the selective group of experienced “On Call Appraisal” professionals. Beginning this fall, and extending through mid-year 2012, all of the selected firms will work closely with Bender Rosenthal in the complex planning phase of the high speed rail system.
With more than 28 years of experience in real estate valuation and consulting, The Doré Group’s skilled and proactive team has the expertise to handle the most complex of assignments. This complimentary article is just one of the many ways we strive to assist our clients in navigating the real estate industry. We also welcome you to submit a personal query via our website or email our founder, Lance W. Doré, MAI, FRICS, directly:
(Note that in the United States, appraisal assignments are required to satisfy the Uniform Standards of Professional Appraisal Practice (USPAP). Therefore, we reserve the right to defer certain requests based our adherence to federal standards and industry ethics.)