JACKSONVILLE, Fla. – July 22, 2015 – Railroads that are revenue adequate and earn their cost of capital should not be punished by capping their shipping rates, which would discourage the substantial and mostly private investment in the nation’s critical rail transportation infrastructure, Fredrik Eliasson, CSX executive vice president and chief financial officer, told the Surface Transportation Board.

“Revenue adequacy should be a benchmark of railroad health, and not a tool for re-regulation,” Eliasson said. “To apply revenue adequacy to companies in competitive markets as a rationale to cap rates is to diminish incentives to aspire to innovation, efficiency and quality service. Railroads today are healthier and benefits are flowing to customers, shareholders, employees and the communities we serve. Let’s keep it that way.”

Eliasson urged the Board to promote re-investment in locomotives, freight cars, terminals, and tracks, and to make railroads more attractive to shareholders, who own the publicly traded companies and invest in them with the expectation of a competitive return.

The Staggers Act that partially deregulated railroads in 1980 balanced regulation and free market incentives, which gave U.S. railroads the ability to re-invest and today are “the envy of the world.” At the same time, shipping rates on an inflation-adjusted basis declined. That makes rail attractive to customers and policy makers, who see public benefits in converting freight from congested highways to fuel-efficient rail.

The STB evaluates each railroad’s revenue adequacy, or its ability to earn a return equal to the industry’s average cost of capital. Eliasson urged commissioners to consider four pillars of any revenue adequacy policy:

• Measure progress, don’t constrain it: any regulatory policy that employs revenue adequacy should view it as a barometer of industry health and regulatory policy success – not an arbitrary basis to limit pricing and investment.
• Address replacement cost imperative: value rail assets on the basis of what it would cost to replace them, not their depreciated value. Eliasson cited a Mississippi rail bridge, built in 1967 and valued at $2 million, which cost CSX more than $75 million to replace when destroyed by Hurricane Katrina in 2005.
• Promote differential pricing: Preserve railroads’ ability to price based on the marketplace value of service, which all successful businesses do.
• Ensure free market results to foster re-investment: CSX has devoted an average of 60 percent of its discretionary cash to infrastructure and equipment upgrades over the last 10 years to support freight movement from U.S. manufacturers to consumers here and abroad.

The pillars “form the underpinnings of any successful business,” Eliasson said. “Absent any of the four, we cannot be successful. It is our contention that any sound regulatory policy must incorporate these pillars.”

About CSX
CSX, based in Jacksonville, Florida, is a premier transportation company.  It provides rail, intermodal and rail-to-truck transload services and solutions to customers across a broad array of markets, including energy, industrial, construction, agricultural, and consumer products.  For nearly 190 years, CSX has played a critical role in the nation’s economic expansion and industrial development.  Its network connects every major metropolitan area in the eastern United States, where nearly two-thirds of the nation’s population resides.  It also links more than 240 short-line railroads and more than 70 ocean, river and lake ports with major population centers and farming towns alike.  More information about CSX Corporation and its subsidiaries is available at www.csx.com. Like us on Facebook (http://facebook.com/OfficialCSX) and follow us on Twitter (http://twitter.com/CSX).

View Eliasson’s full testimony (PDF) 
View CSX’s STB slide presentation (PDF) 

Contact:
Gary Sease
(904) 359-1719