It's now time for up-sizing—again

Railway Age, Dec, 2003 by William C. Vantuono

"Is it now time for up-sizing? Yes, it is. It is now time for aggressiveness on the upside. The people who have run America's railroads for the past decade have been expert at down-sizing. Many of these down-sizers are still running things. The question inevitably is, can they be as good at growing the business as they were at cutting facilities and people? It's going to be interesting, watching them going from surgery to healing to growing."

Gus Welty, our late senior editor, said that in Railway Age exactly 10 years ago in a December 1993 cover story (p. 32). If Gus were around today, he'd probably say, in his distinctive, tough-as-nails-journalist drawl, "Well, I'm still watching."

As this year's December cover story (p. 25) indicates, it looks like better times--and perhaps a few solid opportunities for growth--will arrive in 2004. This is a recovery though, that's had a few false starts, so cautious is the tone among railroaders and suppliers. As Norfolk Southern's David Goode said at a recent Wall Street analyst presentation: "This is not a hockey stick recovery. It's one that requires concentration and care in attracting business and discipline pricing. We are adhering to our schedules and our plan and will continue to sell our service to customers at rates that appropriately reflect the current market value of rail service and the associated costs."

(Did Goode mean a recovery as fast as a stroke of a hockey stick, or did he mean a recovery from getting hit with a hockey stick?)

How does Wall Street define growth for our industry? "We investment types tend to focus on earnings per share, so estimates of growth emphasize that measure," says one analyst. "There are several ways to achieve growth, of course, revenue growth being the best, and expense cutting--well, let's just ask folks not to whine too hard about this one. The other avenue is financial engineering: buying back stock, borrowing to finance capital spending, etc."

Railroad stocks have been looking good to Wall Street in recent weeks. For example, UBS Warburg, opining that "things can only get better," is recommending that investors buy Class I shares, based on expectations that traffic volumes will rise with the rebounding economy. Citing 2003's high fuel prices and operational glitches, UBS said, "Some bad things will no doubt happen in 2004, but [the railroads] would be hard-pressed to experience a worse run of luck/judgement." UBS upgraded UP, NS, and CSX to "buy" from "neutral." Though it didn't upgrade BNSF "because of a weak business mix," it raised the railroad's target stock price by 7%.

So, here comes more business our way. Can we handle it, to paraphrase an old UP marketing slogan? Wall Street analyst Tony Hatch puts it this way in our cover story: "After railroad service metrics pick up, the real challenge for the major carriers will be to take advantage of the situation they have painstakingly placed themselves in, and profitably take the share the market wants to give them."

I'd rather not wait until 2013 to see what happens.

Dangerous toy tricks: As a parent of two young boys, I've cringed at quite a few TV commercials that, for lack of better words, are just plain dumb. Very little on TV these days has surprised me, until I saw an advertisement by Toys "R" Us--on, of all channels, Toon Disney--that shows kids that racing a train to a grade crossing is a cool thing to try.

The toy, which is advertised as being made by a company called Fast Lane exclusively for Toys "R" Us, is called the "Super Slicks Mini RC." The commercial shows two young boys racing these miniature radio-controlled cars alongside a speeding HO-scale CSX model train. The camera angle then switches to a 3/4 view of the oncoming train. The cars fly through a grade crossing a split second before the train can hit them. The boys then jubilantly pump their fists in the air. Fun, huh?

One wonders whether youngsters watching this stuff might, when they're a little older, attempt to perform this stunt in a real car, with a real train, and wind up riding in the back of a hearse. I can't imagine CSX being too thrilled, either.

My four-year-olds, who love trains and who are quite conscious of railroad safety, have seen this ad several times. They haven't asked for these cars for Christmas. Instead, they want to know, "Did Daddy fix it yet?" (meaning, did he get the commercial pulled?).

Let's hope Operation Lifesaver, with some help from outraged railroaders, can nip this one in the bud.