My question is, what can you tell us about your views on the future profitability of the railroad industry? And what might make that more exciting going forward versus what it’s done historically? Thank you.
Yeah. Thank you.
I don’t think it will be a lot more exciting. But the relative — the competitive position of the rails has improved somewhat from, really, not a very good competitive position 20 or 25 years ago.
There’s been a lot of progress made on the labor front. They benefit in their competitive position vis-a-vis trucking as oil prices go up.
Higher diesel fuel, obviously, raises costs for rails, but it raises costs for their competitors, the truckers, by probably a factor of close to four compared to how it hurts them. And there isn’t a whole lot of new capacity being created in the rail industry.
So what was a terrible business 30 years ago, and it was operating under regulation — it’s still under — operates under the threat of reregulation, which has a tempering effect on their pricing power — but it’s a better business now.
It will never be a sensational business. It’s a very capital-intensive business. And when you put tons of capital out every year, it’s very hard to earn really extraordinary returns on capital.
But if they earn a decent return on capital, it can be a good business over time, and it can be a lot better business than it was in the past.
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Railroad business will never be a sensational business because it is capital-intensive and when you put tons of capital out every year, it's very hard to earn really extraordinary returns on capital.