Csx Railroad Investments Trailing Only Union Pacific

CSX Railroad Investments

Trailing only Union pacific and Burlington Northern Santa FE, CSX Railroad is the nation's third largest rail carrier by revenue (nine billion in 2009) according to Fortune 500 (CNN Money 2010). In fiscal year 2009 the company spent 1.4 billion dollars on capital projects designed to "create competitive advantages for customers, grow the business, create jobs and deliver shareholder value" (Progressive Railroading. October 13, 2010). In 2010-2011 "as part of their long-term focus, CSX will invest $1.7 billion annually to maintain their network, comply with new government requirements, install new technology, purchase railcars and build or expand intermodal terminals" (CSX Annual Report 2009). With the resurgence of railroad as a cost effective and efficient method of cargo transportation, CSX understands the strategic importance of capital spending in its efforts to gain competitive advantage in the industry. With that in mind CSX has initiated two projects which require significant capital expenditures both in the short and long run necessary to increase capacity and grow market share. The two projects (National Gateway and Positive Train Control System- PTC) are pertinent examples of how CSX must budget resources for strategic improvements as well as for maintaining compliance with federal regulations.

National Gateway is "a multi-million dollar public-private infrastructure initiative, which will significantly improve the efficiency of the freight network between the Mid-Atlantic ports and the Midwest" (CSX Annual Report 2009). The program which encompasses six states and the District of Columbia is designed to "provide higher clearances under bridges and through tunnels for trains to move double-stack containers" (CSX Annual Report 2009). In addition CSX would build or expand several high-capacity, job-producing intermodal terminals where product shipments are exchanged between trucks and trains" (CSX. May 1, 2008). This initiative is expected to significantly increase CSX's capacity to haul freight through greater efficiency via an increase in cargo transport per train unit. National Gateway "enables each train to carry about twice as many cargo boxes; and trains can move a ton of freight 423 miles on a single gallon of fuel, and can carry the load of more than 280 trucks," (CSX. May 1, 2008). CSX anticipates that the increased cargo loads will translate to "double-digit earnings per share growth for 2010" and beyond. (CSX Annual Report 2009).

The cost of National Gateway is quite expansive and is estimated to cost 842 million dollars over a nine-year period (2007-2015). These costs will with be spilt between federal monies of 258 million (a portion, 98 million coming from stimulus spending, state funds of 191 million, and a CSX contribution of 393 million (CSX National Gateway. June 2010.). Because of its strategic importance CSX has determined that the project meets or exceeds their defined hurdle rate and will deliver shareholder returns over the coming quarters and fiscal years.