Lessors of Railroad Property

SIC 6517

Industry report:

Establishments in this classification are primarily engaged in leasing railroad property.

Industry Snapshot

This industry consists of companies that own and lease property on which railroad tracks are built and operated as well as surrounding land and facilities. Although sometimes not treated as such, in the United States railroad tracks are considered private property. By law, anyone wanting to use land on which railroad tracks run must obtain a temporary use agreement or a short-time or long-term lease from the railroad that owns the property. The largest owners of railroad property in the early 2010s included large Class I railroad companies such as Union Pacific, BNSF Railway (a subsidiary of Burlington Northern Santa Fe), CSX, and Norfolk Southern.

The leasing of railroad property makes up only a small segment of the railroad industry in general. For all major Class I railroads in 2009, less than 5 percent of the total land the companies owned was leased to others. Because railroad companies are not required to report on this sector of their business, statistics are not readily available. However, according to BNSF's 2009 Class I Railroad Annual Report, of the $3.8 billion the company earned in net revenues in 2009, $12.8 million came from the lease of property and equipment. This was an increase from $12.2 million in 2008.

Often the lessees of railroad property are other railroads that want access to locations that can be reached only by using another company's tracks. Sometimes companies use an agreement referred to as trackage rights. If a company has trackage rights, it can operate over certain sections of track even though the owning company retains all rights to that track. Railroads also lease property other than that on which tracks run, such as shipping yards, warehouses, and other facilities. For example, at year-end 2009 BNSF had 8 years left on a lease with Chevron Phillips Chemical Company for a storage facility, and Union Pacific offered leases on land for mineral exploration and mining.

Background and Development

The history of the railroad in the United States dates back to 1826, when the first line of rail was laid in New England. By 1850, 9,000 miles of track had been laid. Between 1850 and 1860, this figure tripled, and by 1869 the entire country was connected from coast to coast by rail. The industry reached its peak in terms of miles of rail around 1930, when an estimated 430,000 miles of track were in use. However, competition from trucks and airlines in the later twentieth century caused a decline in the industry, and several companies went bankrupt in the 1970s. The merger of the failed Milwaukee Road into the Soo Line Railroad in 1986 was one of the largest railroad bankruptcy filings in U.S. history. Mergers and acquisitions continued throughout the late twentieth century, including Union Pacific's purchase of Southern Pacific, founded in 1865, in the mid-1990s. Although the U.S. government passed the Rail Passenger Service Act in 1970 and created Amtrak to promote rail passenger travel, freight remained the largest sector of the railroad industry in the early 2010s. By the beginning of the twenty-first century, just under 140,000 miles of freight railway were in operation, according to the Association of American Railroads (AAR).

Current Conditions

According to the AAR, 565 freight railroads operated in the United States as the first decade of the twenty-first century came to a close. In many cases two or more railroad companies shared ownership of certain rail lines. For example, Union Pacific and BNSF each owned 50 percent of the Alameda Belt Line. Six railroad companies owned the Belt Railway of Chicago.

The companies that owned railroad property were also responsible for maintenance of that property. Related expenses included investing in such structures as bridges, tunnels, trestles, and culverts; replacing worn-out or damaged ties and track; installing fences, signs, and snowsheds; and a variety of other endeavors meant to keep the railroad in safe and operable condition.

Safety, both of employees and the public, was a serious issue for railroad companies in the early twenty-first century. According to Dennis Jenson of the Normal, Illinois, police department, 517 people died while trespassing on railroad property in 2007. Railroad companies such as Union Pacific used various media to inform Americans about the dangers of being on railroad property other than at public crossings.

Industry Leaders

Union Pacific (UP) of Omaha was one of the largest railroad companies in the United States as well as one of the largest private U.S. landholders in 2010. UP owned 26,000 miles of track and leased or had trackage rights for another 6,000 miles in 23 western states. With 43,531 employees, UP recorded revenues of $14.1 billion in 2009.

Burlington Northern Santa Fe (BNSF) of Fort Worth, Texas, was UP's closest competitor. BNSF owned about 32,000 miles of freight rail tracks in 28 states in the West, Midwest, and South, as well as Canada, in 2009. Warren Buffett's Berkshire Hathaway owned 23 percent of BNSF in the late 2000s and purchased the remaining 77 percent in February 2010. In 2009, BNSF employed 35,000 people and had revenues of $14.0 billion.

CSX of Jacksonville, Florida, was another leader in the industry in the early 2010s. CSX operated mostly in the eastern United States, with about 21,000 miles of freight track in 23 states and two Canadian provinces. The company's rail division, CSX Transportation, accounted for about 90 percent of total revenues, which equaled about $9.0 billion in 2009. Employment totaled 30,088.

Norfolk Southern of Norfolk, Virginia, operated in 22 eastern, southeastern, and midwestern states and Ontario, Canada. The company, which employed 28,593 people in 2009, owned 16,000 miles of track and leased or had trackage rights to another 5,000 miles. Revenues for the firm in 2009 were estimated at $7.9 billion.

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