Railroads’ Problems are Hyperloop’s Opportunity

Companies only adopt radical new technologies under two circumstances: when they have visionary leadership or cannot make money with their present busy models. The second set of circumstances might drive America’s railroads to embrace the Hyperloop.

North America’s Class 1 Railroads; or major rail operators, are facing a serious revenue and income drop. Largely because demand for coal, one of the main commodities they haul has plummeted in recent years. U.S. exports of coal fell by 65% between 2012 and 2016. To make matters worse US coal production; and presumably the amount of coal hauled by railroads, fell by 10% in 2015.

Big Rail is in Big Trouble

Almost all the big rail operators are facing a struggle to maintain their revenues and income. The latest financial numbers; those from June 30, 2016, clearly show that big rail is in a lot of trouble:

• The Union Pacific Railway (NYSE: UNP); which operates transcontinental and other lines in the Western USA, saw its revenues fall by $3.01 billion between June 2015 and June 2016. Union Pacific; which is also known as the UP, reported revenues of $23.38 billion in mid-2015 and $20.37 in summer 2016.

• During the same period the UP saw its net income drop by $781 million. Falling from $5.156 billion in mid-2015 to $4.375 billion a year later.

 

• The CSX (NASDAQ: CSX); which provides freight rail service on the East Coast of the United States experienced a revenue drop of $1.46 billion. CSX reported revenues of $12.5 billion in June 2015 – that fell to $11.04 billion a year later.

 

• CSX’s net income fell by $221 million during the same period. The railroad reported a net income $1.995 billion in June 2015 and $1.774 billion in June 2016.

 

• The Norfolk Southern (NYSE: NSC); which operates railroads in the Southeastern and Midwestern United States, lost $1.06 billion in revenues between June 2015 and June 2016. Norfolk Southern reported $11.17 billion in revenue in mid-2015 and $10.11 billion in revenue a year later.

• Norfolk Southern also lost $208 million in net income during the same period. The railway had a net income of $1.831 billion in June 2015 that dropped to $1.606 billion a year later.

 

• The Kansas City Southern (NYSE: KSU); the only railroad that operates in both the United States and Mexico, saw its revenues fall by $148 million. Kansas City Southern reported revenues of $2.509 billion in June 2015 and $2.361 billion a year later.

 

• Interestingly Kansas City Southern’s income actually rose slightly. It reported an income of $491.70 million in June 2015; that rose to $498.8 million a year later. That made for a modest gain of $7.1 million.

• The Canadian Pacific Railway (NYSE: CP); Canada’s oldest transcontinental line, saw its revenues drop by $915 million. The CP reported $5.769 billion in revenues in June 2015 and $4.854 billion a year later.

 

• The Canadian Pacific lost $206 million in net income over the same period. It reported a net income of $1.34 million in June 2015 and $1.134 billion a year later.

 

• The Canadian National Railway or CN (NYSE: CNI); the CP’s competitor which also operates a line between Chicago and New Orleans in the United States, saw its revenues fall by $1.532 billion. The CN reported $10.73 billion in revenues in June 2015 and $9.198 billion a year later.

 

• The Canadian National also saw its net income fall by $9.8 million. The CN reported a net income of $2.81 billion in June 2015 that fell to $2.717 billion a year later.

Is Hyperloop Railways’ Future?

Data provided by ycharts indicates that the publicly-held railways’ current business model of reliance on hauling bulk materials like coal might not be sustainable. This provides an interesting opportunity for Hyperloop because many of the railroads’ rights of way would be ideal Hyperloop routes.

It might even be possible to construct Hyperloop in such a way as to not interfere with existing rail operations. Leasing or selling right of way to a company like Hyperloop One might help a railroad generate much needed revenue.

Another opportunity Hyperloop presents to railways is to get back into the passenger and package-hauling business. By using Hyperloop the railroads would be able to compete directly with airlines and airfreight companies. Since they would be able to move more goods and people at a lower price than air carriers at a comparable price, railways might run them out of business.

A Potential Hyperloop Investment Opportunity

A more intriguing possibility is that a railroad might be able to greatly reduce expenses and increase the volume of freight it moves with Hyperloop. This might be possible because Hyperloop would be faster and more efficient. Hyperloop also operates on a much cheaper fuel than diesel-burning locomotives namely electricity.

A final opportunity here is that some visionary executive or billionaire might be able to buy a failed railroad for a low price and convert it into a Hyperloop line. That leader would be able to use the railroad’s resources including existing freight customers, routes and access to port facilities to drive business to Hyperloop.

Such a project would serve as a demonstration of Hyperloop’s viability. It might also increase the value of rail stocks by providing a new use for their rights of ways. Persons looking for a way to invest in Hyperloop should consider rail stocks many of which offer a good dividend and return on equity.

The ongoing decline of coal and railroads might be a huge opportunity for Hyperloop. Hopefully some far-sighted executive will seize upon it.