US freight railroads are in a bit of a predicament, and it’s not just because they are going down to the wire on labor contract negotiations with their 115,000 workers.
Large railroads, including Union Pacific Corp. and Warren Buffett’s BNSF Railway Co., have juiced their profits so high by increasing efficiency and paring their workforces over the last several years that they have boxed themselves into a corner with no catalyst to keep attracting investors. Adjusted operating margins for the five largest US railroads were 41% last year, compared with 29% 10 years ago and 15% less than a couple of decades ago. Those margins are off the charts when compared with other transportation companies, including trucking, parcel, air freight, maritime shipping, airlines, you name it.
