We are bullish on economic recovery, and expect sustained, gradual growth.
In looking at the Mexican and U.S. GDP, both are expected to grow, with Mexico somewhat outpacing the U.S., as it did in 2010. When we tie the Purchasing Managers’ Index to our car loadings to monitor industrial production in the U.S. and Mexico, we see both trending positive. And when we track our most economically sensitive commodity areas, such as chemicals, autos, steel and consumer products, we do not see any underlying softness in any of these areas.
However, we, like others in the railroad industry, must continue to spend capital to provide capacity for the economy to grow.
Congress adjourned for the mid-term elections without taking further action on the Surface Transportation Board Reauthorization Act passed out of committee in the Senate. The House had taken no action on this legislation during the year. It remains to be seen what might happen in the new Congress, but in the meantime, the chairman of the Surface Transportation Board has announced his intent to initiate hearings to examine several issues that were addressed in the Senate Commerce Committee-passed bill.
Unlike other modes, railroads generally do not enjoy the advantage of public funds to maintain infrastructure. Because the railroad industry is very capital-intensive, it is necessary for railroads to have the ability to earn adequate revenue to maintain the network and reinvest in infrastructure. Only in recent years have railroads been able to achieve reasonable pricing, and we still significantly trail many of the industries we serve in terms of pricing strength. Since deregulation, railroads have become more efficient and have greatly enhanced customer service. Any action that reduces the railroads’ ability to price competitively will ultimately reduce service.