Railroad earnings rose in 1980, providing the industry with its highest rate of return on net investment in 36 years, according to statistics collected by the Association of American Railroads.
The industry showed a 4 1/4 percent rate of return on net investment in 1980 compared with 2.91 percent in 1979 and less than 2 percent for each of the prior four years. Number-gatherers have to look back to 1944 -- when the rate of return was 4.7 percent -- to find a higher level than last year's: the last time the industry's return on investment went above 4 percent waas 1955, when it was 4.22 percent.
The AAR reported that net railway operating income for the railroads in 1980 totaled $1.34 billion compared with $858 million in 1979. Ordinary income -- calculated by adding income from nonrailroad operations and deducting interest on debt and other fixed charges -- in 1980 came to $1.13 billion, up from $840 million in 1979.
AAR President William H. Dempsey said the improved earnings were due in part to record traffic levels, improved utilization of equipment and higher revenues stemming from rate adjustments during the year. He attributed the gains in 1980 earnings primarily to strides made in the fourth quarter of the year.
Despite the nationwide recession, movements of coal and grain -- two of the rail industry's primary commodities -- helped several railroads turn in favorable earnings figures at the end of the year, Dempsey said. Movements of coal, the railroads' leading commodity, were up almost 9 percent, while grain was up 10 percent over 1979.
Although the industry's increased earnings and higher rate of return are encouraging signs, "they remain woefully lower" than the industry needs in order to improve its financial picture, he added.
In a ruling last week, the Interstate Commerce Commission set a new standard for determining whether individual railroads are earning adequate revenues. The decision established as the only standard of revenue adequacy a rate of return on investment equal to the cost of capital.
Using the cost-of-capital standard for revenue adequacy, the ICC calculated that a railroad was found adequate only if it had a 1979 return on investment of 11.7 percent or higher.