The Financial Viability of Conrail Page: 29
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-29-
CHAPTER 4
OPERATING EXPENSES
Between 1976 and 1985, the Final System Plan (FSP) projects
that ConRail operations will improve markedly turning a 1976 loss
of 9.9 on every dollar of revenue to a 13.5 profit. Table 9
illustrates the percentage reduction in expenses through which
this profit turnaround is accomplished. The most significant
improvement occurs in the transportation expense category, (i.e.,
the cost of transporting the freight) which drops from 39.8% of
revenue to 29.0%.
Percentage reductions are achieved in nearly every expense
category. Maintenance of Way (M of W) expenditures per mile of
track increase due to better track rehabilitation, but the
elimination of light density lines allows M of W expenditures
to decrease as a percentage of revenue. Similarly, maintenance
of equipment (M of E) expenditures rise, decreasing the number
of freight cars currently out of service from 10.7% to 5%.
However, a reduction in fleet size due to improved car utiliza-
tion lowers M of E expenditures as a percentage of revenue.
General administrative and passenger expenses remain relatively
constant on a dollar basis reflecting ConRail's ability to
generate more freight revenue without increasing management over-
head. Net car hire decreases as a percentage of revenue reflect-
ing better car utilization and the assumption that cars will be
purchased rather than leased. The "other" category decreases as
a Percentage of revenue due to the stable work force size (lower
payroll taxes as a percentage of revenue) and increased income
gained from investment of excess ConRail stock in short term
securities.
To improve transportation expenses, from 39.8% to 29.0% of
revenue, ConRail will rely primarily upon increased yard effi-
ciencies providing faster throughput of freight, improved car
utilization through a computer-based car management system,
economies of density obtained by running more traffic over less
track and better management of costs and operations. The USRA
analysis relies heavily upon computer-based simulations of pro-
jected ConRail performance. These results are integrated with a
financial model projecting system profitability and cash needs.
Considerable doubts, however, have been expressed by railway
operating personnel and the ICC about the ability of ConRail to
obtain these dramatic improvements.
Most of the critiques concern ConRail management's ability
to improve equipment utilization as much as expected. A number
of critical assumptions were identified that affect achievement
of the operating improvements.5!3-071 C - 75 . 6
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United States. Congress. Office of Technology Assessment. The Financial Viability of Conrail, report, September 1975; [Washington D.C.]. (https://digital.library.unt.edu/ark:/67531/metadc39342/m1/38/?q=no.+77%2C+55th+congress: accessed July 18, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.