Building A New Company Or Railroads

Building A New Company Or Railroads

Instructions/Descriptions

Building A New Company Or Railroads

1. If you were president of one of these railroads, what decision would you make? Maintain current capacity and forgo additional revenue? Make the investment in additional capacity with the assumption that volume will continue to increase? Explain your answer.

I think when choosing to invest, whether it is building a new company or railroads that it can be extremely beneficial if the rate of return is worthwhile. So, research must be done in order to conclude, to include expected returns and the time frame in which to receive these returns. Nowadays, the issue of transportation finance by the government has generated considerable debate. Some people claim that it is more important to spend money on building new railroad destinations. Building A New Company Or Railroads

We can all probably agree with that point, but it is necessary to take into account the advantages and disadvantages of both approaches. In regards to investing for the new railroad, it would not be reasonable for railroads to have too much exposure utilizing building extra tracks and acquiring equipment and wagons to drive additional revenue. Extra investments with an assumption of that volume will continue to increase is a significant risk with no certainty of gaining the investment cost back on top of future increases in revenues. In today’s fluctuating economy, no guarantees are certain

2. Could there be a shorter-term solution for the railroads other than acquiring more equipment and building more track that would allow them to generate revenue without making significant investments?

There are several paybacks to society from investing in infrastructure, particularly in railroads. By improving the system of roads, bridges, subways as well as railroads, it reduces costs while everything is done in less time. Also, it creates jobs, decreases the unemployment rate. In fact, people would have more money in their pockets, which translates into more consumption.

Nevertheless, there are different variables to take into consideration before even acquiring new equipment. For example, there is external environment a company needs to look into, which includes the following; evaluation of the local taxation market, the competitiveness, political and financial environment, the law and regulatory conditions, the cultural and social backgrounds, and the external stakeholders such as the third parties and customers involved.

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It is imperative to ensure that the use of different stakeholders and other external threats or opportunities is adequately evaluated and assessed. However, in terms of the internal environment, it is essential to understand the organization itself by evaluating the company’s strengths, weaknesses, threats and opportunities, market indicators, competitive advances, internal stakeholders, organizational culture, assets, and objectives as well as strategies. Building A New Company Or Railroads

However, with that being said, investment in capital assets has other ramifications or possible consequences not found in the typical day-to-day expenditures of a business. Once funds have been used for the purchase of plant and equipment, it may be a long time before they are recovered. Unwise expenditures of this nature are difficult to retrieve without serious loss to the investor. Need-less to say, imprudent long-term commitments can result in bankruptcy or other financial embarrassment.

ERIC’s POST

Case 6-2 Rail Versus Pipeline Investment

1. If you were president of one of these railroads, what decision would you make?Maintain current capacity and forgo additional revenue?  Make the investment in additional capacity with the assumption that volume will continue to increase?  Explain your answer.

As president, I would more than likely maintain current capacity, however, I would take the necessary steps in appointing a team to perform a benefit-cost analysis.  The task of building more tracks and acquiring more equipment would require a long-term steady volume investment (Novak et al, 2019, p. 228).  Although large investments would meet short-term revenue increases, it would not satisfy the long-term demand, which includes both long-term maintenance and labor cost.  The uncertainty of long-term crude cost, would present a huge risk for the small oil and gas operators in northern regions, which could have a negative impact on the entire industry (Novak et al, p. 228), therefore compiling the information gathered by from a benefit-cost analysis, which monetizes all relevant impacts, would provide a way of comparing options to identify the action that would be most beneficial (bca.transportationeconomics.org).Building A New Company Or Railroads

2. Could there be a shorter-term solution for the railroads other than acquiring more equipment and building more track that would allow them to generate revenue without making significant investments?

The possible short-term solutions could possibly include; subcontracting to other rail companies with the goal of generating additional revenue, lease additional equipment or cars that could help move product and meet demand while minimizing other factoring cost, and use intermodal transportation, which is the use of two or more modes, using the best features of multiple modes to deliver service, solutions, and savings to shippers (bgiworldwide.com). Pipelines are not a feasible solution, because the infrastructure in not in place (www.stb.gov).

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References

Intermodal transportation. (n.d.). Retrieved April 2, 2020, from https://www.bgiworldwide.com/domestic-freight/rail/

Novack, R. A., Gibson, B. J., Suzuki, Y., & Coyle, J. J. (2019). Transportation: a global supply chain perspective(9th ed.). Boston: Cengage Learning.

Outlook for Rail Crude Oil Transport. (2013, March 14). Retrieved April 2, 2020, from https://www.stb.gov/stb/docs/RETAC/2013/Mar/Crude oil transport.pdf

Transportation Benefit-Cost Analysis. (n.d.). Retrieved April 2, 2020, from http://bca.transportationeconomics.org/home/when-to-use-benefit-cost-analysis.

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