Reference no: EM132965863

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READ THE FOLLOWING CASE CAREFULLY & ANSWER THE QUESTION PROVIDED IN THE END OF THE CASE. LENGTH FOR THE ANSWER SHOULD BE BETWEEN 12 TO 15 LINES). .

The last several years has been seen a tremendous growth in rail shipments into and out of North Dakota and southern Canada. These shipments were oil outbound and water, sand, andother operating materials inbound. This growth was caused by OPEC's decision to hold steadytheir oil production volumes, which made the U.S. fracking and oil well development in thosetwo areas very profitable. This growth in rail shipments was also caused by the lack of oil andgas pipeline capacity outbound from those two areas to U.S. processing plants. In fact, thegrowth in volume was so high that the railroads serving those areas to U.S. processing plants. Infact, the growth in volume was so high that the railroads serving those areas ran out of both carand track capacity.With volumes increasing at a steady rate, the obvious solution would be for therailroads to build more track and acquire more operating equipment. However, investments inequipment and track are long-term, with equipment and track lasting decades with proper care.As such, these types of investments require a steady volume over their life.The railroads serving these areas were faced with a difficult decision. To adequatelymeet demand would require billions of dollars of capital investment but, short term, couldproduce billions of dollars in additional revenue. However, the railroads were cautious ofOPEC's influence on the price of oil. OPEC had announced that its members would be increasingthe production of crude, thus driving down the world price. With the small oil and gasoperators in North Dakota and Southern Canada having a much higher marginal operating costthan the OPEC countries, a declining world price for crude could force many of them to leavethe industry. The negative impact of these exits could be substantial for the railroads.

Q1.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?Explain.