Sources used in this document:

The development of National Gateway is estimated to cost 842 million dollars over a nine-year period (2007-2015), with costs trifurcated between federal monies of 258 million, state funds of 191 million, and CSX contribution of 393 million (CSX National Gateway. June 2010.). The initiative involves CSX along with six states and the District of Columbia, and is designed to "provide higher clearances under bridges and through tunnels for trains to move double-stack containers" (CSX Annual Report 2009). In addition CSX would build or expand several high-capacity, job-producing intermodal terminals where product shipments are exchanged between trucks and trains" (CSX. May 1, 2008). The anticipated gains from expanding rail lines to haul double stack containers include "reduced truck traffic and increase intermodal capacity on key corridors without increasing the number of trains" (CSX Annual Report 2009).

With any capital expenditure an analysis of its return on investment and impact on free cash flow must be addressed. CSX considerable investment must account for not only its cost of capital but potential risks associated with funding, cost overruns, and government regulation. Annual incremental cash flow associated with National Gateway will come from significant decreases in operating costs including: fuel, utilization of economies of scale, and increased capacity per freight line haul. In 2009 CSX achieved a record performance of 74.7% on their operating margin; succinctly the company makes 74.7 cents before interest and taxes on each dollar of sales. With operating income of 2.285 billion in 2009, CSX with its National Gateway initiative expects to see substantial increases in operating income and subsequently free cash flow (CSX Annual Report 2009). National Gateway "enables each train to carry about twice as many cargo boxes; and trains can move a ton of freight 423 miles on a single gallon of fuel, and can carry the load of more than 280 trucks," (CSX. May 1, 2008). Because of the efficiency and cost effectiveness of this initiative "the Company expects to deliver double-digit earnings per share growth for 2010" (CSX Annual Report 2009).

Potential problems though could derail the company's rosy forecasts for National Gateway. The first of these is funding concerns specifically from federal and state sources. The project was injected with "$98 million in funding through the American Recovery Reinvestment Act of 2009" (CSX Annual Report 2009) however, that leaves 160 million in yet unfunded commitments from the federal government. Given the emerging consensus that U.S. debt and deficits are spiraling out of control; significant cutbacks on infrastructure spending are more likely in the coming years, which will leave CSX open to carrying more of the funding requirements. State funding though is also a