November 2006
“Relatively good” year seen for surface transport Fitch Ratings analysts foresee a “relatively good” 2007 for both railroads and trucks despite some softening of the economy. The rating agency believes railroads will ride out the downturn a little better than the trucking industry because the latter’s traffic is more closely tied to immediate economic trends. Fitch also says railroads’ tighter capacity puts them in a better position to withstand downward pressure on prices.
Fatigue study underscores need for better crew schedulingThe Federal Railroad Administration has released a new study that it says “provides a strong scientific rationale for evaluating railroad employees’ works schedules to address employee fatigue.”
The study found that human factors caused nearly 40% of all train accidents over the last five years and FRA concluded that fatigue played a role in approximately one out of every four of those accidents.
“Widespread acceptance by the railroad industry of the validated findings of this fatigue report could potentially lead to fewer serious train accidents,” said FRA Administrator Joseph H. Boardman in a statement accompanying release of the study on Nov. 29.
Boardman hopes railroads will be able to devise a fatigue management plan including a mathematical model for determining the point at which the risk of fatigue becomes hazardous—information that “will aid the railroad industry in improving crew scheduling practices to reduce that risk.” He said a similar approach is currently used by the Department of Defense.
“Under the study, researchers analyzed the 30-day work schedule histories of locomotive crews preceding approximately 1,400 train accidents and found a strong statistical correlation between the crew’s estimated level of alertness and the likelihood that they would be involved in an accident caused by human factors. In fact, the relationship is so strong that the level of fatigue associated with some work schedules was found to be equivalent to being awake for 21 hours following an eight-hour sleep period the previous night.”
Railroads plan bigger spending in 2007Railway Age’s annual survey shows that most railroads plan to increase spending for capital improvements in 2007. Norfolk Southern, which has averaged nearly $1 billion over the last four years, including about $1.2 billion this year, plans a 10% increase near year. Union Pacific will increase spending by 15%, to $3.2 billion. CSX’s capital budget in 2007 will remain around this year’s level of $1.3-1.4 billion. CN plans to spend to $C1.6 billion compared with this year’s $C1.5 billion. CPR spending will be in the range of $C885-895 million, compared with an originally announced budget of C$810-825 million for this year. Kansas City Southern will increase spending by $50 million to approximately $250 million.
Bombardier acquires TTA’s railcar overhaul assetsBombardier Transportation is merging the railcar overhaul assets of TTA Systems, LLC (Bath, N.Y) into its operations. In a deal announced today, the car builder will acquire the land, equipment, and facilities at TTA’s site in Katona, N.Y., along with “specific overhaul contracts.” Terms were not disclosed.
Bombardier already carries out equipment overhaul work at its Dansville, N.Y.; San Diego, Calif.; Thunder Bay, Ont.; and Sahagun, Mexico plants. The addition of TTA’s U.S.-based operation will provide it with the capacity to compete for larger contracts, according to Mike Hardt, vice president of the company’s North American rail services business.
TTA will continue to operate its Component and New Car Assembly divisions based in Hornell, NY. Commented TTA Chairman and CEO Dave Sharma of the move: “Over the years, TTA has built its railcar and components divisions to be a leader in the passenger railcar business. This transaction will allow TTA to focus on and fuel its growth in this sector.”
Chicago Transit buys composite tiesNorth American Technologies Group subsidiary TieTek announced that it will supply 7,000 composite crossies to the Chicago Transit Authority “for maintenance and spot replacement.” This follows the recent purchase of 12,000 TieTek ties by MTA New York City Transit. Made from 80% recycled materials, the ties have a claimed lifespan of more than 40 years. Their resistance to wear and harsh environments can help cut maintenance costs by up to $48,000 per track mile annually, according to TieTek.
New management needed for NEC, says studyA study carried out by the Allan M. Voorhees Transportation Center at Rutgers University has recommended that ownership of the Northeast Corridor rail line be transferred from Amtrak to the federal government, with operating control vested in a new public corporation owned jointly by the U.S. and the NEC states. The Newark Regional Business Partnership, which represents around 450 companies, sponsored the study. Amtrak’s initial response was that it would take more than a change in ownership to “change the underlying funding needs” of the corridor, which the federal government so far has failed to meet in its grants to Amtrak.
Bombardier Transportation earnings riseBombardier Transportation’s earnings before income taxes reached $62 million in this year’s third quarter, compared to $39 million before special items in the corresponding period last year. New orders totaling $2.8 billion were booked during the quarter, and the total order backlog was $23.4 billion at the end of the quarter.
Bombardier Corp.--which includes Bombardier Aerospace as well as the rail transportation unit--reported net earnings of $74 million for the quarter, compared to a loss of $9 million in the prior-year period.
Wabtec to acquire European friction products supplierWabtec Corp. has entered into an agreement to acquire Becorit GmbH, a manufacturer of friction products for the European railway industry, for approximately $50 million in cash.
Founded in 1926, Becorit manufactures a variety of brake shoes, pads, and friction linings for passenger transit cars, freight cars, and locomotives, including high speed applications. The company is currently owned by U.K.-based BBA Aviation plc and also makes friction products for industrial markets such as mining and wind power generation. Becorit’s markets include Germany, Austria, Switzerland, Belgium, France, and the U.K. It has annual sales of approximately $30 million.
Wabtec expects the transaction to close by early December and to be accretive immediately. “With its international scope, aftermarket presence, and advanced friction technologies, Becorit is a strong strategic fit for Wabtec,” said Albert J. Neupaver, Wabtec’s president and CEO. “In addition, Becorit complements our existing presence in the European railway industry and provides a platform for growth in other industrial markets.”
Bombardier wins additional, $605 million French orderFrench National Railways (SNCF), exercising options, has placed an order with Bombardier Transportation for an additional 112 AGC (Autorail Grande Capacity) regional trains at a cost of about $605 million. This brings the total number of orders for AGC trains to 612. The trains will be built at Bombardier's Crispin factory in the Valenciennes region.
Acting on behalf of the French Regions, SNCF selected Bombardier in 2001 to supply an additional fleet of 500 high-capacity trains. Available in various versions, the trains can run on either diesel fuel, electricity, or a combination of the two, and also on a dual mode/dual voltage (diesel fuel and electricity 1.5kV and 25 kV). The new order includes dual modes/dual voltage trains.
Vancouver expands its popular SkyTrain fleetThe Greater Vancouver Transportation Authority (TransLink) has ordered an additional 38 SkyTrain vehicles, valued at $99 million, for a light rapid transit system that it says ”continues to enjoy significant growth beyond initial projections.” The contract contains options that would bring the total order to 72 vehicles valued at $191 million.
Bombardier Transportation will manufacture and assemble the cars at its plants in Shogun, Mexico, and Thunder Bay, Ont.
The SkyTrain system consists of the Expo Line, which opened in 1986 for the Expo 86 World's Fair in Vancouver, and the Millennium Line, in service since 2001. The 30.7 mile, 33-station system is the longest driverless system of its kind in the world. It currently operates 21 cars.
Russian steel maker agrees to acquire Oregon Steel MillsEras Group S. A., a steel maker based in Luxembourg but with major operations in the Federation of Russia, announced that it has reached an agreement in principle to acquire Oregon Steel Mills of Portland, Ore., in a stock purchase worth $2.3 billion. The combined company will be a main supplier to world plate steel and pipe markets as well as “the leading rail producer globally,” said an announcement released simultaneously in Portland and Luxembourg.
“Under the terms of the agreement, a newly formed Evraz subsidiary will make a cash tender offer for all shares of Oregon Steel and then merge with Oregon Steel,” said the announcement. Oregon Steel directors have recommended that shareholders accept the offer.
Railroads retreat on crew-reduction issueThe railroads have dropped their effort to include the volatile issue of one-person crews in the current round of contract negotiations, because “the contentious issue was impeding the progress of negotiations on other important matters.” In a letter to railroad supervisors, the National Carriers Conference Committee indicated it would now focus its efforts on working with the unions to control soaring member health costs. Railroads claim their health care costs have increased from $870 million to $2 billion in the last seven years.
RMI recognizes top customersRMI presented its second-annual Fast Track awards to 12 customers that have “continually demonstrated unique and creative ways of improving their businesses.” According to RMI Vice President-Marketing Paul Pascutti, the railroad and shipper clients have used RMI's RailConnect and ShipperConnect programs to improve information capture and reporting, provide greater accounting control, and enhance asset management.
The winners are: CSX Transportation; Cedar Rapids and Iowa City; Port Terminal Railroad Association; Elgin, Joliet & Eastern; New York, Susquehanna & Western; Chicago Rail Link; Quebec Railway Corp.; Indiana Rail Road; Farmrail; Warrior & Gulf Navigation Co.; Central California Traction Co.; and Renewable Products Marketing Group. They will be featured in RMI's 2007 calendar.
Iowa Northern receives $25.5 million RRIF loan Iowa Northern Railway is the latest recipient of a RRIF (Railroad Rehabilitation and Improvement Financing) loan from the Federal Railroad Administration. The loan program was established to help small roads make infrastructure improvements to accommodate heavier railcars and move freight more efficiently. For Iowa Northern, those improvements include track upgrade work from Linn to Waterloo and Cedar Falls to Manly; new siding construction at Palo, Shell Rock, and Nora Springs; and yard rehabilitation at Waterloo and Manly. The $25.5 million loan must be repaid within 25 years.
RailPower faces “serious” liquidity problemRailPower Technologies is taking measures to address “serious liquidity issues” that the company described in a financial report this week. The report sent RailPower shares skidding.
Because of its pioneering efforts in energy-efficient switching locomotives, starting with its hybrid Green Goat, RailPower has achieved exposure in the railroad world disproportionate to its size. Along with that have come major production, technology, and cash-flow problems.
On Wednesday, RailPower issued a third-quarter statement whose opening “highlights” included (all amounts in Canadian dollars):
“Cash and cash equivalents amounted to $9.1 million as of Sept. 30, 2006, compared to $37.3 million as of June 30, 2006 [and $76.8 million on Dec. 31, 2005].
“No asset-based financing agreement was reached during the third quarter of 2006, creating a liquidity problem.
“Following the end of the quarter, the company entered into an agreement with a major customer to accelerate payment terms to address the liquidity issue.
“Cost reduction plan initiated along with a key employees retention program.
“Production put on hold on another major contract pending renegotiation of the contract terms.”
The contract under renegotiation received a fuller explanation a couple of paragraphs later:
“The extraordinary technical requirements under this contract cannot be met given the current state of the technology. This contract has already caused and is expected to cause the company significant losses that represent the majority of the provision for contract losses shown on the balance sheet in the amount of $21.2 million. There is no assurance that the current negotiations will result in more favorable terms. Should the current negotiations fail or the company be unable to perform the contract due to its financial difficulties, management believes that there is a risk of a potential claim from the customer.”
Acknowledging that there were questions as to “the ability of the company to operate as a going concern,” RailPower said, “The company and its board of directors are fully engaged in looking at various financial strategies. However, at the present time, there can be no assurance that additional financing will be obtained.”
Meanwhile, RailPower announced a plan to reduce overhead costs by $10 million a year. It will involve job cuts. To keep essential staff on the job, provision is made to pay them up to $2 million up to next June 30.
This statement of affairs sent the company’s stock down to less than 50 cents at one point (vs. $6 around a year ago). Within a couple of days the stock had recovered to 75 cents.
RailPower’s statement left both investors and customers some room for hope. While the company posted an operating loss of $12 million for the quarter, it also reported sales of $9.2 million compared to $2.7 million in the prior quarter of 2006, and it delivered 11 locomotives in the third quarter, compared with three in the second quarter.
RailPower President and CEO Jose Mathieu concluded by saying: “We continue to work on orders from other customers for whom 18 units are at various stages of production. Despite the current financial situation, we are in discussions with several class I railroads with respect to their strategic plans for low horsepower locomotive fleets. The customers are eager to test the Company RP-series demonstration unit starting in December 2006. We have submitted proposals for approximately 120 units to Class I railroads and some industrial and overseas potential customers and are hoping to generate new orders in the following two quarters.”
Grupo Mexico will press for rail mergerGrupo Mexico said it will seek a court order annulling an antitrust commission ruling barring the proposed merger of Grupo Mexico’s two railroads, Ferromex and Ferrosur, which together control more than half of the Mexican railroad market. The antitrust commission said such a merger would give Grupo Mexico, a copper mining company, too much power over competitors and customers. Kansas City Southern de Mexico, which opposes the merger, asked the commission to order Grupo Mexico to sell or divest in Ferrosur. The commission did not rule on that request.
Global acquires heavy-duty railgear lineGlobal Railway Products of Berwick, Pa., announced that its subsidiary G&B specialties, Inc. has acquired the ESSCO railgear product line, which equips heavy-duty construction and maintenance trucks to travel on railway tracks. The acquisition will be primarily financed by royalties on future sales. G&B already manufactures similar equipment for medium- and light-duty trucks.
Both carload and intermodal volume sagFreight volume declined on U.S. railroads in the week ended Nov. 11, led by sharp losses in automotive and construction materials traffic. Total carload volume was down 2.1% from the corresponding week a year ago, with declines of 17.4% in motor vehicles and equipment, 25.8% in lumber and wood products, and 19.5% in primary forest products. Among the gainers were grain, up 11.1%; coke, up 8.7%; and farm produces other than grain, up 5.8%.
U.S. intermodal traffic was down 1.1% from the 2005 week, with a 13.3% decrease in trailer volume offsetting a 3.3% increase in containers.
In Canada, carload traffic was down 2.3% in the week ended Nov. 11 and intermodal volume was up 8.32%. Mexico’s largest railroad, Kansas City Southern de Mexico, reported a 0.9% drop in carload volume and a 15.3% increase in intermodal traffic for the Nov. 11 week.
CPR capital spending will grow in '07Canadian Pacific anticipates growth in revenues, earnings, and capital spending in 2007. CPR told a meeting of investors in Calgary, Alta., today that it foresees a 4-6% increase in revenues, based on both volume growth and higher rates, and a 9-13% increase in earnings. Capital expenditures are expected to be in the range of $C885 million to $C895 million in 2007, compared with anticipated spending of $C840 to $C850 million this year.
“Execution of our integrated operating plan is driving increased fluidity on our network and improving our operating ratio,” CPR President and CEO Fred Green told the company's annual Investor Workshop. “I believe we are on track to become the safest and most fluid railway in North America.”
NS—and only NS—found revenue adequateThe Surface Transportation board has determined that the railroad cost of capital in 2005 was 12.2%, and it has further determined that only one railroad achieved “revenue adequacy” by earning a return that big. That railroad was Norfolk Southern, with an ROI of 13.21%., said the STB in a finding published Oct. 23 in the Federal Register. BNSF Railway was next, with a return of 10.32%, followed by Soo Line Railroad Company (including all Canadian Pacific U.S. affiliates), 8.89%; Grand Trunk Corporation Consolidated (including all CN U.S. affiliates), 8.07%; Union Pacific, 6.34%; CSX Transportation, 6.23%; and Kansas City Southern, 5.89%.
RailAmerica announces merger agreement RailAmerica, Inc. has entered into a definitive merger agreement with an affiliate of Fortress Investment Group LLC under which RailAmerica's shareholders will receive $16.35 in cash for each share of RailAmerica common stock. The total value of the transaction, including refinancing of RailAmerica's existing debt, is approximately $1.1 billion. As of 10:00 a.m. today, RailAmerica shares were trading at $15.73 on the New York Stock Exchange, a 27% increase over yesterday’s closing price of $12.38.
RailAmerica operates 42 short line and regional railroads totaling 7,800 miles in 26 states and three Canadian provinces. In this year’s first nine months, RailAmerica revenues increased 13% to $348.5 million from the corresponding period in 2005; operating income was $36.9 million, compared to last year’s $37.2 million, and the operating ratio rose to 89.4% from 88.0%. This year’s operating costs included expenses related to the company’s ongoing Process Improvement Project.
The merger agreement was unanimously approved by RailAmerica's full board of directors. The transaction, which is expected to be completed during first-quarter 2007, is subject to regulatory approvals, approval of the holders of two-thirds of RailAmerica's outstanding common stock, and other customary conditions. Debt financing has been fully committed by Citigroup Global Markets Inc. and Morgan Stanley Senior Funding, Inc., which acted as financial advisor to RailAmerica. Upon completion of the transaction, RailAmerica will become a privately held company, and its common stock will no longer be publicly traded.
Fortress Investment Group LLC describes itself as “a global alternative asset manager.” The company lists approximately $26 billion in assets as of Sept. 30, 2006. The firm was founded in 1998, is headquartered in New York, and has affiliates with offices in Dallas, San Diego, Toronto, London, Rome, Frankfurt, and Sydney.
Meanwhile, RailAmerica co-founder and former chief executive Gary O. Marino has formed a new small-road holding company, Patriot Rail Corp. Patriot has announced its first acquisition, the 118-mile Tennessee Southern Railroad, and has also entered into an agreement with an undisclosed international private equity fund for what is being described as “significant future investment in the acquisition of short line and regional freight railroads.” Marino said it is Patriot’s desire “to become a preeminent rail freight transportation provider.”
Norfolk Southern sees “less robust” economyAfter a third quarter of improved financial and operating results, despite flat year-over-year volumes, Norfolk Southern sees” mixed business conditions” for the remainder of 2006 and into 2007.
“Overall GDP growth is expected to be below 3%, reflecting weakness in housing markets and declining auto production and sales, among other factors,” James A. Squires, the railroad’s senior vice president financial planning, told the CitiGroup Transportation Conference in New York today. “Our carloads in the fourth quarter to date are down modestly from last year, and, accordingly, we expect revenue increases to be moderate, reflecting tempered volume growth and tough comparisons with a strong fourth quarter in 2005. While we see some economic expansion ahead, it my be less robust than what we experienced in the first half of the year.”
With markets strong, Global Railway views acquisitionsGlobal Railway Industries, Ltd. announced improved revenues and earnings for both the third quarter and the first nine months of 2006. The company said the improvement reflects “strong organic growth in the railroad and transit markets.” Having largely completed the sale of YSD and related assets and product lines, Global Railway is evaluating “opportunities to grow internally through product line expansions and externally by executing the right acquisitions,” said CEO Terry McManaman.
The company earned $603,867 on revenues of $7,817,343 in this year’s third quarter compared to a profit of $503,167 on revenues of $7,397,049 in the 2005 period. For nine months, earnings were $2,989,433 on revenues of $24,324,039 this year; in the same period last year, earnings were $1,830,486 and revenues were $22,766,440.
NICE Systems wins piece of NYCT contract In partnership with Siemens, Israel’s NICE systems has been selected as a supplier of MTA New York City Transit’s new Rail Control Center. The company said NYCT “will benefit from NICE’s solution for capturing transit system voice communications and its Scenario Replay™,” permitting the agency to review events “to confirm what happened, where and when it happened, and who was involved.”
New WMATA head selectedJohn B. Catoe Jr. has been selected to lead the Washington Metropolitan Area Transit Authority (Metro) as its next General Manager, beginning in January 2007.
Catoe has 26 years of experience in the transit industry. Since 2001, he has been the Deputy Chief Executive Officer of the Los Angeles County Metropolitan Transportation Authority, where he oversees the agency's multi-modal operations with more than 2,600 buses, three light rail lines, one heavy rail line and the motorist aid program including the Freeway Service Patrol and highway callboxes. He also oversees the LA transit agency's planning, law enforcement, homeless assist program, safety and facilities.
Catoe, who is a native of Washington, D.C., will be the eighth permanent General Manager in Metro's history and will oversee the activities of nearly 10,000 employees, a $1.2 billion annual operating budget, and a $3.3 billion six-year Capital Improvement Program. He will permanent General Manager Richard A. White, who left in February 2006. Dan Tangherlini, served as Interim General Manager for nine months, and did not compete for the permanent position. Jack Requa, Metro's Chief Operating Officer for Bus, has been serving as the Acting General Manager since Tangherlini's departure earlier this month.
New North Platte locomotive shop keeps coal movingUnion Pacific says it’s reaping “significant improvements” from a new locomotive maintenance and repair facility at Bailey Yard in North Platte, Neb. The facility is designed to support GE locomotives that carry 95% of the coal handled by UP. It has the capacity to handle more than 2,000 GE a.c. locomotives a year.
Cameron Scott, general superintendent of train services-North Platte operations, said ”a significant amount of our time is spent ensuring coal deliveries are moving as safely and efficiently as possible through Bailey Yard. With the new state-of-the-art locomotive shop, our employees are better able to handle run-through coal trains with much the same intensity and efficiency as a NASCAR pit crew during a race. We have already seen significant improvements in both the number of trains we handle each day and the amount of time it takes us to inspect, repair, or provide maintenance on coal locomotives.”
UP said North Platte crews can plan maintenance 24 hours ahead of the locomotives’ arrival because the shop uses wireless technology to remotely monitor the health of the GE units.
Mexico rejects Ferromex-Ferrosur mergerMexico’s antitrust commission has upheld an earlier ruling that Grupo Mexico’s proposal to merge two railroad subsidiaries, Ferromex and Ferrosur, would be anticompetitive. Grupo Mexico had appealed the original finding, handed down in June. Kansas City Southern de Mexico opposed the merger, which would have created Mexico’s largest railroad. Grupo Mexico said it was considering its legal options.
STB gives grain shippers a voiceGrain producers and railroads have always had a rocky relationship. Their problems led to the Interstate Commerce Commission’s formation in 1887. And late last week, they prompted a public hearing. ICC successor, the Surface Transportation Board, wants to find out if the grain industry is getting a fair deal (RA, Nov., p. 6). Why? Because a recent Government Accountability Office report has found that while most rail transportation rates dropped since the passage of Staggers, grain rates did not. The amount of grain traffic with comparatively high markups over variable cost increased notably between 1985 and 2004, the report said.
Many farmers feel “economically threatened by our freight rail system and by what [they] see as a rail market that offers too few choices and too high costs--both direct rate costs as well as the indirect costs of doing business with a railroad,” STB Chairman Charles Nottingham said at the hearing, the first he’s presided over since joining the agency this summer. He was hopeful, however, that some of the tension would diminish “through improved communication, information sharing, customer service, infrastructure investment, and, if necessary, new public policy.”
In his opening comments, STB Commissioner W. Douglas Buttrey said that the grain market “for whatever reason, seems to be standing on its head. In just about every other business endeavor I can think of, the accumulating costs of getting the product to the end consumer is paid by the end consumer. But in the grain business, that’s not true. In the grain business, the cost of transportation is paid up front, in advance, by the farmer.”
Buttrey, who grew up on a farm, pointed out that unit trains and large-capacity, high-speed loading facilities have helped reduce costs and improve equipment utilization. However, “not every farmer has access to these innovations.” Until they do, he said, the question is how can we best manage “the inequities flowing from this lack of balance?”
Representing U.S. farmers and agricultural shippers was Bruce I. Knight, under secretary-marketing and regulatory programs for the U.S. Department of Agriculture. He maintained that not only has rail consolidation led to a sharp decline in competitive routes and options for ag shippers, some commodities are often hauled by one railroad. “BNSF, for example, originates 53% of all wheat shipments transported by rail,” he said. “The reason for this large market share is because BNSF has very limited rail competition in the Northern Plains states, which is a major wheat production region.”
Since 2003, rail rates for grain shippers have increased “much more rapidly” than rail rates for other products, Knight said. The average freight revenue per carload for major grains climbed 27%, while the average freight revenue for all commodities, including grain, rose only 13%. Rates on corn, sorghum, soybeans, and wheat have gone up 25%, 23%, 39%, and 25%, respectively, he noted.
According to Knight, grain shippers are shouldering greater responsibility today for functions railroads provided in the past: incurring additional costs to obtain guaranteed car service, providing many of their own railcars, and paying increased demurrage penalties. “Also, due to railroad emphasis upon unit-trains, shippers have had to make significant capital investments in sidings, inventory, storage capacity, and loading facilities to retain cost-effective rail service.”
In addition, the U.S. grain producers and shippers are having trouble competing with their Canadian counterparts in world markets, Knight said. For 100-plus years, Canada has subsidized rate rates for ag products moving to export and certain domestic positions. The “special, government-enforced privileges afforded the Canadian Wheat Board, including significant transportation subsidies, have provided Western Canadian wheat and barley competitive advantages.”
Among the railroad participants at the hearing was BNSF Railway Group Vice President-Agricultural Products Kevin Kaufman. He reported that BNSF has been investing to increase capacity and improve service for the ag market. Even with hopper car prices up 79% since 1980, the railroad has boosted shuttle and non-shuttle fleets by 10% and 15%, respectively, in the last two years. Today, 17,960 cars serve in non-shuttle service and 11,770 cars in shuttle service. And since 2005, BNSF has loaded more than 100,000 grain carloads more than its historical average.
Velocity also is on the rise, Kaufman pointed out. In 2003, grain cars moved less than 160 miles daily. In the first three quarters of 2006, they moved more than 170 miles daily. That increase, due in part to shuttle service, has yielded more capacity. Non-shuttles average 12 car cycles annually vs. 31.8 for shuttles. Rate increases in the Pacific Northwest haven’t been dramatic, he added. In 1980, the non-shuttle rate was $0.71 per bushel; in 2005, $0.82.
While Kaufman agrees with the GAO’s assessment that “widespread and fundamental” changes to the relationship between railroads and their customers are not needed, “the current process for judicial review is not providing small shippers with reasonable access” and “BNSF supports the Board’s efforts to reform the small rate case process to ensure that shippers have expeditions and affordable access.”
Bombardier wins $530 million Spanish orderRenfe (Spanish National Railways) announced that it plans to acquire 100 86-mph electric freight locomotives from Bombardier Transportation under a contract expected to be worth more than $530 million. The contract will also cover 14 years of maintenance. The TRAXX 140DC units will be equipped with Bombardier’s MITRAC propulsion and control technology. The contract calls for a portion of the vehicles to be produced by Bombardier at a Renfe site in Villaverde near Madrid. Propulsion systems will be manufactured at Bombardier’s facility in Biscay, Spain.
In separate announcements, Bombardier announced two other orders. In consortium with Alstom Transport, Bombardier will supply 13 multiple-unit trains to Swiss passenger railway operator BLS AG for $74 million (of which Bombardier's share is $49 million). Under another contract, valued at $43 million, Bombardier will supply a new fleet of 10 people mover vehicles for McCarran International airport in Las Vegas, Nev. and also rehabilitate the airport’s two people mover shuttle systems.
Cubic awarded new WMATA contractCubic Transportation Systems, Inc., has received an $11.58 million contract modification from the Washington Metropolitan Area Transportation Authority for smart card system enhancements. Cubic said the upgrades will unite rail, park-and-ride, and regional bus systems, crating new commercial opportunities that could substantially reduce operating costs.
Third-quarter earnings rise at American RailcarAmerican Railcar Industries (ARI) has reported net earnings attributable to common shareholders of $11.0 million for the three months ended Sept. 30, compared with $3.4 million for the prior-year quarter. EBITDA earnings for the quarter were $20.5 million, up from $11.7 million last year. The company said these improvements “resulted primarily from a gain on asset conversion related to our Marmaduke tank railcar manufacturing plant tornado damage and higher operating profits, some of which were the result of insurance compensation for lost profits.” The Marmaduke, Ark., plant was shut down for four months after it was struck by a tornado in April.
ARI shipped 1,546 freight cars in the third quarter, down from 1,635 in the third quarter of 2005. An increase in covered hopper production at another plant helped fill the gap created by the interruption of tank car production.
ARI President and CEO James R. Unger said the backlog of unfilled orders reached a record total of 18,144 cars on Sept. 30, compared to 12,790 on June 30.
Bombardier group wins Shanghai railcar contract Under a $326 million contract announced today, Bombardier and its joint venture partners in China will supply 306 MOVIA Metro cars, a total of 51 trains, to the Shanghai Shensong Line Mass Transit Co. Bombardier’s share of the contract amounts to $104 million. Other members of the joint venture are Changchun Bombardier Railway Vehicles Co., LTD., and Bombardier-CP Propulsion Systems Co., Ltd. Deliveries are to take place in 2008 and 2009.
Metra line to get Wabtec ETMS® systemWabtec Railway Electronics has signed a contract to install its Electronic Train Management System® on 24 locomoives and 24 passenger cars used on Metra’s Rock Island line. The equipment represents about 10% of the fleet Metra uses to provide commuter rail service in the Chicago area.
“ETMS has already demonstrated both operational and safety benefits during extensive testing in the freight rail industry, and we are excited to expand its application to passenger transportation,” said Albert J. Neupaver, Wabec’s president and CEO.
With ETMS, movement information such as authority limits, speed limits, signal aspects, and work zones are communicated to an onboard computer. With location information provided via the the global positioning system, the computer will automatically initiate braking if the engineer fails to respond appropriately to movement and speed limit information. A computer screen inside the locomotive cab displays the authority limits, speed limits, and work zones, as well as a moving map detailing grade, curvature, and track topology.
Prudent economics—or abuse of market power?Railroad lobbyists are taking a close look at a new, 95-page GAO report that addresses competition and capacity issues in the freight railroad industry.
Generally, the report gives a positive picture of the industry and describes numerous benefits that have accrued to both carriers and customers in 25 years of deregulation. But it also raises questions.
GAO’s analysis finds, for example, that while the amount of captive freight business appears to have diminished, “the percentage of industry traffic traveling at rates substantially over the statutory threshold for rate relief has increased.” It says “the amount of traffic traveling at rates over 300% of the railroad’s variable cost increased from 4% in 1985 to 6% in 2004. Furthermore, some areas with access to one Class I railroad have higher percentages of traffic traveling at rates that exceed the statutory threshold for rate relief.”
“These findings may reflect reasonable economic practices by the railroads, or they may indicate a possible abuse of railroad power,” says the report.
As for building the capacity to handle the increasing demands predicted by transportation economists, GAO’s investigators were unable to get a clear picture from railroads.
“Railroads do not prepare long-term capacity plans because of concern about the potential for significant economic changes—for example, officials at one Class I railroad stated that they prepare capacity improvement plans and demand projections for three to five years into the future, with frequent revisions,” said the report.
Noting that “requests for federal assistance to rail infrastructure are likely,” GAO said decision makers must determine that “federal involvement is consistent with competition in the freight marketplace, reflects widespread public priorities, and offers benefits that warrant the commitment of federal funds.”
Alstom challenges $3.4 billion Bombardier contractSNCF’s (French National Railways’) award of a commuter train contract potentially worth $3.4 billion to Bombardier has been challenged in a French court by Alstom, the builder of France’s high-speed TGV trains. In a statement on Nov. 2 from its global headquarters in Berlin, Bombardier Transportation said it “will vigorously defend” its interests, pointing out that “this contract was awarded as a result of a European-wide tender issued in 2004.” Bombardier also noted that its Crespin factory in France “is the leading French manufacturing site in the railway industry.” Bombardier’s contract for 372 trains to operate on the Ile-de-France (Greater Paris) suburban network was announced by SNCF on Oct. 25. Under the present plan, Alstom would have a major subsidiary role.
Former Pullman Co. chief Sam Casey diesSamuel B. Casey, Jr., under whose leadership in the 1970s the Pullman Co. became a major construction company as well as freight car builder, died Oct. 12 in Naples, Fla. He was 78.
Improved pricing, insurance recoveries boost FECR earningsFlorida East Coast Railway’s third quarter revenues increased 5.8% to $63.4 million compared with the prior-year period. A decline in volume was offset by improved pricing, including fuel surcharges totaling $6.4 million, an increase of $2.8 million over the 2005 quarter. Railway operating income increased 33.7% to $22.1 million, primarily due to net insurance recoveries of $5.8 million related to 2005 hurricane damages. As a result, FECR’s third quarter operating ratio improved to 65.2% from 72.4% a year ago. FECR’s adjusted full-year outlook calls for revenue ranging between $265 million and $275 million, and for operating profit in the range of $79 million to $81 million. Capital expenditures have been adjusted downward to $42-47 million to reflect the company’s decision to lease four new locomotives.
Greenbrier reports billion-dollar backlogGreenbrier Industries announced that its freight car backlog reached 14,700 units valued at $1 billion on Aug. 31, the end of the company’s fiscal year, up from 9,600 units worth $550 million on Aug. 31, 2005. The company delivered 3,200 cars in its fourth quarter, down from 3,300 in the prior-year period. Net earnings were $12.3 million, including a tax benefit from Greenbrier’s Mexican subsidiary, compared with $10.6 million in the 2005 quarter. For fiscal 2006, the company reported record earnings of $39.6 million, up 33% from the prior year.
“As we enter fiscal 2007, we are excited about the prospects for the year,” said Greenbrier President and CEO William A. Furman. “This optimism is driven by a combination of continued strength in railroad industry fundamentals, coupled with the company’s enhanced competitive position as the result of recent strategic initiatives.”
Car types where Greenbrier expects future demand to be strong include covered hoppers, mill gondola cars, and motor vehicle multilevels (Greenbrier’s offering is the Auto-Max®).
Trinity earnings rise; car backlog at new highTrinity Industries reports that its North American railcar backlog rose to around 32,000 on Sept. 30, more than double the 15,200 cars on its order books on Sept. 30, 2005. In the third quarter, Trinity received orders for 9,364 cars and shipped 6,546. The Trinity lease fleet grew to approximately 29,200 units on Sept. 30, compared with 23,300 a year ago. Trinity earned $55.4 million from continuing operations in the quarter, up from $32.9 million in the corresponding 2005 period. The company said the Inland Barge and Equipment Energy groups contributed to its earnings improvement.
Trespasser deaths up 15.2% in eight monthsPreliminary statistics released Oct. 31 show that 368 trespassers were killed on railroad property in the first eight months of this year, a 15.2% increase over the 309 trespasser deaths reported in the same period of 2005. There were also 241 fatalities at rail-highway crossings in this year’s January-August period, one more than the 240 who died at crossings in 2005. Total rail fatalities increased 2% to 610 this year. There were only nine employee fatalities, compared with 20 last year. The Federeal Railroad Administration also reported that train accidents declined 12.8% to 1,890 in the first eight months of this year, collisions dropped 28.4% to 126, and yard accidents were down 18.2% to 979.
KCS pushes revenues up and costs downKansas City Southern reported an 8.1% increase in consolidated revenues, to $415.7 million in this year’s third quarter and said the growth was “driven by a l.9% increase in volumes, and a continued recognition of the value of our freight services.” Operating expenses declined 3.0% to $338.4 million. A large reduction in casualties and insurance contributed to the lower operating costs. Operating income for the third quarter was $77.3 million and the operating ratio was 81.4%. Net income was $26.4 million, or 32 cents a share, exceeding Wall Street estimates.
Hailing a “positive third quarter,” KCS Chairman and CEO Michael R. Haverty commented: “After four quarter-over-quarter volume comparisons showing an absence of unit growth, KCS recorded increased volumes in the third quarter of 2006, compared with the previous year, even after accounting for the hurricanes that hit our rail system n 2005. This suggests that the majority of our business rationalization is behind us and much of our lower margin business has been replaced with more profitable traffic.”
Ethanol growth drives freight car demandEconomic Planning Associates, Inc., says “the explosive growth of ethanol production” is driving up demand for freight cars involved in its production and transportation. The ethanol phenomenon is, in fact, helping to keep freight car backlogs high at a time when orders for other types of equipment is weakening, says EPA.
In its latest quarterly forecast, “Outlook for Rail Cars,” EPA notes that that the total freight car backlog stood at more than 88,000 on Oct. 1, adding:
“With a temporary pause in coal car orders, a lack of interest in box cars, and TTX still sitting on the sidelines in the intermodal segment, backlogs are heavily skewed toward high-cube covered hoppers [used in DDG--dried distiller grain—service] and tank cars [ethanol]. Our analysis of third quarter backlogs indicates that 52.4% of the current backlog is comprised of high-cube covered hoppers and tank cars. While we certainly recognized that some high-cube cars are destined for services other than DDG, and that tank cars have a diverse customer base beyond ethanol, industry sources have pointed out that DDG and ethanol have been the main drivers in increasing orders for these equipment types during the last year or so.”
Altogether, EPA anticipates that 76,300 new cars will be delivered this year, declining gradually over the next five years to around 60,500 cars in 2011. New car deliveries totaled 68,612 last year and 48,871 in 2004.