July 2003
Operating ratios take a beatingRising costs battered most railroad operating ratios in this year’s second quarter.
Union Pacific Railroad escaped with the lightest damage. Its operating ratio increased only half a percentage point to 79.8%. Union Pacific Corporation reported its best quarter ever in operating revenues, which were up 3% to $3.3 billion, and a slight increase in operating income to $605 million.
CSX Transportation’s ratio of operating expenses to operating revenues rose to 86.3% from 84.0% in the same quarter a year ago. That happened despite a slight improvement in revenue, which climbed from $1.83 billion to $1.89 billion. Operating income declined from $293 million to $259 million. CSX Chairman and CEO Michael J. Ward said a main contributing factor was "reduced network fluidity" that caused a "significant" increase in labor expenses.
Norfolk Southern posted a second quarter operating ratio of 81.8% compared with 79.8% a year ago. The railroad’s operating revenues increased 3% to $1.59 billion, the highest of any quarter in its history, but operating expenses increased 5%. Like most railroads, NS was able to draw on its strengths in the second quarter. "The quality of our transportation continues to improve due to the strength of our operating plan and our ability to operate a high-service railroad in a tough economy," said Chairman, President, and CEO David R. Goode.
Canadian National continued to maintain the industry’s lowest operating ratio, but it was 70.1% in this year’s second quarter compared to 68.4% in the same quarter last year. Operating revenues declined 6% to C$1.46 billion while operating expenses declined 3% to $C1.03 billion. Since CN has substantial operations in the U.S., growth in the value of the Canadian dollar relative to the U.S. dollar had an impact on both revenues and expenses. Operating income declined 11% to $C437 million.
Canadian Pacific, which was also affected by the currency exchange rate, reported that its operating ratio rose to 79.1% in the second quarter from 76.3% a year ago. Revenues grew slightly, from $C873 million to $C875 million, but expenses were up from $C704 million in the 2002 quarter to $C723 million this year. Excluding a special charge, CPR’s operating income was down 8.7% to $C191 million.
At Burlington Northern and Santa Fe, the operating ratio increased from 80.7% in the second quarter of 2002 to 81.7% this year. Operating revenues increased 3.7% to $2.26 billion. Expenses rose 5% to $1.88 billion, driven mainly by increased diesel fuel costs. Operating income was $412 million, compared to $421 million last year.
Kansas City Southern postponed its report until July 31 but issued a statement July 21 that it expected consolidated earnings to be "in the low single cents per share," substantially below the First Call consensus estimate of 19 cents.
Surge of orders boosts car backlogFreight car builders entered the third quarter with a backlog of 33,383 cars on order and undelivered, up sharply from the backlog of 9,281 cars on their books exactly one year earlier. Since that low point the backlog has risen steadily—to 14,491 cars on Oct. 1, 2002; 18,402 on Dec. 31, 2002; and 24,055 on April 1, 2003. Orders were placed in this year’s second quarter for 16,693 cars, bringing orders for the year so far to 28,460. The Railway Supply Institute says orders and backlogs are at their highest point in five years.
UP triples reefer order to 1,500Union Pacific announced July 18 that it has tripled its order with Trinity industries for new 64-foot refrigerated box cars. UP has added 1,000 cars to the 500 previously ordered. Developed jointly by UP and Trinity, the cars are destined for the Express Lane perishables service introduced by UP and CSX Transportation in June 2000. This service, which UP says has grown steadily, links the Pacific Northwest and California with midwestern and eastern markets.
Wabtec sees broad signs of recoveryIn addition to an improved freight car market, Wabtec foresees strength in other sectors. "We continue to expect a stronger locomotive market in 2004 and the beginnings of a rebound in our Transit Group in 2005," said President and CEO Gregory T. H. Davies in a July 17 statement. In this year’s second quarter, the company’s Freight Group sales increased 20% over the corresponding period last year. Transit Group sales dropped 37%, "reflecting the completion of a contract to supply components for New York City subway cars and lower aftermarket sales."
New York takes the next CBTC stepsMTA New York City Transit is seeking a general engineering/design consultant to manage a communications-based control program for the in-design 2nd Avenue Subway and the existing Flushing Line. A CBTC system with a track-circuit-based auxiliary wayside system compatible with the CBTC technology being installed on the Canarsie Line is sought. Parsons Transportation Group, SYSTRA, and Parsons Brinckerhoff have pre-qualified for a contract worth, with options, up to $20 million.
L. Stanley Crane, 1915-2003One of the great railroaders of the 20th Century, L. Stanley Crane, died July 15 at the Hospice of Palm Beach County in Boynton Beach, Fla. He was 87. A memorial service will be held in the fall in Philadelphia, where Crane left a lasting mark on the railroad industry—first by presiding over the turnaround of deficit-plagued Conrail, then taking it public in a triumphant IPO, and then seeing it sold to two rival bidders, Norfolk Southern and CSX, for more than $10 billion. (That was five times the price for which the Reagan Administration had been willing to sell the railroad.) Crane went to Conrail in 1981 after a distinguished career that had seen him rise to the position of CEO at the Southern Railway, then widely acknowledged to be perhaps the best-run railroad in the world. When he seemed close to being canonized for his dramatic performance at Conrail, he insisted on sharing the credit with his predecessors—specifically, Edward G. Jordan, who as president of the United States Railroad Administration had helped form Conrail from the remains of several bankrupt railroads and then as Conrail’s first CEO had directed the rebuilding of the railroad’s physical properties—and with the Staggers Rail Act of 1980, which Crane said gave him the tools to rebuild service and win customers. But as the Philadelphia Inquirer observed in an obituary on July 19: "As much as the modest railroader disliked hearing it, there have probably been few chief executives in business history quite as directly responsible for the rapid turnaround of a major corporation as Mr. Crane was."