August 2004
Johnstown delivers on 360-car orderUnder a lease with GE Railcar Services Corp., Northern Indiana Public Service Co. has taken delivery of 360 BethGon® II coal gondalas from Johnstown America. The NiSource, Inc., subsidiary will use the three 120-car unit trainsets to carry coal from the Illinois Basin, Powder River Basin, and Pennsylvania coal fields to power generation facilities in northern Indiana.
Genesee & Wyoming expands in two regionsShort line operator Genesee & Wyoming announced two expansion moves on Aug. 30.
In the Midwest, GWR has entered into an agreement to lease the assets of Peoria & Pekin Union through a new subsidiary, Tazewell & Peoria Railroad, Inc. The lease is for 20 years, renewable at five-year intervals. In addition to its freight operations over 20 miles of track in Illinois, PPU provides switching services for eight interconnecting railroads--four class I’s and four short lines. Owned by Norfolk Southern, Union Pacific, and CN (via Illinois Central), the PPU connects with GWR’s Illinois & Midland.
GWR also announced that another subsidiary, Golden Isles Terminal Railroad, Inc., is acquiring CSX Transportation’s 6.5-mile Savannah Wharf line, related assets, and a 20-year lease on real estate along the line in Savannah, Ga.
CSXT, OmniTRAX form Fulton District partnershipDenver-based OmniTRAX announced Aug. 27 that it had entered into a partnership with CSX Transportation to provide switching services to the Fulton Industrial District just outside Atlanta, Ga., where CSXT recently completed infrastructure improvements. OmniTRAX Chief Operating Officer Bob Parker commented: "We share CSXT’s vision as to the benefits of the Integrated Logistics Center concept, and we are honored that CSXT chose to work with OmniTRAX to create the first of these facilities."
As part of the agreement, the Broe Companies, OmniTRAX’s affiliated real estate and investment company, will engage in activities to foster expansion in the Industrial District, which is currently home to around 40 warehousing and light manufacturing operations.
Ritchie wants anti-open access pledgeAn article circulated by the Canadian Press on Aug. 27 quoted Canadian Pacific President Rob Ritchie as saying that the building of new rail capacity was contingent on a pledge from the federal government that it would not back open access to rail lines. Referring to a "constant overtone" in Ottawa that seems to support open access, Ritchie said he has asked for "clarity" from the government before committing large sums of private money for expansion, according to the press service.
S&P analyst sees rail profitability "closer to acceptable"Standard & Poor’s transportation analyst Anthony West is now forecasting a 4.5% increase in railroad ton-mile volume in 2004, a 2.7% rise in rates, and a 22% increase in rail profits. In his latest report, posted Aug. 30, West noted that while earnings continue to lag the cost of capital, "the railroad industry is moving closer to acceptable profitability as its cost of invested capital has fallen to 10%, from 17% in 1981."
China considering $12 billion in passenger rail contractsThree separate consortiums led by Kawasaki Heavy Industries of Japan, Alstom of France, and Bombardier of Canada have been selected as preferred bidders by China to help introduce incremental high speed service on five railway lines, according to Chinese press reports. Each of the offshore bidders has a Chinese partner, and each will receive a portion of the work, but it was not immediately clear how the $12 billion in contracts would be divided. Japan’s Shinkansen technology was said to be a big winner.
Still to come is a decision on contracts for a proposed 695-mile high speed main line linking Beijing and Shanghai and estimated to cost nearly $20 billion.
CSXT to ink deal with Ohio-based short lineThe 160.2-mile Indiana & Ohio Central will nearly double its size with the purchase of CSX Transportation's Midland Subdivision between Cincinnati and Columbus, Ohio. The short line, a RailAmerica subsidiary, has notified the Surface Transportation Board of its intent to acquire 107 miles of CSXT trackage and lease its related real estate. IOCR expects to haul some 18,000 carloads annually over the line, which will include agricultural and farm, chemical, and paper products from Cargill, Sabina Farmer's Exchange, Lowe's, and Weyerhaeuser. IOCR connects with the CSXT subdivision at Washington Courthouse, Ohio, and RailAmerica's Indiana & Ohio at Springfield, Ohio.
Charley packs a punchCSX Transportation was one of many Florida residents affected by category-four Hurricane Charley over the weekend. Continued commercial power outages and extensive signal damage in the Orlando area has required the Class I to divert some traffic. Service to Miami has been restored. According to CSXT, customers should expect delays as the central Florida network is "brought back to normal operations." It's expected that power and signal restoration between Orlando and Sanford will be completed by Aug. 20.
TMM sells Mexrail stake to KCSOne week after Mexican shipping conglomerate Grupo TMM reached agreement with creditors to avoid bankruptcy by exchanging $377 million in bonds for new debt, TFM, the railroad joint venture of TMM and Kansas City Southern, has sold its controlling interest (51%) in Mexrail, Inc., to KCS for $32.7 million.
Mexrail wholly owns the Texas-Mexican Railway, a U.S.-based short line that connects Kansas City Southern Railway with TFM, Mexico's largest railroad by volume. KCS will repay to TFM on or before Jan. 1, 2005, certain advances from TFM amounting to approximately $9 million, and has paid TMM outstanding payables of approximately $400,000. The sale was made on terms substantially similar to those previously agreed to in April 2003. The Mexrail shares will be placed in a voting trust pending regulatory approval by the Surface Transportation Board of KCS’s common control of Tex-Mex, KCSR, and the Gateway Eastern Railway Company. KCS has an obligation to purchase the remaining 49% of Mexrail by no later than Oct. 31, 2005.
KCS had previously submitted an application to control Tex-Mex, but that proceeding was suspended by the STB on Oct. 8, 2003, following TFM's repurchase of the Mexrail shares from KCS under the terms of the April 2003 agreement.
Earlier this year, KCS and Grupo TMM agreed "to discharge in good faith all of the obligations of the [April 2003] acquisition agreement" in which TMM would sell its interest in TFM to KCS. Prior to that, an AAA International Centre for Dispute Resolution Arbitration panel granted an interim award to KCS, finding that the acquisition agreement was binding unless "otherwise terminated according to its terms or by law." A dispute had arisen between the companies when TMM attempted to terminate the acquisition agreement last August, after TMM shareholders voted against it. The arbitration panel concluded that their rejection did not authorize TMM’s purported termination of the agreement.
The Mexrail transaction, according to KCS Vice President-Corporate Affairs Warren Erdman, "is totally separate from the pending TFM acquisition, but is obviously a step in the right direction and certainly shows the parties are negotiating. We remain confident in the TFM transaction, even thought today's announcement is not directly related to it."
FRA issues grade crossing maintenance advisoryIn an advisory published in the Aug. 11 Federal Register, the Federal Railroad Administration "strongly recommends" that railroads responsible for maintaining grade crossing active warning systems take the following actions:
(1) Conduct systemwide surveys "for the purpose of locating and repairing any active warning systems that are malfunctioning and/or temporarily removed from service."
(2) Have specific policies or procedures in place requiring the restoration of warning systems "to proper operation in a timely manner."
FRA also said: "Because of the great variety of factors involved with malfunctioning warning systems, including the location of the crossing, frequency of train movements, type of corrective action needed, availability of personnel, and other competing emergency situations, we are unwilling at this time to establish specific time limits for actions."
The FRA’s advisory came amid criticism that some railroads have failed to keep warning systems in good repair.
RailPower shifting from R&D to productionRailPower Technologies, developer of the hybrid Green Goat® switching locomotive, has announced a net loss of $2.8 million for the quarter ended June 30, compared with a loss of $2.2 million for the same period in 2003. The company noted that it has recently been in a "transitional phase, shifting from R&D to commercial production."
"Our key focus in the coming quarters is the steady production of locomotives, fulfillment of initial sales orders, and the development of a strong order book," said RailPower CEO Jim Maier. "We will continue the expansion of our demonstration fleet [currently three locomotives] to fulfill the requirement of a number of potential customers for a short term demonstration in their operations."
RailPower will also seek to expand its core technologies to other rail applications. "We believe that there are large opportunities for our hybrid technology in branch line, commuter, and other operations," said Maier.
Average train speeds decline on UP and CSXTBoth Union Pacific and CSX Transportation lost ground in average train speed in the week ended Aug. 6. UP’s average speed dropped to 21.4 mph from 22.3 mph in the prior week; CSXT’s declined to an industry low of 19.9 mph from 20.4 mph. Burlington Northern and Santa Fe reported average speed of 22.5 mph in the week ended Aug. 6, compared with 22.2 mph a week earlier. Kansas City Southern’s trains averaged 25.0 mph in the latest week, down from 25.9 mph.
Canadian National’s average speed in the Aug. 6 week rose to 25.1 mph from 24.4 mph in the earlier week; Canadian Pacific’s train speed rose to 25.5 mph from 24.7 mph.
Train speed is one of the measures of operating efficiency reported each week to the Surface Transportation Board and posted each Wednesday on a website hosted by the Association of American Railroads.
All railroads again fall short of revenue adequacyThe way the Surface Transportation Board figures it, no railroad is revenue adequate if it doesn’t earn its cost of capital. Having found in June that the industry’s cost of capital last year was 9.4%, the STB further found on Aug. 12 that no U.S. Class I passed the revenue adequacy test in 2003. Norfolk Southern, with a return on investment (ROI) of 9.1%, came close, though the board cautioned that the pending consummation of the Conrail reorganization could lower NS’s ROI in 2004 as well as that of CSX Transportation, which earned 4.0% in 2003. This is because the two railroads will own certain assets that they now lease, thus increasing their net investment base.
The STB said these other ROIs were posted in 2003: Burlington Northern and Santa Fe, 6.2%; Grand Trunk Corp. (including all of CN’s U.S. affiliates), 4.5%; Kansas City Southern, 3.7%; Soo Line (including all of Canadian Pacific U.S. affiliates), 0.9%; Union Pacific, 7.3%.
NS warns of future capacity crunchesFew railroads are better prepared to ride out a capacity crisis than Norfolk Southern. "Over the last several years we have increased our purchases of locomotives and hiring of new train crews in anticipation of the economic recovery," NS told the Surface Transportation board in a Fall Peak readiness report. Not all railroads reporting to the STB could say that. But they could say, along with NS, that without access to investment capital, they might not be able to build the capacity to protect shippers from future crunches.
"NS has not earned its cost of capital for a number of years and when NS or any company fails to earn its cost of capital, reinvestments in the company are more limited than they would be otherwise," said Goode in his letter responding to the STB’s request—which went to all major U. S. and Canadian railroads on June 9—for a status report on capacity issues. "If demand continues to grow at this pace," Goode added, "the rail industry will need to invest substantially more—in locomotives, IT systems, yards and terminals, railcars, track, etc.—than it is doing today. However, increased investment in additional capacity cannot always be justified economically in the current cost of capital environment. Therefore, if demand continues to grow without the industry earning enough to sustain its capital requirements for growth, it may have little choice but to ration capacity in the future."
Goode’s comments on this issue were of special interest since, as he put it, "we probably enjoy more breathing room than some if not all of the other major U. S. carriers."
As for immediate service demands, Goode foresaw no serious problems on NS, though he recognized that "the challenges we may face once we begin to see the actual volumes shippers are asking us to handle during the Fall Peak may be even greater than we have anticipated."
Goode also said the Fall Peak in intermodal appears to be smoothing out, because importers are aware of potential shipping problems and are trying to avoid the rush. "Some large retailers have had imported Christmas goods in warehouses since March," he said.
The STB posted the responses of seven railroads on its website Aug. 6. Union Pacific was the first to respond, on July 9, and immediately went public with a letter in which the railroad described, among other things, a service rationing plan for some of its customers. The STB withheld the other responses until they could be made public simultaneously.
FECR second-quarter revenues, 2004 outlook on the upswingFlorida East Coast Railway has reported revenue growth of 10.8% to $50.1 million in second-quarter 2004 vs. the 2003 period, despite a near-doubling of fuel surcharges (from $500,000 in second-quarter ’03 to $900,000 in second-quarter ’04). Operating profit was up 12.8%, moving to $12.7 million from $11.2 million compared to a year earlier. As a result, the railroad's operating ratio hit 74.7% from 75.2% last year.
Robert W. Anestis, chairman, president, and CEO of Florida East Coast Industries, attributed the regional's growth to "the continued strength of aggregate carload customers and a substantial improvement in our intermodal franchise." Intermodal revenues, including drayage, surged up 20.2% in the second quarter compared to the same 2003 period.
"Given the performance of the Railway's intermodal franchise during the first half of the year and continued strong momentum in the business, we are increasing the 2004 full-year outlook (percentage) improvement over 2003" from mid-to-upper single digits to high single to low double digits, he continued. Capital expenditures--"before the purchase of any strategic land parcels to be used by future Railway customers"--are expected to range between $30 million and $33 million.
"In addition to the Railway's operations, we have continued to monetize the non-core Railway assets and derive and enhanced value from other uses of the Railway's right-of-way, such as the sale of non-core land, income from pipe and wire crossings, rentals, fiber leases, and signboards," Anestis said. "Over the last five years, we have realized over $130 million from our efforts."
Class I's gearing up for fall peak , STB saysThe Class I's are "keenly aware" of this fall's peak service demands and are "working to identify potential service problems, and bringing on as many resources as possible" to meet them, according to Surface Transportation Board Chairman Roger Nober. He made this announcement on August 6, after the largest railroads responded to his June request to report their plans for handling the expected traffic surge.
While Nober said he's hopeful that the railroads' steps are "enough to ensure that customers receive the best rail service possible," he and the Board will continue to monitor and work with them and their customers to "address any issues brought to my attention."
Class I operating employment rises 9%Class I railroads employed 156,453 people in mid-June 2004, an increase of 0.95% from June 2003, but there was a major shift in the makeup of the payroll. The biggest single employee group—transportation (train and engine)—increased 9.4% to 64,086. The only other group showing an increase was transportation (train and engine), where the number of workers rose 1.67% to 7,437. The four other groups lost jobs. The ranks of executives, officials, and staff officials shrank 6.32% to 8,739, while professional and administrative employment dropped 10.71% to 13,654. Employment was down 3.21% to 33,914 in maintenance of way and structures, and down 2.07% to 28,623 in maintenance of equipment and stores. The Surface Transportation Board posts Class I employment data each month on its website.
Cost-recovery lag restrains Trinity profitsTrinity industries has reported net income of $3.6 million, or six cents per diluted share, on revenues of $548.7 million for the second quarter of 2004. This compares to income of $3.5 million, or eight cents per diluted share, on revenues of $365.8 million in the second quarter of 2003.
About half of Trinity’s second-quarter revenues came from its Rail Group, and they were up sharply from a year ago due to the recovery of the freight-car market. Business also increased at the Railcar Leasing and Management Services group and the Inland Barge group. But rising costs of raw materials kept profits low.
"The combined revenue and operating profit for our rail manufacturing and leasing businesses increased year over year 65% and 135%, respectively," said Trinity Chairman, President, and CEO Timothy R. Wallace. "Our North American backlog for railcars has grown to 17,500 units, which is an increase of 65% over last year at the end of the second quarter. Raw material cost and availability adversely affected our margins during the quarter and are expected to continue to be an issue going forward, especially in our railcar and barge businesses.
"By the end of 2004, we expect we will have absorbed approximately $37 million of additional material cost increases that were not passed on to customers due to fixed price barge and rail contracts," Wallace said. "Since we are raising our prices on sales orders and negotiating escalation clauses into our sales agreements, our exposure to fixed price contracts diminishes each quarter and is expected to be substantially reduced in 2005."
Grade crossing fatalities continue to riseThe Federal Railroad Administration received reports of 155 grade crossing fatalities in this year’s first five months, a 17.4% increase over the 132 crossing deaths reported in January-May 2003. Trespasser deaths continued a recent downward trend. The 174 fatalities reported in this year’s first five months were down 4.9% from the 183 deaths recorded in the same period last year.
TTX orders 1,100 doublestack wellsTTX has placed an order with the Greenbrier Companies for 1,100 doublestack intermodal wells for delivery in FY 2005 and FY 2006. Greenbrier announced the order on Aug. 4 without disclosing its value.
Australian operations boost G&W profitsGenesee & Wyoming posted earnings of $10.8 million for the second quarter of 2004, up from $7.7 million in the year-earlier quarter. Revenue from North American operations rose 17.4% to $74.1 million this year, reflecting 7.8% same-railroad growth plus acquisition of rail lines from Georgia Pacific Corp. A strong boost came from G&W’s 50% stake in the Australian Railroad Group, which reported a 36.5% increase in revenues in this year’s quarter, to $81.7 million, on sharply improved grain and iron ore traffic.
CN to receive Johnstown's first aluminum auto carrier carsUnder a lease with First Union Rail, Canadian National will receive 200 first-production AVC™ (Aluminum Vehicle Carriers) from Johnstown America. The cars--the newest addition to the JA fleet--feature a corrosion-free aluminum superstructure that never needs AAR recertification, and easily operated doors that automatically lock open and close. According to Johnstown, the cars offer a 50-year interchange life and operate "transparently" in the National Reload Pool.
Green Goat® goes to WashingtonAmtrak has agreed to test RailPower Technologies Corp.'s Green Goat® hybrid yard switcher for 60 days in Washington, D.C. It is the first time that the fuel-efficient, environmentally friendly unit will be used by a passenger railroad.
"We are very interested in testing hybrid locomotive technology," said Ed Walker, Amtrak's vice president-Transportation. "We will gather data and operations experience on the Green Goat during the trial period, and we anticipate it will be sufficient to allow us to determine how the technology might fit our needs."
The locomotive cuts Nox and particulates by 80% to 90% and diesel fuel use and greenhouse gases by 50% to 80%, when compared to traditional 1,000-2,000 h.p. yard locomotives, according to RailPower.