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Communities lining Ontario’s North Shore are racing to beat an Aug. 15 deadline to preserve freight rail service on the Huron Central Railway, linking Sault Ste. Marie and Sudbury. A committee formed to implement a rescue plan says any measure would require infrastructure investment by senior levels of the provincial government.

--> Communities lining Ontario’s North Shore are racing to beat an Aug. 15 deadline to preserve freight rail service on the Huron Central Railway, linking Sault Ste. Marie and Sudbury. A committee formed to implement a rescue plan says any measure would requi ...
The Justice Department and the U.S. Environmental Protection Agency announced Thursday that Union Pacific has agreed to spend an estimated $31 million to settle alleged violations of the Clean Water Act in Nevada by restoring 122 acres of streams and wetlands and implement storm water controls at it ...
United Transportation Union International President Malcolm B. Futhey (top photo) on Thursday apologized to a Senate committee for his “badly chosen” words, posted on the UTU website, that seemed to claim credit for the nomination of a UTU lawyer, Associate General Counsel Daniel R. ...
While rail freight carloads for 2009’s Week 30 as reported by the Association of American Railroads did not bring about significant changes in weekly year-over-year volume decline rates, there are solid indications that a gradual recovery is under way, say two leading Wall Street firms. ...
The Association of American Railroads reported Thursday that all 19 commodity categories saw carload declines in July on U.S. railroads. Carload freight added up to 1,319,387 cars in July, down 17.5% from July 2008. Intermodal traffic totaled 922,734 trailers or containers, down 18.0%. ...
RailAmerica, which operates 40 small railroads, is going public and will offer up to $300 million in stock in an initial public offering. The company is owned by Fortress Investment Funds, which also owns the Florida East Coast Railroad. ...
The Federal Railroad Administration today awarded a $1.02 million grant to Operation Lifesaver, Inc. for the organization to continue its wide-ranging public education outreach efforts to raise awareness about the potential hazards at grade crossings and the dangers of illegal trespassing on railroa ...
The San Francisco Municipal Transportation Agency (SFMTA) Muni Metro East Light Rail Maintenance and Operations Facility has been named the American Public Works Association (APWA) Public Works Project of the Year for 2009 in the Transportation Category (more than $75 million). Ga ...
Port Authority Trans-Hudson Corporation (PATH), New York, has awarded Ansaldo STS USA a $24.7 million contract to supply a traffic control center. The new system, which will include CTC (centralized traffic control), SCADA (Supervisory Control and Data Acquisition), integrated voice communications, ...

West Texas Intermediate (WTI), also known as Texas Light Sweet, is a type of crude oil used as a benchmark in oil pricing. It’s also the underlying commodity of the New York Mercantile Exchange’s oil futures contracts.

 

“Although oil prices have risen in recent months, end market demand for distillates (diesel, jet fuel, heating oil, etc.) remains weak,” say Morgan Stanley & Co. Inc. freight transportation analysts William Greene and Adam Longson. “As a result, there is a large disconnect between the price of WTI and diesel. Historically, the relationship between diesel and WTI has stayed within a narrow range, but the price differential is now near an all-time low, which could have unforeseen consequences for a number of freight carriers. While there is precedent for very wide crack spreads (hurricane Katrina, sudden declines in crude prices in fourth-quarter 2008, etc.), this is the first time we have seen such a narrow crack spread.”

 

As for the effect on railroads, “CSX and Norfolk Southern are  most likely to benefit from narrow crack spreads,” say Greene and Longson. “NS and CSX, in particular, still have a number of customers operating under fuel surcharge clauses that are indexed to WTI rather than on-highway diesel. When crack spreads narrow, the effectiveness of these fuel surcharge clauses improves. As long as crack spreads stay below historic norms, both carriers should benefit.”

 

BNSF, say Greene and Longson, “could post a narrower fuel hedging loss. BNSF has used WTI swaps and collars as part of its fuel hedging strategy. Higher WTI prices will reduce the negative impact from underwater hedges, but BNSF can also incur accounting gains and losses based on the effectiveness of the hedge—the tracking error between WTI and diesel. Remember that BNSF reported a $15 million gain from the ineffectiveness of WTI swaps in second-quarter 2009.”

 

The narrow crack spread is less positive for intermodal. “Though higher oil prices are generally bullish for intermodal volume and pricing, in reality customers are only concerned about the price of diesel,” say Greene and Longson. “As long as the price of diesel fails to rise, intermodal’s cost advantage vs. truck will be limited. A narrow crack spread could weigh on railroad domestic intermodal volumes and pricing as well as J.B. Hunt’s trucking intermodal volumes, although we'd argue this is mostly in the price.”

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