David Nahass (below), Senior Vice President, Railroad Financial Corporation, spoke about the present state of the freight car and locomotive leasing marketplace, and a fundamental change coming in federal accounting standards:
“From Railroad Financial's perspective, there isn't a whole lot of optimism in the marketplace, despite that freight traffic is coming back. We see opportunistic railcar and locomotive sales and purchases going on throughout the marketplace. There is a lack of a fundamental appetite for risk today—no speculative appetite for off-lease equipment or equipment coming off lease.
“Changes in federal accounting standards from FASB (Federal Accounting Standards Board, which reports to the Securities and Exchange Commission) are under way that will significantly impact the freight car andlocomotive leasing marketplace. There are three basic things to keep in mind”:
• The end of off-balance-sheet leasing, where everything is treated as a capital lease.
• The end of traditional leveraged leases. Banks will be required to take non-recourse debt and put it on their balance sheets.
• No more grandfathering for existing leases.
“Timing for implemenation is roughly 2015, but we will see the market begin to respond once the final changes are approved,” Nahass concluded. “Exactly how is a challenge to figure out, but the cost of leasing is expected to increase.’
Added RFC President and Railway Age Financial Editor Tony Kruglinski (at left), “Certain elements in the industry are considering selling thelessee the transportation services, much like FedEx and UPS, instead of leasing the equipment. The interesting thing is that today’s lessors would become the railroads' customers.”
—William C. Vantuono, Editor
The Association of American Railroads Thursday said U.S. freight carload traffic slowed duringthe Labor Day holiday; while traffic rose 5.1% compared with the same week in 2009, it was down 15.5% compared to the same week in 2008. The comparison weeks from 2010 and 2009 included the Labor Day holiday, while the comparison week from 2008 did not, AAR noted.
Fifteen of the 19 carload commodity groups increased from the comparable week in 2009, led by metallic ores, up 129.9%, and farm products excluding grain, up 38.7%. Three carload commodity groups, led by farm products excluding grain, posted an increase over the 2008 comparison week.
U.S. intermodal advanced 18.1% from the same week in 2009, but was down 12.7% compared with 2008.
Canadian freight carload traffic was up 12% from last year, while intermodal gained 23%. Mexican railroads reported freight carload traffic rose 24.5%, while intermodal advanced 9.1%.
Combined North American rail volume for the first 36 weeks of 2010 on 13 reporting U.S., Canadian, and Mexican railroads was up 9.9% from the 36 weeks of 2009, while intermodal notched a 15.1% increase.
At the request of New Orleans Mayor Mitch Landrieu, two members of the New Orleans Public Belt Railroad board have submitted letters of resignation. At least least three other board members reportedly have given verbal commitments to stepping down in the wake of reports of excessive spending by the agency.
The resignations of cement company president Arnold Baker and finance firm owner Tina Owen came after the departure Monday of General Manger Jim Bridger, whose spending habits were questioned by the state auditor. Mayor Landrieu said Walter Chappell, Roy Mack, and Paul Wegener have indicated they also will resign.At a news conference Wednesday, Landrieu asked all 14 members of the Public Belt's board of commissioners to step down. As mayor, Landrieu serves as the board's president; two board seats have been vacant since he took office in May.“I have determined as a result of reviewing that audit that it is in the best interest of the public to start with an absolute clean slate at the New Orleans Public Belt Railroad,” he said.
The railroad's website describes the railroad as “both a political subdivision of the State of Louisiana and an unattached commission of the City of New Orleans. It is not a department of the City or State, but rather a separate, autonomous (or self-governing) juridical entity.”
Timed to coincide with the opening of a hearing Wednesday afternoon on federal railroad policy, Sen. Jay Rockefeller (D-W. Va., top), chairman of the Senate Committee on Commerce, Science, and Transportation, released a committee staff report charging that the 30-year-old Staggers Rail Act “gives railroads the authority to charge many U.S. businesses extraordinarily high shipping rates [and] needs to be reformed.”
The report—Current Financial State of the Class I Freight Rail Industry—found that the “largest American freight railroadcompanies have been earning record profit margins at the expense of their shipper customers.”
“If you listen to what the railroads tell their regulators in Washington, they are barely keeping the lights on,” said Rockefeller (pictured at left). “But the reality is that Class I railroads have become some of the most profitable companies in the United States. They enjoy substantial market power yet the current railroad regulatory system regards them as incapable of both making needed capital investments and remaining healthy. It’s past time to update our rail policies to change a system that allows railroads to grossly overcharge captive shippers and to better meet our nation’s future transportation needs.”
He said that “using the companies’ Securities and Exchange Commission (SEC) filings, quarterly investment calls, industry analyst reports, and other sources, the committee staff report concludes that the freight rail industry has more than achieved the Staggers Rail Act’s policy goal of restoring the financial stability of the U.S. rail system.
The report found that:
“In the same year (2008) that the rail industry told the Surface Transportation Board that its profitability was lagging behind other sectors of the economy, Fortune magazine rated railroads as one of the top five most profitable industries in the U.S. economy.
“While the railroads tell their regulators they are not making high enough profits to cover all of their long-term capital investment needs, the Class I railroads are using billions of dollars of their profits to buy back stocks and boost the short-term values of their stocks for their shareholders.
“Although the railroad industry claims that it still has difficulty attracting sufficient amounts of investment dollars, Warren Buffett and other investors have been pouring billions of investment dollars into the companies.”
The Association of American Railroads issued a strongly worded statement from President and CEO Ed Hamberger (bottom) in response to Rockefeller’s attack:
“We vehemently disagree that there is a need to roll back the successes achieved since the 1980 Staggers Act. The vision held by
Congressional Democrats and President Carter 30 years ago—allowing
railroads to succeed or fail in the marketplace—has resulted in
railroads becoming a true American success story. Imposing new Washington regulations
will undermine railroads’ ability to sustain the private investments in
the nation’s rail network that provides hundreds of thousands of American
jobs, and the foundation for both freight and passenger rail.
“The report makes profits and corporate efficiency sound like dirty words. The reality is the railroad industry’s return to financial health has resulted in private capital—not taxpayer dollars—getting turned back into building and maintaining the nation’s rail network. Even during the worst recession in 80 years, America’s freight railroads have kept investing, spending $21.8 billion of their own private capital in 2008 and $20.2 billion in 2009 to build, maintain and modernize the nation’s 140,000-mile rail network that serves both passengers and freight.
“This report is aimed not at leveling the playing field, but at justifying attempts to regulate lower rates for some large shippers, like chemical companies, agribusiness, and electric utilities. And as the Surface Transportation Board’s own report found, lowering rates for some shippers through re-regulation would result in increased rates for other shippers, or decreased investments in the rail network.
“There’s nothing wrong with success. We’ve run smart, successful businesses, improving efficiency and service for our customers, while keeping prices below what they were 30 years ago. Now is not the time to inject greater regulatory involvement from Washington, but instead to keep letting the
current balanced system work.”
CSX Transportation Inc. announced that it had settled a two-year-old rate dispute with Seminole Electric Cooperative Inc. It did not divulge the terms of the settlement.
In a case brought against the railroad at the Surface Transportation Board in September 2008, Seminole challenged the reasonableness of CSXT rates for moving coal to the Seminole Generating Station near Palatka, Fla.
Seminole’s 2008 complaint specified that that CSXT served mine origins and origin groups in Kentucky, Illinois, Indiana, West Virginia, and Pennsylvania, plus coal transfer terminal facilities at Charleston, S.C. Claiming that CSXT had market dominance over this traffic, SCI asked that the STB prescribe “reasonable rates” pursuant to the board's standalone cost test.
Under an increasingly popular procedural option, the board and the disputants finally agreed that the latter should try to reach a settlement on their own.
Russian Railways said Wednesday it will begin once-a-week train service between Moscow and Nice, France, beginning Thursday.
In Moscow, the train will depart from the Belolrussky station each Thursday at 4:17 p.m. local time, arriving in Nice each Saturday at 7:12 p.m. (local time). From Nice the train will depart on Sundays at 7:22 p.m.and arrive in Moscow on Tuesdays at 11:17 p.m.
The train will pass through Russia, Belarus, Poland, the Czech Republic, Austria, Italy, and France.
Cities to be served by the service include: Moscow, Vyazma,Smolensk, Orsha, Minsk, Brest, Terespol, Warsaw , Katowice, Zebrzydowice, Bohumin, Břeclav, Vienna, Linz, Innsbruck, Bolzano, Verona, Milan, Genoa, San Remo, Bordighera, Ventimiglia, Menton, and Nice.
Russian Railways said the travel time eastbound from Moscow to Nice will be 52 hours 55 minutes; westbound from Nice to Moscow is scheduled for 49 hours 55 minutes. The train will have deluxe, first, and second class carriages.
RailAmerica, Inc. said Wednesday that it expects carload traffic on its 40 railroads to grow approximately 5% in the third quarter of 2010 compared to the third quarter of 2009. RailAmerica lines operate approximately 7,400 miles of track in 27 U.S. states and three Canadian provinces.
The company reported that its August carload totaled 72,221, up 3.6% from 69,702 in August 2009. These results exclude the discontinued Ottawa Valley Railway.
August shipments were up in six of 12 commodity groups compared to August 2009. Leading the increases were metallic ores and metals, chemicals, and non-metallic minerals and products. The largest declines were in coal, waste and scrap materials, and motor vehicles.
Axion International announced Wednesday that “one of the largest railroads in North America has placed the first purchase order, under a letter of intent for the ongoing purchase of Recycled Structural Composite (RSC) railroad ties.”
“We’re thrilled to receive this initial order from such a respected customer,” said Jim Kerstein, Axion CEO. “Without question this is further validation that the Class I railroad market is looking for longer-lasting, more long-term economical alternatives to wood and concrete.
Per the Association of American Railroads “the U.S. rail industry spent $7.7 billion dollars on maintaining roadway and structures in 2008,” said Kerstein. “That number is increasing annually and we believe suppliers, like Axion, who deliver more durable, environmentally friendly products with a lower cost of lifetime ownership will increase their share of that pie.”
Axion said its RSC, developed in conjunction with Rutgers University’s Materials Sciences and Engineering Department, “is inert and contains no toxic materials. It will never leach, warp, and is impervious to insect infestation. Because it is lighter than traditional materials, transporting RSC is less expensive and reduces energy costs. In addition, RSC is completely recyclable at the end of its functional life.”