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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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Economic Planning Associates on Tuesday released its second-quarter 2009 freight car analysis, and, based on production figures obtained from the Railway Supply Institute American Railway Car Institute Committee, the freight car market won’t begin to pick up until 2011.

 

“With some 20% of the various fleets on the sidelines, the recession in full force, a sharp decline in railcar loadings, and the constrained financial environment, the outlook for railcar deliveries this year and next continues to dim,” EPA said. “Our economy will remain under duress for the next two quarters. Considering the weakened state of the economic and railroad environments, the second quarter survey results from the ARCI were not surprising. After 2,374 units were ordered in the first quarter, the latest survey shows that only 2,165 cars were ordered in the second quarter. As a result, first-half assemblies of 14,120 cars served to drop net backlogs from 31,921 units at the beginning of the year to 21,558 cars at the end of June.”

 

EPA added that it remains “deeply concerned” about the Greenbrier-GE Capital portion of freight car backlogs. Pending litigation between the two companies over their seven-year deal and the possible cancellation of remaining railcars in the original order may be affecting delivery numbers and timing. “Hopefully, recent reports on the prospects of improving financial health at GE Capital will translate into new car purchases during the latter part of our forecast horizon.”

 

There are, however, a few hopeful signs: “Much to the credit of the railroads, in spite of steep year-over- year declines in haulings and revenues, reported earnings from companies such as CSX, BNSF, UP, and CN were at relatively decent levels as the railroads continued to cut costs and improve efficiency. . . . Should we be correct in an economic rebound later this year extending into 2010 and beyond, we expect commodity haulings to advance 2.4% both next year and in 2011. From 2012 through 2014, annual growth in carloadings will moderate from 1.6% to 1.2%. . . . We expect the weakness in intermodal traffic to continue into the fourth quarter before a modest recovery begins in 2010. . . . [S]ome stabilization and a possible modest improvement will set the stage for an annual rebound of 4.5% in 2010.”

 

“Based on second-quarter ARCI data, first-half assemblies, and the extreme caution warranted by the Greenbrier-GE portion of mid-year backlogs, we have moderately lowered our short term forecasts,” EPA said. “We currently expect deliveries of 24,800 cars this year and 14,750 cars in 2010. Beginning in 2011, far stronger economic activities will provide support for certain railcar assemblies while an improvement in the financial environment and higher gasoline prices stimulate demand for ethanol and DDG cars. Replacement pressures and technological advances as well as legislative measures will also play a role in promoting the demand for a variety of railcars. Construction activities are expected to return to higher levels, which should support movements of aggregates and structural steel products. Rising home values and moderate interest rates after 2010 will stimulate additions and alterations to existing homes while the do-it-yourself market will continue to expand. Both developments will rejuvenate growth in haulings of lumber and wood products. Continued expansion in demand for petroleum products, chemicals, and food and beverages will prop up the haulings of a variety of liquid products and the demand for tank cars.”

 

There’s an environmental factor at play, as well: “Stricter air emission standards will promote the use of lower sulphur western coal, which is also lower BTU value coal, leading to greater volumes of coal traveling longer distances. This in turn, will lead to replacements of older, smaller, steel-bodied coal cars with larger-volume aluminum gondolas and hoppers. At the same time, eastern coal fleet requirements could stimulate some demand for technologically advanced steel and hybrid coal cars. Growing worldwide nutritional needs will pressure the current grain service cars as we proceed through the longer term while long neglected segments such as equipment to haul waste, aggregates, and limestone show signs of revival and should add to the railcar delivery mix in the years to come.”

 

Over the next five years, “the extremely low levels of deliveries this year and next will serve to intensify the pressure to replace aged equipment in various fleets during the longer term forecast horizon,” said EPA. “After two dismal years, we look for railcar deliveries to rebound moderately to 27,500 cars in 2011 and then expand annually to the level of 57,000 units in 2014.”

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Work on the Manhattan side of NJ Transit’s $8.7 billion ARC (Access to the Region’s Core) Mass Transit Tunnel is almost clear to proceed now that the New York City Planning Commission has approved the massive project as part of its Uniform Land Use Review Procedure (ULURP). The applicati ...
Despite deteriorating traffic conditions earlier this year, Union Pacific is maintaining its capital spending program at a high level. ...
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