Transportation Secretary Ray LaHood had a “little bit of political advice” for the airline industry Tuesday.
“Don’t be against high speed rail,” LaHood said. “It’s coming to America. This is the President’s vision, this is the Vice President’s vision, this is America’s vision. We’re going to get into the high speed rail business.’’
“People want alternatives,’’ he said. “People are still going to fly, but we need alternatives. So get with the program.”
LaHood (pictured at left) made these comments in a Q&A session as he addressed the Federal Aviation Administration’s annual forecasting conference in Washington, D.C. The first questioner wanted to know why the administration was giving $8 billion to high speed rail.
Exactly one year ago, on March 9, 2009, the stock market hit its lowest point of the recession, and it was an abyss. Many blue chips had lost half or more of their value in the most severe bear market in 80 years.
On the anniversary of that day, stocks on the average have come back more than 65% in price. How have the railroads fared?
Far better than the average, for the most part.
A year ago today, Norfolk Southern shares bottomed at $26.69. They rose to $54.00 in mid-afternoon trading today, up 102.39% in a year.
CSX shares went from $20.00 a year ago to around $50.00 today, up 147.5%.
The price of a Union Pacific share bounded from $33.28 to $71.22,a 114% increase.
Kansas City Southern took the worst battering during the bear market, dropping to $12.15, and recovered most spectacularly, rising 195% to reach $36.16 on March 9, 2010.
In Canada, CN shares went from $29.57 to $56.29, up 90.3%; CP increased from $25.14 to $54.20, up 117.6%.
Two leading railroad industry analysts have weighed in with projections on railroad traffic and revenue growth.
Dahlman Rose & Co. recently held a seminar with freight economist and transportation industry veteran Noel Perry, who offered a wide array of observations, views, and predictions on the railroad and trucking industries.
“On the rail front Perry’s traffic forecast calls for 2010 carloading growth reaching the 6% to 7% range, with growth accelerating in 2011,” said Director-Equity Research and Railway Age Contributing Editor Jason Seidl. “While a vigorous return of traffic, along with solid pricing, should lead to strong revenue growth over the next few years, top line improvement will not necessarily be accompanied by equally robust operating profits, according to Perry.
Contrary to the view that the railroads and many in the investor community have expressed regarding high incremental margins emerging in the industry in tandem with the economic recovery, Perry suggests that the railroads’ ability to keep costs down will diminish significantly as the ongoing upturn in the market shifts into high gear. While he believes that the companies are likely to grow their top lines at impressive rates in the next couple of years, he cautions that a deterioration of service metrics is likely to accompany growth in carloadings. He notes that, indeed, velocity has declined in recent weeks as volumes have started to return (though weather may have had an impact as well). The deterioration of service levels, according to Perry, is a reflection of the traffic congestion, which should ultimately translate into higher operating expenses. Labor is one example of congestion-related costs that could increase significantly.”
Morgan Stanley analyst William Green, in a weekly report, said that rail volumes “could grow at double-digit rates in 2010,” with “recent weekly traffic data as thesis-confirming. As a result, we are adjusting estimates slightly higher for many of the railroads we cover, and in all cases, we continue to be significantly above consensus. In the coming months, we expect upside revisions to consensus driven by the following trends: (1) Weekly volumes tracking better than expectations, (2) Operating leverage to recovering volumes, and (3) Sustained momentum on core pricing. CSX and Union Pacific (a Morgan Stanley Best Idea) are positioned most favorably with respect to these themes.”
Greene also gave Canadian Pacific and Kansas City Southern high marks: “CP enjoys a number of favorable company characteristics that we look for in a recovery scenario, notably (1) exposure to higher-growth markets (i.e. outsized export bulk commodity exposure) and (2) easy operating margin comps to support earnings growth. . . . [D]espite balanced risks relative to other railroads, we see absolute upside through year-end.” As for KCS: “Not only does KCS benefit from all of the cyclical and secular trends driving Class I’s, but the company also benefits from a number of unique positives, including the recent re-pricing of a major contract driving industry-leading pricing growth in 2010, and unique volume growth opportunities (such as cross-border intermodal).”
Despite the impact of economic recession, Americans “took more than 10 billion trips on public transportation in 2009,” the American Public Transportatin Association reported—the fourth straight year ridership topped the 10 billion mark.
APTA noted the 2009 level “is a 3.8% decrease from the 52-year modern ridership record that was set in 2008. Bus and rail service cutbacks resulting from lower state and local funding also contributed to the ridership decline,” it said.
“Given last year’s economic hardship, this small decrease in ridership from a record number of ridership trips in 2008, indicates that support for public transit remains strong,” said APTA President William Millar.“ Considering that nearly 60% of riders take public transportation to commute to and from work, it is not surprising that ridership declined in light of the many Americans who lost their jobs last year.
“Public transportation is an important part of our transportation system and tens ofmillions of people rely on public transit every day,” Millar continued. “It is imperative that federal, state, and local governments continue to invest in public transit. Otherwise, many Americans will be facing increased fares and service cuts as public transportation systems struggle to balance their budgets with less revenue because of the economic recession.”
Among various modes, U.S. light rail (including streetcars and heritage trolleys) saw ridership slip 0.40% in 2009, but nine existing systems notched increases. Heavy rail (such as subways) saw ridership decline 2.6%, with four cities recording increases defying the downward trend. Overall regional (“commuter”) rail ridership fell 5% during 2009. Large bus systems reported a decrease of 5.2% nationally.
Vice President Joe Biden and U.S. Transportation Secretary Ray LaHood jointly announced the award of the $600 million remaining from the $7.5 billion federal stimulus funding made available to transit projects in the Recovery Act that President Obama signed in February 2009. The 191 new grants in 42 states and Puerto Rico went mainly to small city and rural bus projects, though $200 million was awarded to rail systems.
Massachusetts Bay Transportation Authority received the largest chunk of the new money, in three separate grants: $51.11 million for track repair and operating assistance, $13 million for station improvements, and $90,000 for security cameras.
New Jersey Transit received $52.42 million for a combination of track and signal work, and buses.
Bombardier Transportation said Monday it has won a new order to deliver its CITYFLO 350 wayside package to Line 1 of the Lima, Peru, Metro. The contract, worth $22 million, was awarded by Consorcio Tren Eléctrico Lima, comprising a consortium, led by the Brazilian civil works company Construtora Noberto Odebrecht and the Peruvian civil works company Graña yMonteiro.
Equipment and services will be provided and delivered by Bombardier teams in Spain and Brazil.
Bombardier said the contract adds to the growing portfolio of CITYFLO 350 customer in Asia, the Middle East, Europe, and South America, including the Salvador Metro in Brazil. The company says the CITYFLO 350 automatic train control system is designed primarily for metro applications where only limited action is required from the train driver, such as opening and closing doors.
Bombardier will design, supply, install, and commission wayside and onboard CITYFLO 350 equipment for the 21.4-kilometer Lima and 15 trains to run on the line. The scope will primarily consist of: EBI Cab800 onboard automatic train protection system, EBI Lock 950 computer-based interlocking systems, EBI Track 200 track circuit, and EBI Switch700 point machine field elements. Bombardier will also provide the traffic management system based on the EBI Screen 2000 control center system.
Anders Lindberg, president, Rail Control Solutions, Bombardier Transportation, said: “Two main reasons make us very pleased with this new order. It is an important project for the city of Lima and it also shows that we are expanding in a region which is quickly developing.”
Carlos Levy, Bombardier transportation chief country representative for Brazil, said: “This order further introduces our technology to the regionand this is a strategic objective for us. We look forward to closely working with Odebrecht and the Tren Eléctrico Lima consortium to achieve this project.”
The news for Bombardier in North America Monday was less upbeat. The company plans to lay off 140 workers at its Bath, N.Y., railcar refurbishment facility beginning in June. Bombardier cited completion of rail contracts with Metro-North Railroad and Maryland’s MARC as reasons for the move.
Bombardier currently employs 220 people at the site. “The precise number of layoffs will depend on whether the company is able to land other railcar refurbishment work,” said spokeswoman Maryanne Kowalski-Roberts. "We're always pursuing other contracts.”
Kansas City Southern announced Monday that it has acquired the Puerta Mexico intermodal facility at Toluca in the State of Mexico on KCS’ International Intermodal Corridor.
“Puerta Mexico is well-positioned, making it a valuable enhancement for our cross-border service offering,” said David L. Starling, KCS president and chief operating officer.
He said that Kansas City Southern de Mexico this month will add direct train service from Lazaro Cardenas to Puerta Mexico, providing Mexico City import and export shippers with a consistent, reliable, and faster service alternative.
“The growth of manufacturing activity and international trade flows in the Mexico City area is increasing the demand for modern, multi-modal terminals in Mexico’s industrial heartland." said KCS Executive Vice President Sales and Marketing Patrick J. Ottensmeyer. "The strategic location and modern facilities at Puerta Mexico will allow KCS to better serve these growing markets.”
He noted that with its connection to the KCS rail network, Puerta Mexico serves the industrial centers of Mexico and the U.S., several important seaports, and the Toluca-Mexico City industrial corridor. The facility provides intermodal rail and truck services and warehouse storage and customs-clearing.
“Since 1996, KCS has invested over $3 billion to expand and improve Mexico’s rail infrastructure. The purchase of Puerta Mexico further demonstrates KCS’ commitment to Mexico and its institutions, the appeal of Mexican markets, and the viability of direct foreign investment in Mexico,” said KCSM President and Executive Representative Jose G.Zozaya. “Puerta Mexico is a key link in KCS’ International Intermodal Corridor, creating a continuous cycle of economic growth for Central Mexico.”
Facing the requirement to cover a $300 million budget deficit for fiscal year 2011, New Jersey Transit Friday released its plan to increase rail, light rail, and bus fares 25% and to “trim service proportionate to recent ridership declines.” Left unstated was the impact of several recent service cutbacks, applied unilaterally by NJT, that some observers may have contributed to such rider declines in tandem with recession.
“We recognize that any increase is a burden for our customers, particularly during a recession,” said Executive Director Jim Weinstein. “However, we have worked to keep local bus fares below the regional average and preserved some important discounts for seniors and people with disabilities, as well as for students and others who are among the most transit dependent.”
Following public hearings on the plan—hearings that were not held during recent, more modest service “adjustments” during the administration of Gov. Jon Corzine—NJ Transit would enact its fare and service changes May 1. NJT says it expects to generate more than $140 million in revenue. It noted that with the proposed increase, fares will be 3% lower than they were in Fiscal Year 1991, based on inflation-adjusted dollars.
Service reductions seek a goal of “reducing service proportionateto ridership, which has declined systemwide by about 4% as a result of the economy and low fuel prices,” NJT said. “In all, the agency proposes to eliminate 32 of 725 commuter trains, with at least two trains scheduled for elimination on each of the system’s 11 lines.
“Our service plan is designed to size our service to match ridership demand,” said Weinstein. “We also looked at where we could squeeze out the most costs while impacting as few customers as possible.”
Federal Transit Administrator Peter M. Rogoff called Thursday for “a top-to-bottom change in the safety culture and focus on safety at Washington Metro.” Discussing the findings of a WMATA and Tri-State TOC safety audit prepared by FTA for Congress, he called Metro’s Safety Department “dysfunctional and ineffective.”
Acknowledging that “FTA is currently prohibited by law from having direct safety oversight of Washington Metro and similar agencies across America,” Rogoff said that “at the direct of request of Senator [Barbara] Mikulski (D-Md.) and [DOT] Secretary Ray LaHood, and with the encouragement of WMATA’s interim Chief Safety Officer, this audit, for the first time, took a hard look at WMATA’s own safety program.”
The audit resulted in 21 findings and recommendations. While directed specifically at WMATA, they could also affect other agencies if embodied in legislation.
“The Metrorail crash last summer certainly accelerated our efforts within the Obama Administration to develop and transmit our transit safety reform bill,” said Rogoff. “However, we have also been focused on accidents and safety lapses at the Chicago Transit Authority, the MUNI system in San Francisco, the “T” in Boston, and elsewhere. While we believe the situation at Washington Metro is particularly troubling, some of the deficiencies and vulnerabilities that we identified in our audit of Metro and the TOC are similar to problems that exist at transit agencies and State Safety Organizations across America. Thatis precisely why we need Congress to move forward with our transit safety reform bill now. The U.S. Department of Transportation cannot move forward to address these problems in any meaningful way while we are still prohibited in law from issuing safety regulations or conducting direct safety oversight.”
Rogoff emphasized that “despite Metro’s safety challenges, every Washington area commuter is far safer traveling on Metro than they are traveling on our highways. Anyone who decides to drive to work instead of taking Metro is immediately putting themselves at much greater risk of accident or injury. The Metro rail system has experienced 13 on-board crash-related fatalities during its 33-year history. While every one of the fatalities has been a tragedy, the fact is that automobile accidents on the roads of the Washington area claim the same number of fatalities every two weeks. Nationwide, a person is 107 times more likely to die and 57 times more likely to be injured as a motor vehicle passenger than as a rail transit passenger. So, does Washington Metro and the TOC need to make changes to improve safety? Absolutely! Should Metro’s safety challenges prompt riders to drive their cars instead? Absolutely not!”
“Regarding WMATA,” he said, “we believe there are serious organizational failures that must be addressed immediately. For example, our audit found thatthere is no internal process for communicating safety-related information across all WMATA departments. Worse still, there is no internal process for the Chief Safety Officer to communicate safety priorities to the General Manager. We are also deeply troubled by the fact that WMATA’s safety department does not routinely have access to operating and maintenance information so that it could analyze the information for safety implications.”
“For example,” said Rogoff, “FTA found evidence that WMATA’s Safety Department is not ‘plugged-in’ to critical conversations, decision-making meetings, and reporting systems that provide information on hazards and potential safety concerns throughout the agency. Key documents, reports, and decisions are not consistently shared with the Safety Department. In addition, the Safety Department does not receive and review available monthly reports from the Rail Operation, Quality, or Maintenance departments. On numerous occasions during the audit interviews, Safety Department representatives indicated that they were learning for the first time that information of a safety nature was being documented by operating departments … we are also concerned about the resources dedicated for the Safety Department, the lack of stability within the Safety Department, and the scant attention it has gotten from senior management. Three illustrative observations are worth sharing with you:
(1) “At the time of our audit, there was a 25% vacancy rate within the Safety Department.
(2) “The Safety Department itself has been reorganized six times since 2005.
(3) “Since 2007, there have been four different individuals in charge of safety.”
On worker safety, Rogoff said: ”We found that WMATA’s procedural protections for right-of-way workers, implemented after the 2006 Dupont Circle accident, were not developed in consultation with TOC or even evaluated for its impact on safety. In addition, while WMATA representatives stated that employees were provided training on this directive, during our interviews we found that employees were simply provided the directive and asked to sign a form stating that they understood the rule.
“And, given the communication problems within Metro, it is troubling that while Metro intends to revise this rule, in light of the recent tracker worker deaths, the Safety Department has not been asked to conduct an analysis of the revisions. Also, supervisors and operators told FTA that communications from right-of-way workers do not specify their exact location on the alignment. Specifically, operators stated that in some cases they do not know if workers are on the alignment until they have visual contact, and, when this occurs, especially in ‘blind spots,’ operators have limited ability to slow the train.”
Urging Congress top address these and other concerns, Rogoff described the administration's approach:
“First, our legislative proposal would provide FTA direct oversight authority over individual transit systems. The bill would grant us the ability to issue regulations and enforce them. So our legislative proposal would allow FTA to set minimum, national standards regarding such issues as track worker protection, crashworthiness, on-board event recorders, or the institution of safety management systems to ensure critical safety issues receive the attention they deserve.
“Under our legislative proposal, the FTA would be empowered with the same tools that agencies like the FAA have to compel the compliance of regulated parties. While State Safety Oversight (SSO) agencies would have the opportunity to enforce Federal regulations on the FTA’s behalf, they would only be allowed to do so if they had the staff strength, expertise, and legislative authority to compel compliance by the transit providers.
“Importantly, our legislative proposal would provide Federal funds to TOCs for hiring, training, inspections, and other safety-related activities. Rather than having TOCs that are understaffed and undertrained, the FTA would provide resources to ensure that they are up to the task.
“Most importantly, our legislative proposal is built around the goal of getting every rail transit provider, including Metro, to embrace state-of-the-art Safety Management Systems (SMS). An effective SMS is one where every employee, from the lowest to the highest rungs of the operation, are keeping their eyes and ears on safety concerns.”