When trying to comprehend what’s going on in complex markets, it’s best to consider multiple expert opinions. It is also prudent to consider different ways to sort the data sets available and then display them against other matched datasets. The more views, the better the comprehension. In the digital age, there are a lot more sources.
Mexico has a freight railway system owned by the national government. However, the trains and the network are operated and managed by various private entities under concessions (charters) granted by the national government. Today, Mexico has service from eight concessionaire railway companies. Beyond Kansas City Southern de México, and Ferromex, are the smaller, but important Ferrosur, Ferrovalle, Coahuila-Durango, Ferrocarril Chiapas Mayab, Ferrocarril del Istmo and Ferrocarril Tijuana-Tecate.
The search for modal share growth is still fundamentally the real strategic challenge for the seven Class I North American railroads. Profitability remains excellent. Net cash flow? Down a bit during the second quarter of 2020 as the COVID-19 pandemic economic shock hit. We will find out by how much less over the next few weeks as second-quarter earnings are released. The railroads’ executives will use their processes for managing financial results during the second half of 2020’s “recovery” pace (assuming such an event occurs). But at some point a railroad analyst is going to ask, “Where is the beef for the promised longer term competitive customer growth positioning?”
Over the next few days and then amplified by mid-month investor reporting, we will learn more about how U.S. rail freight is trending. Association of American Railroads six-month data is out. In the interim, Susquehanna Financial Group (SFG) data scientists have circulated their freight market view. As well, we’ve added some FreightWaves SONAR intermodal data to the mix.
Watco Companies LLC announced it will acquire for more than $310 million Dow Inc.’s rail infrastructure assets and equipment at six North American locations.
About once a year, someone pens a North American rail merger column. Why not one from a rail economist? This is not a “will happen” projection. It’s a strategic scenario question.
Ever check out the list prices of brand-new main line diesel-electric locomotives? They are expensive, about $3 million each. Are you mesmerized by the horsepower quoted? Nah! You want tractive effort. Hauling heavy, long freight trains is the North American business model. You need to purchase tractive effort.
On May 12, IANA (Intermodal Association of North America) offered an interesting look at the North American rail intermodal sector. The webinar featured technical slides shared by Bloomberg Senior Analyst Transportation & Logistics Lee Klaskow and TTX Vice President Fleet Management Company Pat Casey. TTX market development experts John Woodcock and Peter Wolff also participated.
North American rail managers are good at managing costs, but 2020 might be their ultimate challenge. Let’s say you are in charge at a freight railroad. What do you do in such hard times with so many fixed costs? You can ratchet down variable costs. That’s easy. The tougher part is twisting a large part of those fixed costs into segments of variable costs. How do you do that? Let’s start by defining what these railroad costs are.
This is not a forecast. It’s a prudent warning. The continuing COVID-19 pandemic and our social reaction so far are driving our business culture toward a high-risk economic impact. Stay-in-place warnings and increasingly mandated government requirements will drive down income and gross domestic product (GDP). Fundamentally, the American economy will likely face choosing survival spending tactics.
