Greetings;
So I watched the Oscars and - who knew/ - a hockey game would break out? For some real acting, try this voice-over in my podcast with Logistics Management’s notorious J-B (Jeff Berman): Looking at the state of the freight railroad market with Tony Hatch, ABH Consulting - Logistics Management (logisticsmgmt.com). and if you don’t find the sound of my voice too (too) grating, I talked about the coal supply chain to West Virginia Public Radio: As Demand For Coal Rises, Not Enough Trains Ready To Move It | WVPB (wvpublic.org)...
- On a serious note, this from "WashPo": Russia’s military was built for quick, overwhelming firepower, experts say, but its weakness is logistics. (See: Why Russia’s military is bogged down by logistics in Ukraine - The Washington Post ). I think by now everyone in the world has acquired a basic understanding of "logistics" and "supply chain"...
- Rail volumes trending a bit better (see Intermodal, below) but the metrics that we see, not so much….meanwhile ATA truckload tonnage (i.e.; oranges) was up 2.4% in February but flat M/M for the first time since July 2021 – says the ATA’s Costello “this is a supply problem (average number of trucks on the road down 7% YOY) not a lack of demand”
- I am walking back from the cliff following the two day STB Switching/Access hearings – all signs indicate “toe in the water” negotiated response, involving existing reciprocal allowed locations (as NS COO Cindy Sanborn noted that would drop the complexity level a lot, form 750+ locations to ~105)
- I have attached my new slides which I won't be using at NEARS next week (the format is “Rap Battle” AKA “Rail Poetry Slam”) as well as Andreas Aeppli’s, on behalf of CN on rails and market share/power – Andreas was cut off in the Reciprocal Switching hearings by the STB as they ran out of time on a hearing on, in part, (rail) reliability - which I think are excellent if not too cheery (countering his rail market share data might be the fact that 4/5 Class One leaders in RA’s “CEO Perspectives” mentioned “growth” in their titles, such as BNSF’s Katie Farmer’s essay entitled “Sustain a Growth Mindset”). People you cannot walk the walk until you learn the talk, first….
- Sad week – Fred Smith retires after 50 years and sadder, RIP Kip Hawley, ex-UP (and Arzoon!) and TSA creator, and Congressman (former Chairman of the House T&I Committee Don Young….and, shockingly to me, Trains magazine’s editor for 17 years Jim Wrinn gone too soon at only 61: Jim Wrinn led Trains Magazine with passion - Trains
Intermodal is in the “hot topics” column again, and for more good reasons than bad – first, IANA numbers for February suggest we have reached an inflection point. And that comes before the fuel price spike impact….Totals are flat, and that’s good after the past 6 months or so. True, TOFC (trailers) are down 8% but domestic containers were up almost 14% (driving the gain in “Domestic” of +10.6%. International (ISO) container traffic fell 9.8% but that’s an improvement off trend (YTD numbers are down 16%). Ships off LALB are halved - though there are warnings from delays out of China combined with still strong demand (NRF expecting 6-8% import growth this year) that those numbers could shoot back up; remember I warned about Shanghai lockdowns and China’s “Zero Covid” impact on the supply chain. POLA had a record February (+7%); POLB was plus 3% (and of course, eastern port growth was much larger - in percentage terms. More intermodal:
- The JBHT-BNSF deal continues to reverberate – with such aggressive growth plans by the former that some observers think they could achieve 50% domestic (including of course international transload) share from ~1/3 now….
- Transload requires warehouse space (and workers) – Prologis, whose antecedents include the Santa Fe railway, whose warehouses are ~98%+ full, and whose market cap approaches that of UNP (!), is attempting to buy Blackstone’s warehouse unit “Mileway” for ~22B….Euros
- XPO sold its intermodal unit (ex-Pacer) to STG Logistics for $710mm – intermodal experts are excited by STG and their CEO Paul Svindland
- Orders are flowing for domestic boxes – including by shippers Amazon and Walmart; chassis orders are also large and in dire need – both 53’ (large railroad orders) and international 40’s (hurt by tariff-caused 300% price increases). Chassis are estimated to be about 5% below pre-pandemic levels….
- Maersk announced it was taking an order of 300 EV trucks for its NA inland operations (working with a Swedish company its venture arm invested in) – just as Daimler said that EVs needed permanent government subsidization (local governments that are willing to subsidize such efforts are actually most often near ports – think Cali and BC).
- Of course, it's not all good news – after spending 2/3-3/4 of this century “destroying value” (having ROIC less than WACC), the steamship lines face the “Ocean Shipping Reform Act” which passed the Senate Commerce Committee, a government response but
- Even the FMC has said that there’s “no evidence of anything that has occurred (in the supply/demand price hike) that would be an actionable case”
- Even the NYT writes “It is unclear to what extent more government oversight and enforcement will eventually bring down shipping costs which are due in large part to soaring consumer demand and persistent bottlenecks”
- Which makes one wonder – does the STB read the New York Times?
- Yet Senators, from my party, claiming on the floor that the steamship lines are “making record profits” (so? It’s about returns and through a cycle) and “making bank” (no comment necessary).
- Which makes one wonder – is a basic understanding if finance is a requirement for the US Senate? Or is it always a “sound-bite” world?
- And labor drums are of course beginning to be heard (7/31 deadline) – says the NYT in classic understatement “the longshoremen grasp that their leverage may (now) be unusually potent”
- And oh, Mexico – large market in the NA IM world, so much opportunity, so much AMLO
- The new airport in Mexico City opened – with 7 routes (this after abrogating contracts for the real new MC airport)
- The Economist’s review: “Mexico – Can’t Grow, Won’t Grow” – ranked 60th of 190 in government infrastructure spend (and what spend they have is on Pemex refinery, a tourist train, and the airport in the country)
- CP and KCS (not CPKC) have tried a pilot train linking the port of Lazaro Cardenas to Chicago on what will be single-line service perhaps to eventually compete with or supplement LALB (but it's 3 days further not just longer sailing time and 10 hours longer by rail (the latter, not a big deal but the easy comparable as a “pure port” is Prince Rupert which is closer and shorter by water from Asia). CP+KC see a potential market of ~130K TEUs….Color me skeptical still….
- AMLO revealed the new government interest rate, not the Central Bank Board as mandated by their constitution – a sign of the Bank’s declining independence?
- There’s been popular talk about the death of globalization (FT: “Onshoring gains ground as globalization grinds to a halt”), with the Ukraine war as the final knife blow, a la 1914. BlackRock’s annual letter was one well-discussed missive (they see near-shoring potential benefiting USA and Mexico – but also SE Asia). Others that have chimed in include Oaktree and McKinsey (a contrary indicator). Yes, the primary drivers since the ‘90s are reversing – interest rates, cheap energy, low taxes, cheap transportation helpful commodity prices. But the answer I believe will be what the FT calls “supply webs” – another way of looking at resiliency and tied to JIC (very pro-rail).
- US Trade Representative Katherine Tai testified just yesterday, in fact, before the House that the US must shift the focus of its trade policy to rebuilding domestic manufacturing industries and lessening ties to unfriendly economies but to strengthen cooperation with allies
- I see this as a polarization, into blocs, perhaps – actually the level of cooperation with the USA, NATO, the EU, Australia, and Japan has increased, and in the battle of supply chains in the war, the west is winning
- While that happened in 1914, the opposing blocs tried to actually – literally – torpedo the trading vessels of the other side
- And sometimes ports get in the way of what’s really important as a Cali state planning committee recommended against using Howard Terminal (unused as a port) in Oakland as the site for the new A’s baseball stadium. For shame, opponents (ILWU, PMA, and – gulp – western railroads)! Outgoing port Czar John Porcari told the JoC in his valedictory “We need better, higher uses for the precious real estate that is dockside”. Sounds like a ballpark to me!
Ag update – the USDA sees US wheat plantings up ~3% so we aren’t the world’s solution (in entire) for the war issues. US export overall grain sales booked look good even if actual shipments YTD are off (14% in corn, 21% in soybeans). Ferts price increases remain a major, yield-impacting concern (globally) but may mean more Canadian carloads (Canpotex could grow some 10% in volumes this year).
- Fertilizers are highly concentrated industries that came as a result of historic low returns and low commodity prices, a wealth transfer to farming. Look for government intervention now that this has (at least temporarily) reversed!
- Speaking of regulation and government intervention, I love this example from the CPKC filings – the North Dakota Wheat Commission opposed the merger because, it stated, Canadian wheat shippers, are protected by regulation (and how!), and their, in effect, subsidized grain would become more competitive with US wheat. So – this shipper group wants, in effect, regulatory relief because another shipper association is protected by regulation. As I have often written, the very best argument against a heavy hand in railroad regulation is the Canadian Prairie Provinces and the decades-long stifling of investment and innovation….
Also:
- Every little bit helps: Note the creation of the “Support Ukraine Rail Task Force” with some old friends (Ray Chambers, Jon McGrath, others) attached: Rail News - Global task force to support Ukrainian rail industry. For Railroad Career Professionals (progressiverailroading.com)
- Bill Ackman says Pershing Square will no longer be an activist short seller!
- Coincidence? FDI flows US/China slowed to $5B last year – it was $30B in 2017 (note the year)
- The next horror film? Sales of 3C Printing paraphernalia were up 17% in ’21 to ~$15B – small potatoes now but after installation, voila! No supply chain!
- Hoffa missing? Jam s Hoffa, son of, has retired from running the Teamsters (replaced by someone considered more aggressive) – remember the Teamsters include two large rail unions (#2 and #3), BLET and MoW
- Meanwhile, the indomitable Frank Wilner says of the current status of rail labor (talks ongoing, nothing new which isn’t good, etc) “labor’s hopes for government-mandated two-person crews are on life support” (see Times on labor timing, above)
- YTD coal is down 11% on CSX (bullish on coal in 2022) and up 3% on NSC (bearish on coal in 2022)
- Shale fields are still a year away from a big ramp up, with shortages in labor (of course), rigs, sand – the US is running at an 11.5mmbd rate (peak was 13); EIA says the USA could achieve a 12.5 run rate by YE (many think that is unlikely)
- UPS is vastly expanding its relationship with Google Cloud (as CN has done) – as rails are looking to increase visibility in the carload supply chain (Rail Pulse!) UPS is looking at extending package telematics….
- NS announced a new $10B share buyback plan….which is all well and good, even necessary – and they are spending CAPEX – but the optics….
Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
anthonybhatch@gmail.com
Twitter @ABHatch18