Greetings;
Quote of the day:
“Real growth in carloads means putting service-sensitive traffic in boxcars. This can be done, but it requires dependable service and growth capacity, which requires opex (more train starts, more local service, more hump yard restarts, etc.). That is the crux of what I am talking about----converting truckloads to carloads. That’s what the Class I RRs are not doing, and it’s what is needed to save the industry from completely whiffing on growth”
/Senior Executive, major rail supplier – part of the pushback I get on the regular form shippers, suppliers, and shortlines…..see Precision Transportation (attached) for a 1935 version of PT/PSR from the N&W Railway featuring a young Mike McClellan gaining ground….
Mr. Hatch goes to Washington….Since this will be the last rail merger, I will be heading to DC bright and (very) early tomorrow for Day One of the STB Hearings on the CPKC (proposal) – and in this case, unlike Law & Order, the defense goes first (see attached schedule) – and last, as well. This will make for some interesting moments interspersed between canned speeches and trite rehearsed testimonies from supporters (there will be many – see Canpotex etc) and opponents (ditto – see “The Coalition to Stop CPKC” AKA “Chicagoland NIMBY HQ”). Maybe the most interesting will be the panels of the other Class Ones testifying, most notable being the large team from CN getting 90 minutes on Day 2 (perhaps to discuss the proposed synergies?). Details to follow and see tweets during the day(s)….
NEARS (North East Association of Rail Shippers) in Pittsburgh provided another chance for most carload shippers to express their inability to get satisfaction, hey-hey-hey. We’ll get another chance at SWARS (South West) next week with a heavy CMO presence (SWARS-2022-PHX-Agenda.pdf (swrailshippers.com). NEARS was fun, but not happy – if not furious. NEARS gave us all:
- a chance to meet Rail Pulse’s new leader (and F/T employee #1), General Manager David Shannon who we hope to entice to RailTrends. While David did a fireside chat, the latest R/P slide deck is attached, and fleshes out the value prop (sorry) for all of the stakeholders, including the next big target – shippers. The launch is set for ~Q2/23….
- A chance to hear, example by example, how GWR (representing itself and, really, the short line segment in its entirety) “bridges the gap” between shipper and Class One. Last year Mike Miller preferred “shock absorber” but the bridge analogy works too, citing geographic bridges, operational agility, and customized/customizable solutions that are proving to be harder for C1s to undertake. Miller will also be at RailTrends, as he was last year when Oliver Wyman’s Adriene Bailey talked about the need for customer-centricity….
- Shell discussed their mega plastics plant being developed near Pittsburgh and the Marcellus Shale, initially focused on exports (to the relief of at least some railroaders who see disruption of the longer haul Texas-Midwest traffic. But this development flies in the face of the loudly held ACC (trade association) position that no chemical company would ever, ever again voluntarily put themselves in a sole-served position. Shell/PA is sole-served by CSX….
- Speaking of whom, CSX as embodied by the irrepressible Arthur Adams exuded confidence that 2019 levels of service – to be fair CSX's all-time high – will be achieved soon. It was interesting that Arthur noted labor shortages in the north (Selkirk) as the game of whack-a-mole continues. NEARS hoped for a discussion of the Pan Am acquisition (“100 Days In”) but CSX is still negotiating with Pan Am labor and expects full integration. Arthur smartly sidestepped my question about the relatively high expenditure for Pan Am (including ~$100mm in CAPEX over the next three years) and the low growth CAGR (~1%) expected, nor to my question on the “feed the beast” (TM JJ Ruest) successes of the Quality Carrier trucking acquisition. He did note that QC was held back by supply chain issues related to ISO tank purchases. Net/net, I don’t know how to grade those deals. Investor day, anyone?
- Adams was excited about the onboarding (sorry) of Joe Hinrichs, who was a rail shipper, industrialist, a logistician – and was used to dealing in a powerful union environment.
- In thinking back to other experiments with outsiders and rails, I am reminded of Ike Evans at UP, John Q Anderson and others at CSX, and Jerry Grinstein at Burlington Northern. The former two came in at below the top job level and were expected – but didn’t – to take over after they “learned the ropes”. The latter, given the success of the BNSF, can be considered the biggest success.
- Three local large shippers spoke – Koppers (the tie folks), US Steel, and scrapper AMG. The consensus was rail problems were in consistency and accountability, and may be linked to PSR. All three managed fleets of railcars. All spoke of the issue of car availability – something for which Rail Pulse would be most useful. Nonetheless, by scrambling, all three were “able to accomplish most of our (logistics/Supply chain) goals” – Koppers. All three cited short lines as saving the day and an area of possible growth and share shift. But I was surprised that none spoke of volumes to go back to a service-resurgent rail network, giving rail a sort of buffer in any recession. They didn’t see much share, just better operations.
Intermodal grew finally in August (+2%), according to IANA, with domestic containers up almost 5% and international (ISO) up 3.2%; TOFC’s 26% decline tried to spoil the part. Recent numbers show an almost 5% drop (in the week of 9/21) but that reflects the strike possibility on the rails (and likely worry over the ILWU dockworkers too). You recall how surprised I was about the (rail) strike concern at EXPO – now we see why. All of this comes with the background of poor service, of course, and a diminished or even vanished peak.
Also in the IM arena:
- Steamships are clearly past the peak in earnings. And the expected 28% increase in 2023 TEU boxship capacity, ordered in the boo, is a mighty overhang.
- The Economist’s “Schumpeter” column on warehousing this week notes that the big gamers are still betting on the Inland Empire (and thus western intermodal) despite the fears of a slowdown, the results of FedEx, as well as Target et al. Vacancy rate is 0.2%; AMZN hasn’t slowed down in that region, rents are up 72% LTM. Prologis is still betting on the space and expects a 10-% increase in safety stock “as a buffer” – in other words, some form of Just in Case (JIC)
- One shining moment? For August, for a month, the PANYNJ (aka “Port of NYC”) became the biggest port in North America. That reflects some eastern share shift, fed by anxiety concerning the labor situations in the East (rail and dock), and the fact that LA and LB are counted separately.
Also
- With the DJTA being down roughly 2X the DJIA the market technicians, known for reading from the entrails of sacrificed goats, predict doom and gloom
- NSC announced their Investor Day date of 12/6/22 (so far solely the 6th) while CNI will likely hold their regular, biannual event over a day and a half in early May, ’23….
- Bob Babcock signs on in upstate NY! Old friend, ex-ATSF, CSX, and now (SVP-Ops) Indiana Railroad, has moved on: Livonia, Avon & Lakeville Railroads (LA&L), which operates the Livonia, Avon & Lakeville Railroad (LAL), Western New York & Pennsylvania Railroad (WNYP) and B&H Rail Corp. (BH), has named Robert Babcock as its President and CEO
- “Train Daddy” Andy Byford, ex-NYC Subway, etc, has resigned from the London Underground. Generally thought to be more than capable, and the most popular subway head in NYC history perhaps, Byford likely found it hard to compete with the legacy of his former boss, the ex-CRR CFO Tim O’Toole….
Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
anthonybhatch@gmail.com
Twitter @ABHatch18