Greetings;
From the Tweets:
- Day 1 of the STB Star Chamber on Switching/Access went poorly for the rails, through little fault of their own; a grumpy Board has preconceived notions (unfortunately backed up by recent service issues), and even cited an example from Dow, the Darth Vader of capitalism (which brought back bad memories).
- Perhaps the best response to the STB Inquisition – and the idea that railroads are indeed focusing on growth, as they stressed to skeptical ears at the Hearings - comes this morning from BNSF and JBHunt expanding their historic partnership, growing their box fleet by ~40% in the next 3-5yrs, a solid bet on service (and technology) in the most competitive of marketplaces; also the latest “Crossties from the Railway Tie Association highlights the rails CAPEX inflection (ties installed up 2% in 2022-23)
- Day 2 of the STB Switching/Access Show Trial starting off poorly for RRs as shippers, egged on by the Board, hammer rails on service, and “forced” use of truck even if truck is cheaper in some cases (“RRs not meeting the competition”) whatever the ROI.
- Day 2 STB dragged on (and on and on and….); the afternoon went slightly better for RRs (but two days of Q&A&S – statements – suggest that perhaps most STB minds – 3? 4? - made up?); The rails in the afternoon/evening were curtailed by time pressure (it seems transportation schedule overruns were mirrored by the regulators, to the detriment of the last three panels as well as listeners sanity)
- Balancing the BNSF positive news spin, it was probably not the very best timing for WSJ to report record overall share buybacks with “Union Pacific leading the way (with a plan) valued at $25B”, especially given Chairman’s public disdain for the Street’s influence on the rails (not on shippers?!
Thoughts and reflections:
- “The impact of Wall Street” – drives me C-R-A-Z-Y How can Wall Street’s influence on Dow, Ford, Amazon, etc not come into the thinking of the Board? It isn’t part of the direct purview but….Did you find that in shipper industries analysts (ie, Goldman’s coverage of Dow, etc) would advocate for low returns and more charitable giving?
- The Chairman was well-armed on Day 2, often appearing to have more facts at hand on specific terminals than the rails themselves, which wasn’t a good look, leading to an ongoing debate about how many extra moves R/S might entail (up to 14 or only 1) over both days – and that in many of the terminals R/S already occurs, and that the rushed impact of unplanned moves would be unlikely given the process involved for R/S (pretty good points, actually)
- We look forward to hearing from new Board member Schultz at NEARS, Commissioner Fuchs at NARSs (and Chairman Oberman again at RailTrends!)
- The Board did seem to float a modified version, enough times to be a signal, perhaps, allowing R/S in terminals and yards where it already exists; any changes would come through the NPRM (proposed rulemaking, then debate, announcement, lawsuit, etc) – which sources say could take 1-3 years to install, appears hard to beat back legally, may be too late for rIl service improvements (and the proposed growth plans) to impact – and even if shippers were happier they wouldn’t walk away from a win – then another few to impact….
- NSC allowed that even in modified form it could affect a quarter of their carload business
- The long discussion on the success of the extended (30 miles to 100 miles) R/S moves in the Canadian Prairie Provinces in 2014 – part of a directed order from the government to the two carriers, CN and CP, to move grain, which appeared to actually improve grain cycles times, etc – was misleading, at best.
- It ignored the long history of the enmity between the Prairie Provinces like Saskatchewan and the RRs
- It ignored the rise and fall of CBR as a culprit and relief valve
- It didn’t factor the rather bitter feelings of other Canadian shippers (chemicals, forest products, etc) when Grain was moved to the top of the list and the government directed use of resources, rather than the carrier (I experienced those feelings first hand in 2015 at the RAC annual event in Ottawa)
- It ignored the fact that only after relief (R/S moved back to 30 miles, increased allowed returns) the Canadian carriers finally feel justified in their massive covered hopper CAPEX programs of recent days
- There were two excellent presentations on the impact of these changes and capital investments – and the positive role of the investor’s role – there would have been three but the CN/Aeppli report was forced by time into the record. Mark Singer succinctly detailed how for the rails this was a solution in search of a problem – they clearly were not in a position of market dominance (using the STB’s own ROIC/WACC measurements!); CSX’s CFO Sean Pelkey was the railway star pointing out the CSX (industry) pivot to growth (noting that OR was taken out of Incentive Compensation and replaced with growth targets – in 2020. Pelkey walked through an example of how IRR was used by his company to make investment decisions, and how R/S could very well change that. Was he heard?
And:
- And then there’s this: CP issues 72-hour notice to lockout TCRC-Train & Engine employees
- CP and KCS (not yet CPKC) have run a “proof-of-concept train from Lazaro Cardenas to Chicago – I remain a skeptic, not of CPKC, but of that particular line of business….
- TTCI – the railway Transportation Technology Center and proving ground in Pueblo, CO - will now be known as MxV Rail following a decision by its owner the Association of American Railroads (ARR) to rebrand
- The rolling impact of the pandemic, the ultimate source of the “supply chain crisis” we all forget, is still with us – what happens to the LALB progress if Shanghai is shuttered?
Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
abh18@mindspring.com
Twitter @ABHatch18