Greetings from Del Boca Vista and the NRC conference in Florida, for my sins - and here’s hoping that the holidays were happy.
The National Rail Construction & Contracting annual conference is the usual warm start to the year and provides insight into rail capex plans and a presentation by GWR’s President Mike Miller and the FRA Administrator (hopefully in person this time) tomorrow– see agenda Microsoft Word - 2023 NRC Conference program - v2 12162022 (website-files.com). If I didn’t really deserve a Florida “vacation”, no need to worry about Karma, I will spend mid-January in Lombard Illinois. Brrrr/Sigh….Yes, in two weeks comes the big rail shipper kickoff, MARS (Midwest Association of Rail Shippers) with its usual star-studded lineup and celebrity-filled (?) dinners (three C1 CEOs, two short line CEOs, one major supplier CEO - as well as the battlin’ heads of the AAR & the STB) - TENTATIVE TOPICS & SPEAKERS (mwrailshippers.com).
So there will be things to discuss before the unusually late (beginning January 24) earnings week is upon us. An emerging theme I have been urged to consider as we await earnings webcasts is not just the anticipated Capex increase (of which I may learn some here in Boca) but anticipated Opex increases – AKA “resiliency”….One test that may have come too early, of course, was the so-called “bomb cyclone” at the end of last month.
Progressive Railroading magazine, my RailTrends partner, looks to 2023: In interviewing the CEOs, a surprisingly optimistic tone emerges through 5 expected themes, and the leaders who most highlighted them:
- Service recovery, and closely related, improved labor relations (CSX) – even if we continue to sir up ill will from the last round (NYT 12/27 “The ‘Most Pro-Union President’ Faces Detractors” after failing to help out in the “rail-labor dispute”. That last phrase itself sends false notes – this wasn’t a “dispute” but a regularly-scheduled contract (terms) renewal.
- And it’s not just railroads going through labor shortages – the same publication this week noted that manufacturing faced an “endless hiring and training cycle” that is costing (showing up in) economic productivity stagnation
- 4.5mm workers voluntarily left the workforce at its peak in November 2021 – the most in 20+ years
- Apparently, it takes 6 months for a new-hire fast food worker to reach a productive stage; so 9 months for T&E seems pretty darn good!
- Pent-up Demand/Share Recovery – though one of the key commodities was listed as Autos, and recent sales numbers will probably temper some of that enthusiasm
- New Business Development (UNP, CP, NS – the latter highlighted in their Investor Day)
- New Business Wins from rail/rail competition (UNP and CP in intermodal, the latter with the coming CPKC)
- But if you believe RA, 2023 will be all about the STB when I think, despite a heavy Board agenda (Reciprocal Switching, etc), ’23 will represent the “Peak STB” and attention will shift to the FRA (note again tomorrow’s speech here at NRC)
The WSJ annual review listed the best and (more) worst performing asset classes in 2022 – on the positive side #5 & #6 were corn and soybeans, much better than (the still positive) wheat at #23. The Mexican Peso came in at #18, and the Canadian dollar closely tracked the S&P 500 at ~-7%; the DJTA was down a whopping 18%.
- And that came before the full understanding of the Southwest holiday fiasco, sometimes attributed to “corporate greed” (sigh) or underinvesting in IT (double sigh) – but also to running a point-to-point rather than a hub & spoke system – with possible reverberations into rail resiliency planning.
- Coal industry profits tripled in 2022 – led by seaborne coal with implications for NA rails
- Not included as an asset class but critically important, the World Container Index fell ~80%, with the WSJ predicting (given falling demand and increased capacity) “dangerous shoals” for 2023 (again, will there be hearings on the Hill if greedy shippers take advantage of steamship lines?).
Mexico is being re-discovered – as a near-shoring opportunity, anyway - by the consultant class and therefore the business press. McKinsey is promoting a new theory of “regional globalization”, not news to followers of KSU or the auto industry (note – at SEAR at the end of next month the CEO of Grupo Mexico is scheduled to make an appearance – as rare as spotting Bigfoot but given near-shoring, CPKC, etc, very, very timely). Mexico is gaining share (presumably from China) in basic industrial products like plastics and textiles as well as autos, white goods, and steel. All good for rail, of course, though I do like this quote (NYT): “The biggest impediment to Mexico’s reaching its potential as an alternative to China may be Mexico itself”. And that’s the way it is, in the first week of January 2023.
Data and meetings (info) will provide more serious content soon; meanwhile, I learned a new phrase, proudly self-attributed to the US Ambassador to Japan Rahm Emanuel – “tetsu ota”, or train geek! Nicer than “foamer”, I guess. Happy New Year!
Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
anthonybhatch@gmail.com
Twitter @ABHatch18