Greetings;
In the middle of these scheduled/interminable hearings in DC, I had a planned Zoom presentation/Q&A with a Major Rail Supplier; some 335 took part. Meanwhile, I will be headed off to SWARS (SWARS-2022-PHX-Agenda.pdf (swrailshippers.com) which will (?) feature some key players from CPKC (Brooks & Naatz), STB Commissioner Hedlund (as well as key CMOs from the other – impacted – Class Ones). We’ll see what shakes out but the timing – adding three days, skipping Wednesday to make the BIG Rebuttal Day the same as SWARS belies the STB’s belief in the ARS conference as useful rail/shipper dialogues.
And Thursday’s Rebuttal Day could well be interesting (let me know) – as while many of the C1 rail attacks on the CPKC proposal were downplayed or dismissed by the STB, my guess is that the tenor of the arguments sank in and will be reflected in what I expect will be a much tougher Q&A on the CPKC’s second at-bat than the easy day they had on day one, which seems like years ago….
Three attachments and one other:
- My report from that long ago Day 1, as an FYI for those like me who forgot what the hearings were all about
- My recent slide deck relevant to the Q&A box at the bottom
- Bloomberg Radio Supply Chain discussion: The Tape: Treasuries, iPhones, Ray Dalio, the Supply Chain, and ESG (Podcast) on Apple Podcasts start at 23:45
- A European plan to take rail freight market share from 18% to 30% - by 2030! Thanks to Anacostia’s esteemed Peter Gilbertson for this (one has to ask how you beat Dr. Doom in sending this to me?). How do they plan to do it? Customer centricity, Capex, IT (and AV)….you know the drill. The White Paper also calls for “contingency management” (which we call “resiliency” ) – and an end to truck subsidization….
- Speaking of Europe, out of Innotrans by way of The Economist comes news of a new invention, Magnetic Railway Onboard Sensor (MAROS) which senses trains from the actual rails, and, it’s claimed, is better than GPS
- Speaking of GPS, it appears that Canada is getting closer to some form of PTC (hurrah!), although of course who pays and when (ETC) remain open questions.
On to the Hearings, pre-Rebuttal
Quotes of the Days, from the Chairman:
- On the efforts by several Class Ones to win rights, or segments Chairman Marty Oberman wondered was this “just a case of trying to jump in and get the goodies?” That’s the name of the game, Mr. Chairman!
- On UNP seemingly pushing CP out of the EMP container pool (in favor of CN): that seems “punitive and retaliatory”. Ya think?
- On the CN stated that they had tried to work deals on the Springfield Terminal with KCS to no avail but now the railway landscape has changed/is changed: “What’s changed is that CP seems to have won the bidding war with CN for KCS (NOTE – with some help from the STB and two sets of rules, it has to be said). “And now you’re (CN) here trying to ask us to force a deal that you have been unable or unwilling to make with KCS over the years up until now- and you’re taking advantage of the fact that there’s a merger application in front of us (STB) to obtain something that you couldn’t obtain in the private market….” To which I say ouch! And see Game, Name of….
- And my favorite, from the Chairman’s Little Red Book to BNSF: “Couldn’t you go to a 70% OR and still make some money?” to which I say, sure, but then….but….ROI….Capex…..argh!
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- And Commissioner Fuchs gleefully noted that the challenging Class Ones were seeking protection from the Board while in every other instance wanted to be free of its, er, “influence”, even citing BNSF and Intermodal via Laredo (intermodal being the most truck competitive, obviously, and the regulatory Rubicon for rails. (The Class One response wasn’t bad: essentially - this isn’t a rate case, this is a once-in-a-lifetime merger).
CPKC – Arguments seem contradictory at first, but upon reflection can be boiled down to two points. Will the STB bring these up tomorrow? So, I will for these purposes ignore the CN/Springfield Terminal case (see #3, above – although it is worth noting that CN got 75 shipper letters of support, including from ADM!), and the side-bar on the Meridian Speedway between CSX, NSC - and the CPKC (the Board noted that CSX was “sitting in their claim for 16 years”), as well as the local/civilian testimonies (although the Metra issue could bring some cost associated with it, remembering the Chairman’s CV). The Class One attacks on CPKC proposals, as I wrote, are seemingly contradictory and can be summed up as –
- they (CPKC) aren’t gonna grow (which could cause issues down the road as they try to recoup a poor investment return) – such as squeezing the Laredo Gateway
- BNSF really pushed their case that the unregulated rates south of the border can be (and historically have been) used to drive up the cost of interline service versus CPKC (even if out of route etc)
And
- Also, they are gonna grow too much and haven’t accounted for it or sued old/faulty data so aren’t planning enough CAPEX so we foresee issues in Texas and/or Chicago
- It’s hard for even, er, “seasoned” observers to parse this – but CN’s claims that the CPKC synergies call for a 20% increase in tonnage over three years – with only a 5% increase in train starts (that does seem helpful; for the 30% OR in the plans!)
- The STB seemed to overlook the “network effect” – small changes at specific choke points could have deep ramifications
- UP stated that the three-year plan doesn’t jibe with the 5-7 years they see for capital projects in Texas
- I may be beating this dead horse but I continue to be amazed by the focus on the advantages of single-line service – not just by CPKC but brought up in the hearings by supportive shippers such as Richardson and Savage)
- Single-line service is the key point by those proponents of transcontinental consolidation from 5-10 years back (like Matt Rose, for example); now with “new rules” driving any future merger discussion that dream is dead but the reasoning lives on in these North-South plans
- It is interesting to watch CP pivot so beautifully over the course of this saga – from what I thought was smartly bringing up rail/rail competition (with the UP in those N/S lanes, for example) – because they/we thought that in the eye of the STB and its Chairman, so narrowly focused on rails-as-monopoly (as opposed to looking at the movement of freight) that attacking other rails’ traffic base was the ultimate sign of competition; when the STB seemed focused on ESG and noted that some of the planned synergies were “just taking business from other rails” – so in DC there was a lot more emphasis on “taking trucks off the highway”
- And all (or most) of the complainants want 5-year oversight or Gateway protection(including on south of the border rates, leading to Commissioner Fuchs’ comments above) – which seems now like will happen (the devil being, naturally, in the details!)
Also:
- BNSF is betting BIG in intermodal in its $1.5B planned Barstow (Inland Empire) International Gateway, connected by the Alameda Corridor to LA/LB. Details TBA (timing, size – though the footprint could make it bigger than Alliance TX) but this is a BIG bet on rail growth.
- Near term, it seems that the international supply chain is turning from shortage to surplus fast, as we hinted at EXPO. Cancellations/blank sailings are jumping (in this, the “normal” “peak season”), and rates in the transpacific are down 75% YOY with steamship capacity growing ~10% each of the next two years.
- I was impressed enough with Georgetown professor John Mayo’s testimony (on behalf of NSC) that I bought his book “US Freight Rail Economics and Policy – Are We On the Right Track?” 2019 Routledge Studies in Transport Analysis, light reading for the flight to Phoenix….
- US Ag exports to China are up 13% YTD, obviously mostly front-end loaded; very dry river conditions offer some hope for rail in this harvest as barge rates have “sky-rocketed” (US Farm Report)
- Does anyone notice the participation of the famous Canadian rail leaders, but on the shipper side? For sure, eh, there was a Ruest (JM) for Richardson and a Rob Ritchie representing Ingredion (both for the deal)….
Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
anthonybhatch@gmail.com
Twitter @ABHatch18