Greetings;
First, Mike Cory is heading Down Under! See attached….With John Orr to Mexico (see last week), that makes two CN/PSR shoes to drop….
Second – anyone heard about the rail/labor negotiations? Anyone? Anyone? Buhler? (Except, just maybe from KSU’s hint I wrote about earlier that AV-Rail would be fully crewed….)
And now for something completely different:
From the Tweets on SWARS, with full spelling (as opposed to constrained “tweet-speak):
- SWARS, the South West Association of Rail Shippers, is (was on Thursday 3/11) live in San Antonio TX (though my participation is/was virtual); the 1st such event in the railway sector; and hopefully a portent of better things. It was sold out, doncha know it! So far/at first, BNSF highlighted its resiliency (from Covid & Vortex), its “bias towards growth” & positive view of industrials….
(Note – while SWARS points to a return to some form of normalcy, Railway Interchange, the bi-annual mega-convention (AREMA+REMSA+RSI+RSSI) of all of the black operational arts of railroading., scheduled for Indy in the last week of September – has been canceled. Next stop, 2023. Meanwhile, I have attached the agenda for the April – virtual – meeting of NEARS (think: SWARS but replace “SW” with “NE”) that I meant to attach last time. Meanwhile, “trade shows plot their comeback” (WSJ) with the mega-CES “show” in Vegas planned for January 2022….).
- SWARS2 – Graham Brisben of PLG discussed the ongoing steady-as-she-goes opportunity in Plastics – but noted some exciting prospects: the early-innings “gold rush” (warehousing, etc) in E-Commerce and, most notably, two overlooked (by me, anyway) new prospects – renewable diesel (both inbound fats and oils and outbound product are very tank car “friendly”; GB thinks the market could reach 100K carloads annually) – and plastics recycling, sited near population/usage centers rather than the Gulf….It was at SWARS that I first encountered CBR and it is at SWARS that I first hear about these….
- Norfolk Southern CMO, supported by VP-Industrials “Steady” Eddie Elkins, provided a video speech filed at the railroad, worth a look: SWARS V3 on Vimeo
- Conversations in the “Green Room” with a friend/well-known shipper lawyer Mike McBride suggest a further study of the Unita Basin rail proposal might give an even better update on STB thinking that the Massena lines vote, which I had been touting….
- CN’s James Cairns, SVP Rail-Centric Supply Chain (that’s Canuck for “Bulk & Merchandise”) at Canadian National, spent a lot of his speaking time on tech and the transition of CN from PSR (2.0) towards D-for-Digitalized-SR; CN is updating its shipment tracking capability with a “later this year” release. CN has a fair amount of closed-loop business, compared to the US rails, anyway, but I wonder about the implications of this on Rail Pulse. Also, he provided two tidbits on energy transportation heading in opposite direction: he saw no “bump” from the pipeline cancelation yet he, too saw a real opportunity in renewable diesel and its feedstock
From the Conferences, updates on two of the US Big Four, and a good thing too because I was wondering why the first of them wasn’t at SWARS in its most important state….
- Union Pacific’s CEO Lance Fritz emphasized UP’s growth focus after getting past the Polar Vortex recovery (there’s always something). It is clear from his remarks that Lance and his team are focused on “pivoting to growth”, on ESG, and on tech – we will hear more at Investor Day on May 4. He also confirmed that, yes, the railway will still run – and run on PSR principles – after Jim Vena leaves (6/30).
- CSX’s CEO Jim Foote expressed similar themes but with a year’s progress behind him. He expressed some frustration with T&E labor work rules (regarding handling uneven recoveries, etc), which may have some implications for the National Labor Negotiations (unmentioned, and above). But growth was the theme – intermodal growth, re-fired up TransFlo growth, Business development growth, improved interline growth….good to hear.
But first, Congestion and rail metrics:
- Farmers report that container availability is getting worse, especially from the west coast (confirming the reports that transload growth and the desire to retain the empty boxes in the ports places ag exporters at the bottom of the container priority list
- IANA’s February report shows the short term (for IM, anyway) hit in February – overall intermodal volumes eked out a small 1.1% gain, but domestic containers dropped almost 8% (2-Month intermodal volumes, which encompasses the entire NA intermodal ecosphere, were up 3.8%).
- Again, for the container world, it is all about the water: IHS says that global delivery times in February are the second-worst ever (I must admit I am not sure how that is tracked but you get the idea) and Bloomberg has noted that the situation in LA/LB has gotten modestly better – coincident with vaccines at the port? - but the pond-ripple has made conditions in Oakland – and Savanah – worse. The JoC reports that ocean reliability (again – tracked how?)k is down 35% YOY
- Monday’s WSJ noted that “Factories Struggle to Meet Demand” due to supply chain issues – the very same headline they have had every month since roughly September (but you get the idea)
- A short line contact tells me that NSC is having some congestion issues at Elkhart and especially in upstate (Buffalo/Rochester) area leading to some friction with shippers and short lines over demurrage etc – at a time when NSC has supported the Pan Am deal in that region….this is seemingly supported by NS metrics
- But railroad volumes overall have shown a solid recovery from Mid-February
So is Mexico/reshoring the answer? Well – maybe….there is no evidence yet beyond the established NAFTA-network; rapid changes just have to be held back by perceptions of government instability. It is now becoming understood that AMLO’s confusing support for Mexican utilities (greatly) prioritizing Mexican fuels is actually ultimately designed to help prop up Pemex by creating a customer for its heavy fuels to replace the steamships now forbidden to use it….the continued, un-economically justified support for Pemex has implications for cross-border rail traffic (not to mention the Mexican economy).
From the journos:
- As I have been saying, and noticing in the changed webcast Q&A of late: The Cult of the Operating Ratio may be loosening its grip - Trains Magazine - Trains News Wire, Railroad News, Railroad Industry News, Web Cams, and Forms. Now I respect Bill and I agree with the tenor of the argument, that cost-cutting has moved from investor focus #1 - to, IMHO, 1) Growth; 2) Tech (which of course is critical to #1) and 3) ESG – I cannot disagree more with “Investors are beginning to see PSR as a one-trick pony” – poppycock! And later he quotes someone as saying “PSR inhibits growth” – balderdash!
- The article omits KSU, whose PSR slogan is “service begets growth”!
- The article omits….er….CANADA, whose railways demonstrate – clearly that while the beginnings of PSR (PSR 1.0) are cost/efficiency-focused (obsessed), and the huge OR reductions, beginning with CP , were attractive to investors, especially those with shorter-term horizons, the next phase (call it PSR 2.0 or as CN-the-mothership says, DSR) is all about the “pivot to growth”!
- I am not sure whether ignoring the experience of the Canadians (National & Pacific) and the Mexicans (well, the growth half of KSU, anyway) is some form of latent MAGA thing, but for North American rails it is incorrect….
- Nonetheless I agree with the tenor – if the rails had always planned for a 2.0, the investors have seemingly changed of late….Note that the very first question asked of Lance Fritz (above) was about this quarter’s OR – but that was from an analyst, not an investor….who also noted that the “OR gap” with BNSF was widening when in fact in 2020 it narrowed.
- Something (else; sigh) that I hadn’t thought of – railcars and track damage: Why Rough Riders Should Be Taxed - Railway Age – some folks(in the rail car leasing business) have a problem with this but I have found the author, Bob Cantwell, ex-Amsted, to be on top of things….
- You have to love this headline from the FT: “Europe(an) Carmakers Wary of Hydrogen ‘Hype Cycle’”
- Almost as obvious as “President Biden turns his attention to Infrastructure after the Covid Relief/Stimulus bill signing – But it won't be as easy” – multiple sources….
Also:
- ESG ain’t no joke – TCI gets a climate resolution in its proxy circular: CP Brings Climate Strategy to Shareholder Vote Following Investor Engagement - ESG Today NOTE: CP recommends shareholder approval
- The Greensill debacle moved a step closer as it is revealed that one of the major clients (to the tune of ~$850mm) of the supply-chain finance company on the rocks and in the headlines is a West Virginia coal, company, Bluestone (owned by the state’s governor, to make things that much more interesting)
- Higher diesel prices will be around for a bit, it seems – the EIA predicts a moderation coming in H2/21 and sees 2021 FY average prices at $2.88/gl, up from $2.55 last (pandemic) year; 2022E is $2.87
- There are reports of a new outbreak of swine fever (ASF) in China….
Anthony B. Hatch
abh consulting
http://www.abhatchconsulting.com
abh18@mindspring.com
Twitter @ABHatch18