Posts Tagged ‘coal and railroads’

Canadian PSR Success Stories Unlikely to be Replicated by U.S. Class 1 Railroads

June 16, 2021

U.S. railroads that have adopted the precision scheduled railroading operating model like to describe it as a two-step process.

The first step involves ruthless cost cutting as freight schedules and operations are revised to move more freight in fewer and longer trains.

Some shops and yards are closed or reduced in their scope of operation, and layoffs are widespread as the carriers seek to do more with less.

The second chapter is a so-called pivot to growth. Class 1 railroads CEOs like to tell investor conferences that the savings from slimming down and becoming more efficient and reliable operators will enable railroads to chase after volume growth.

But what if the second chapter of the story is actually a myth?

Railroads have an answer for that. They’ll point to the experience of Canadian National and Canadian Pacific, both of which implemented PSR and once it was in place began enjoying double digit traffic growth.

Between 2010 and 2019 Canadian rail traffic rose 47 percent while U.S. rail traffic fell 2 percent.

Yet an analysis published on the website of Trains magazine suggested that what happened in Canada is less likely to occur in the United States.

What drove growth in Canada were factors unique to that country with much of it being driven by international intermodal, petrochemicals and fuel, and agriculture.

Canadian international intermodal traffic grew at the expense of U.S. West Coast ports and a 40 percent rise in containers landing at Canadian ports that were forwarded to the U.S. Midwest.

CN and CP also are hoping that Eastern Canada ports can divert traffic away from U.S. East Coast ports.

The Canadian carriers have other advantages including how farmers in Canada are more dependent on rail than is the case with U.S. farmers.

While Canadian agriculture shipments rose 16 percent over the past decade, U.S. agricultural rail volume fell 22 percent. In the United States, railroads haul less than 50 percent of grain ton-miles.

Coal offers another contrast. Most Canadian coal is metallurgical coal and exports of it to Asia drove a 10 percent increase in coal volume over the past decade.

In the United States, most coal is thermal coal used by power plants, many of which have been shifting to lower cost natural gas. U.S. railroad coal volume in the past decade fell 44 percent.

The Trains analysis noted CN and CP also have some other built-in advantages, including networks that are largely east to west across the country and rely far less than U.S. railroads do on interchange traffic.

The Canadian economy is more reliant on rail transportation because the country has longer distances between urban centers and a highway system that is less developed than that of the U.S. Therefore competition from trucking companies is less intense.

The analysis said CN and CP deserve credit for taking advantage of their opportunities and being creative in generating, for example, traffic to fill containers from U.S. destinations that would otherwise return empty to Asia.

They’ve done this by offering good service and competitive rates to keep this traffic from returning to U.S. ports, the analysis said.

It remains to be seen, the analysis concluded, how successful U.S. carriers will become in growing traffic as they claim to be doing.

But the key point, the analysis said, is that the type of success stories by U.S. Class 1 carriers that CN and CP have enjoyed are not guaranteed because of significant differences in the environments in which the carriers operate.

Biden Plan Would Accelerate Coal Decline

April 5, 2021

The Biden administration’s proposals to fight climate change would accelerate what has already been a downward decline of the use of coal for generating electricity.

That would further depress railroad coal traffic, industry observers say.

Rob Godby, an economics professor who is deputy director of the University of Wyoming’s Center for Energy Regulation and Policy, said the Biden proposals would accelerate the decline of coal that has been under way for a decade.

During the past 10 years, railroads have seen their coal traffic fall but “black diamonds” still remained a substantial source of revenue.

In 2020, coal was 12 percent of rail freight volume in the United States, figures from the Association of American Railroads show.

Coal was the single largest commodity that Class 1 railroads carried in 2020 and provided $7 billion in revenue.

Yet the use of coal to generate electricy has fallen from 48 percent of the nation’s power supply in 2008 to less than 20 percent last year.

Most coal mined in the United States is used to generate electricity but is also used in steel making and exported to other nations.

Biden has proposed using tax incentives for renewable energy for another decade while making power grid investments to support greater use of wind and solar power.

Godby said those changes, if implemented, will make it difficult for coal to compete on an economic basis with natural gas and renewable sources of energy.

“The bottom line is if this were to happen, you could say the Powder River Basin would almost entirely be shut down,” Godby said referencing a region in Wyoming and Montana served by BNSF and Union Pacific that produces nearly half of U.S. coal.

Godby said some renewable energy projects provide electricity more cheaply than coal, even without subsidies.

Transportation costs can take up three quarters of the delivered cost of coal to a power plant.

Even if Congress were to reject the Biden plan, Godby said coal is living on borrowed time and he expects demand for it to be a shadow of itself by 2035 when very little of the nation’s power will be generated by burning coal.

Already, coal producers are seeking to sell or shut down mines in the Powder River Basin. Arch Resources plans to close the Coal Creek mine in Wyoming in 2022 and reduce production at Black Thunder Mine, the second-largest U.S. coal mine.

The Biden infrastructure plan has proposed establishing as many as 10 power plant carbon capture demonstration projects.

But Godby said for those to be commercially viable, carbon capture would require technology and cost breakthroughs as well as the development of markets for carbon dioxide use.

Loss of Coal Traffic Drove Class 1 Freight Volumes Downward During 2nd Quarter of 2020

July 3, 2020

Loss of coal traffic was a major driver in sharp volume declines for North America’s Class 1 railroads in the second quarter of 2020.

The carriers posted an aggregate 19 percent decline during the period with Norfolk Southern taking a 56 percent hit.

From a historical perspective, coal traffic was down 34 percent when compared to the volumes posted in the second quarter of 2019.

NS also suffered a steep 26 percent drop in overall traffic during the second quarter of 2020 due to shut downs of automotive plants amid the COVID-19 pandemic.

Automotive plants were closed during April and much of May but have since reopened.

Intermodal traffic was down a collective 11 percent for the Class 1 railroads during the quarter.

It also presented a sharp contrast. On one hand parcel shipments increased as consumers relied more heavily on e-commerce during stay home order periods.

But that was more than offset by the closure of numerous retail stores and falling international intermodal shipments because retailers maintained high levels of inventory during their shutdowns.

Carload traffic for the Class 1 railroads was down 22 percent collectively with NS suffering the greatest loss at 30 percent. This category excludes coal and intermodal shipments.

Second quarter financial results for publicly traded Class I railroads will be released later this month.

Metso Building Unloading System for CSX

June 30, 2020

Metso Corporation said this week it is building a new rotary dump system for CSX that will be used to unload coat at the railroad’s Curtis Bay Export Terminal in Baltimore.

The system, which is expected to begin operations in October 2021, will use two dumping assemblies, a hopper system, and car-spotting equipment.

It will be capable of accommodating rotary-dump and bottom-dumping cars.

In a news release, Metso described itself as supplier of dumper technology and has delivered more than 400 dumper systems worldwide. It is based in Helsinki, Finland.

UP CEO Sees Coal Traffic Bottoming Out

February 28, 2020

The decline of coal traffic may have bottomed out for now one railroad CEO believes.

Speaking to the Barclays Industrial Select Conference, Union Pacific head Lance Fritz said only the most efficient power plants that use coal are still in operation.

Natural gas has eclipsed coal as the fuel of choice at many power plants due to its low cost.

Fritz said there are few coal-fired power plants left and those form a baseline of coal loadings.

He doesn’t believe the haulage of coal by railroads will rebound from the extended slump it has been in and which has affected the financial positions of such other Class 1 railroads as Norfolk Southern and CSX.

At UP, coal traffic is down 30 percent thus far in 2020. It declined by 16 percent in 2019.

Much of the coal hauled by UP originates in the Powder River Basin of Wyoming.

Also working to depress the use of coal are increased use of wind and solar energy.

The U.S. Energy Information Administration projects that another wave of closings of coal-fired plants will occur over the next five years.

The agency said that natural gas prices last year were their lowest in the previous three years.

Fritz noted that the loss of coal traffic underlies UP’s stagnant traffic volume over the past 15 years.

“That’s a big, big deal,” Fritz said of the decline of coal traffic. “That in and of itself is tens of thousands of carloads a week.”

Last week UP hauled 15,294 carloads of coal whereas in the same week of 2011 it handled 43,007.

UP’s approach to coal traffic, though, stands in marked contrast to that of western rival BNSF which has been able to retain some of its coal business by cutting rates in an effort to discourage coal-fired plants from switching to natural gas.

For its part, UP has engaged in what it described as “judicious pricing” of its traffic to earn an acceptable return.

Powder River Basin coal traffic peaked in 2008. Since then BNSF coal volume from that region has fallen 24 percent while UP’s volume has plummeted by 59 percent.

BNSF’s coal volume is down 6 percent this year and fell 6 percent last year.

Information the carriers reported to the U.S. Surface Transportation Board indicate that last week BNSF dispatched 35 coal trains from the Powder River Basin while UP had 12.

Export Coal Markets Are Falling

August 4, 2019

In the facing of declines in the domestic coal market, U.S. railroads had made up some of the slack with export coal.

In 2017, the amount of coal exported from the United States rose by 61 percent.

But that market now is in decline due to lower natural gas prices an analysis released by investment bank Morgan Stanley has found.

The report said coal exports are expected to fall by 15 percent this year.
Not only are natural gas prices falling, but shipping of liquefied natural gas has also increased.

In the meantime, banks, other lenders, and insurance companies are no longer supporting the coal industry as they once did with more than 100 of those institutions have withdrawn from the market since 2013 said a report by the Institute for Energy Economics and Financial Analysis.

The Morgan Stanley analysis said that financial institutions have cited climate issues for reducing their investment in coal companies.

“The globalization of natural gas is set to usher in a new energy transition,” said the Morgan Stanley report. “A wave of investment in LNG, which can be easily transported, is unleashing this cheap energy resource and creating a new global commodity market.”

The Association of American Railroads said that U.S. and Canadian carloads of coal averaged about 7 million annually between 2009 and 201.

In the past three years, that has fallen to 5.25 million in 2015 and 4.5 million between 2016 and 2018.

Norfolk Southern and CSX both noted falling coal exports in their second quarter financial reports.

Reports indicate that it coal exports have fall to Europe and Asia.

Some Asian nations had in recent years seen increased demand for steam coal from 10 million short tons in 2016 to 20 million tons in 2017.

But during the first five months of 2019, Asian markets have reduced their coal purchases by 11.5 percent to Indiana, 31.6 percent to South Korea and 66 percent to China.

Unpaid Miners Block CSX Coal Train in Kentucky

July 31, 2019

Fed up with having been laid off and unpaid for the time they did work, workers of a Kentucky coal company blocked a CSX coal train from leaving a mine on Monday.

The miners for BlackJewel Mining formed a human chain across the rails to block the train from leaving Cloverlick No. 3 mine near Cumberland, Kentucky.

BlackJewel is a subsidiary of Revelation Emergy, which sought Chapter 11 bankruptcy protection under federal law in early July.

Revelation subsequently shuttered most of its mines. The miners said they have gone unpaid for work they performed and their benefits and insurance are in question.

The mine where the blockade occurred is on the former Louisville & Nashville Poor Fork Branch.

News media reports said the miners were peaceful and demanded that they be paid for mining coal that likely was aboard the train that they halted.

Kentucky State Police troopers were dispatched to the scene to inform the miners that they were standing on private property, but no arrests were made.

The miners eventually relented and allowed the train to pass.

On Tuesday, though, miners again stood on CSX tracks near Cumberland., but it was not clear if any trains were slated to serve the Cloverlick No. 3 mine.

Coal Booster Plans Quietly Dropped

October 17, 2018

The Trump administration has quietly set aside its plans to bolster the coal industry amid opposition from within and outside the administration.

Politico reported that various ideas to force utility companies to keep coal-fired generating plants operating were opposed by members of the National Security Council and National Economic Council.

The report did not say whether President Trump, who campaigned in 2016 on a pledge to revive the coal industry, agreed with or made the decision himself.

Coal remains the single-largest commodity by carload volume hauled by Class 1 railroads, but that traffic has sharply declined in the past decade as utility companies have retired coal-fired plants or switched them to burning natural gas.

The Politico article said the coal industry has been frustrated by lack of progress in the administration’s effort to boost coal production and use.

In particular, they have been hoping for economic assistance, but that has met with fierce opposition from oil and gas producers, consumer groups worried about rising energy costs, environmentalists, and conservatives fighting federal intervention in markets that might cost billions of dollars.

NS Doesn’t Expect Proposed Clean Air Rule Changes to Benefit Coal All That Much

September 11, 2018

Proposed changes in federal clean air rules are not expected to materially affect coal-powered utility plants served by Norfolk Southern.

NS Chief Financial Officer Cindy Earhart gave that assessment recently during an investor’s conference.

The Trump administration has proposed loosening the regulations in an effort to boost the economic fortunes of power plants that burn coal.

“For the plants that we serve, we don’t see that having that much of an impact,” Earhart said.

She said the move away from coal by electric generating plants is being driven primarily by low prices of natural gas and an increased use of such renewable energies as solar and wind power.

“We think coal will be around for quite a while. But I don’t think we see utility coal as growing,” Earhart said.

NS annual reports indicate that coal traffic has fallen by 22 percent since 2011. In 2013, NS served 100 coal-burning power plants, but that has dropped to 76.

Although the amount of domestic utility coal that NS hauled last year was up slightly, officials have attributed that to the effects of weather and utility companies depleting their unusually high stockpiles of coal.

The proposed changes in clean air rules, which would give state regulators more authority in regulating emissions, are expected to take years to wind through the regulatory and legal processes and some utility executives are not expecting them to have a major effect on their industry even if implemented.

In a move away from coal, Columbus-based American Electric Power is developing a wind-power farm with a 350-mile transmission line.

“Clearly, our shareholders and customers expect a clean-energy economy,” American Electric CEO Nicholas Akins said in an interview with The Wall Street Journal.

R&N Set Freight Traffic Records in 2017

January 9, 2018

Rising coal traffic helped the Pennsylvania-based Reading & Northern set a traffic record in 2017.

The Class II railroad said it handled 31,175 carloads in 2017, a 15 percent increase over 2016.

The figure is a 50 percent increase over the past five years.

The company credited 40 percent growth in anthracite coal traffic for playing a major role in the traffic increase.

“This unprecedented growth came across all of the many commodity lanes handled by R&N,” the railroad said. “Once again, R&N is ‘The Road of Anthracite.’”

Much of the increase in coal traffic involved hauling Pennsylvania anthracite bound for markets in the Ukraine, where it replaced Russian coal.

R&N said that during 2017 it added hundreds of new cars of business at its transload facilities and warehouses. The forest products group handled more than 10,000 carloads in 2017.

“At year end, we had more employees, track, locomotives, freight cars, facilities and customers than at any point in our history,” said CEO/Owner Andy Muller, Jr.