Posts Tagged ‘Railway Age’

As Political Winds Blow, Long-Distance Trains Go

April 25, 2018

As a general rule I don’t put much stock in opinions on railroad chat lists that “predict” the imminent demise of Amtrak’s fleet of long-distance trains.

Such predictions have been made for decades and yet long-distance trains have survived.

Yes, some have fallen by the wayside over the years, most notably in 1979 and 1995. But numerous efforts to kill off all long-distance trains have fallen short.

With the planned discontinuance of full-service dining cars on the Capitol Limited and Lake Shore Limited the prophets of doom are at it again.

But then I read a column by William C. Vantuono, the editor of Railway Age, in which he said he thinks the dining changes being made on the Capitol and Lake Shore are part of a plan to shut down the Amtrak national network and leave only the Northeast Corridor, Midwest corridor trains, California corridor trains and other state-supported services.

Vantuono is not one to make dire predictions, but I took notice when he wrote, “I’ve been hearing about internal plans within Amtrak to discontinue long-distance trains. The best way to do that, of course, is to make the service so unpalatable that people stop riding them. Are we looking at a veiled attempt to drive passengers away? I believe we are.”

But then I read the rest of his column and noticed that he had qualified his “prediction” by saying “maybe, maybe not.”

I later received an email from a friend who sent a link to meeting notes of a presentation in which Amtrak CEO Richard Anderson reportedly said to an audience of 150 passenger rail officials that he wanted to kill the long-distance trains and only operate corridor service of 400 miles or less with DMU equipment.

But when I read those notes I found the rail passenger advocate who took them said, “I noted that he (Anderson) did not specifically say that the long-distance trains would go, only that corridors are the future.”

Finally, I read Trains columnist Fred Frailey’s view that Anderson won’t try to scuttle the long-distance trains this year.

“If Richard Nixon and Ronald Reagan and Donald Trump couldn’t axe them, why would Richard Anderson even try?” Frailey wrote.

The fact is no one knows the future of Amtrak’s long-distance passenger trains.

Anderson may believe that corridors provide the best marketing opportunities for intercity rail service, but neither he nor Amtrak’s board of directors are free agents in overseeing a company that depends on public money to pay its operating and capital expenses.

Amtrak is, has always been and always will be a political creature subject to decisions made by Congress and, to a lesser extent, state legislatures.

Congress has acted to kill some long-distance trains over the years and has acted to save them in others.

That said there may be good reason to believe that long-distance trains might be on slippery rails.

Anderson told Congress earlier this year that Amtrak won’t operate on routes that fail to meet the federal mandate that positive train control be installed by the end of this year. He also suggested Amtrak might not use routes that aren’t required to have PTC.

Much of this probably is political posturing. At the time of his testimony Anderson was still smarting from the Cascades and Silver Star crashes, which might have been avoided had PTC been in operation.

Yet some segments of long-distance routes either might not meet the PTC deadline. Is Amtrak going to chop up those routes?

Another potential threat is that the equipment devoted to long-distance service is wearing out. Will Amtrak seek to replace it?

Amtrak has rarely shown much, if any, interest in creating additional long-distance routes or expanding service on the long-distance routes it does operate.

Various Amtrak presidents probably have viewed the long-distance network, skeletal as it might be, as insurance for widespread political support.

In his talk to the passenger train officials, Anderson repeatedly said he must follow the law, meaning Passenger Rail Reform & Investment Act of 2015, saying it requires Amtrak to operate at lower cost and more efficiently.

In particular this applies to food and beverage service and an Amtrak inspector general’s report of seven years ago found that the lion’s share of losses on that could be attributed to the long-distance trains.

Anderson and perhaps the Amtrak board of directors might see long-distance trains as a hindrance to their ability to cut costs and operate more efficiently. They also might see the long-distance trains as dinosaurs.

Amtrak will turn 50 in three years. A half century is a long time for any one company to operate with essentially the same business model.

But most companies are not as subject to political pressure as Amtrak. As the political climates goes, so goes the future of long-distance trains or, for that matter, any intercity passenger trains.

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Traffic Growth Not Propelling CSX

April 20, 2018

CSX this week posted some glittering first quarter financial numbers and service metrics, but were they based on fool’s gold?

An analysis by Railway Age noted that the record earnings and operating ratio was based almost entirely on cost-cutting measures, rate increases and stock buybacks rather than on traffic volume growth.

In short, CSX is trying to live up to the adage that less is more. In this case, that means operating fewer and longer trains with fewer employees.

In looking at CSX freight traffic numbers, the trade publication found that traffic volume was flat or declined in every category except export coal and international intermodal.

Railway Age quoted its Wall Street Contributing Editor Jason Seidl as saying that from a financial standpoint CSX exceeded expectations among financial analysts in terms of revenue and profits.

The managing director of financial firm Cowen and Company sees that as a positive.

“Early on in [CEO Jim Foote’s] tenure, the company is showing the ability to operate efficiently as a smaller railroad with fewer employees and assets.”

Seidl said investors are likely to have increased confidence in CSX’s goal of achieving a 60 percent operating ratio by 2020.

“We continue to expect that CSX will become a more nimble, dynamic railroad in the coming years, as many layers of management have been reduced,” he said. “The company has consolidated its structure into four operating regions from nine. The number of hump yards where railcars go to die has been cut by two-thirds to four, from 12. There could be more to go on that front. Decentralization of operational decision-making will likely prove to be a key component to customer service improvement and employee retention over time.”

CSX is expected to continue reducing its employment rolls, sell $300 million in real estate through 2020 and reduce the total mileage of track that it operates.

Seidl noted that in the first quarter of this year CSX reaped $32 million from real estate sales.

“We think CSX’s strategy could provide an opportunity for Genesee & Wyoming . . . to acquire complementary infrastructure,” Seidl said, adding that G&W is already a major interchange partner with CSX and has a history of looking for asset sales from Class 1 railroads.

Railroad economist Jim Blaze told Railway Age that most of the net earnings that CSX posted in the first quarter of $695 million was based buying back shares of its stock.

He attributed the 19.8 percent improvement in the operating ratio largely to cost cutting.

“Revenue was relatively flat, year over year. The biggest revenue growth appeared to be from price leveraging and fuel surcharge increases,” Blaze said.

“On the traffic side, my analysis is a bit more negative for those expecting a shift toward a larger rail vs. truck mode change. That’s not occurring for CSX.”

Blaze said CSX traffic unit growth has stalled despite traffic growth opportunities provided by truck driver shortages and electronic logging.

“Intermodal volume remained unchanged percentage-wise at just 1,000 intermodal units over the 90 days. That’s about 11 system-wide units per day as truckers struggle,” he said. “Who saw that competitive outcome? Domestic intermodal growth was negative. That outcome isn’t in any stated railroad plans, is it?”

Lake State Honored by Railway Age

March 14, 2018

Lake State Railway has been named the Class III railroad of the year by Railway Age magazine.

The trade publication cited the short line, which is based in Saginaw, Michigan, for its efforts to reverse a traffic decline and rehabilitate worn out tracks.

In 2013, LSR traffic had fallen 27 percent on the former Detroit & Mackinac line that it had acquired in 1992.

The railroad faced diminishing carloads and customer closings. Further, the customers who remained were shifting business to trucks because they were convinced that abandonment of the 201-mile railroad was imminent.

More than 100 miles of track on the Huron Subdivision was classified as excepted track due to lack of maintenance.

With carloads having fallen to 3,606 annually, LSR drew up and implemented a five-year strategic plan to reverse the fortunes of the line.

The railroad sent representatives into the field to meet with customers to win back their confidence in rail service and win back their business. In the process it landed five new customers.

The track was rebuilt and more than a half-billion in on-line industrial projects are under way, some of them trans-loading facilities.

Twenty miles of new or relay rail was put down and five miles of industrial tracks were built as part of a $10 million capital program.

Service frequency was also increased to better serve customers. What had been a weekly to Grayling, Michigan, is now operating five days a week.

Local service in Grayling will expand to two shifts later this year.

The plan has led to the creation of new jobs and thousands of new rail carloads.

LSR acquired 190 aggregate cars to support its largest customer and a fleet of mill gondola cars to win back business that another customer had planned to divert to truck.

Leasing 60-foot Plate F 286K boxcars enabled LSR to win new business from an oriented strand board mill in Grayling.

Shippers Perspective on CSX Service Woes

March 13, 2018

We often refer to a railroad’s customers as shippers as though they are a monolithic group.

They are in the sense that all of them pay a railroad to transport something, whether it be coal, trailers, containers, automobiles, scrap metal, chemicals or grain, to name a few.

But the interests of shippers of new automobile are not necessarily the same as those who ship coal.

Nor are all shippers equally suited to get CSX or any other railroad to pay attention to their gripes and complaints.

Some shippers are big enough to get a CSX executive to return their phone calls, but others might wait days, weeks or months to hear from the railroad if they hear anything at all.

The most vulnerable shippers are those who consider themselves captive to a railroad.

What constitutes a captive shipper is a subject of debate. A railroad might argue that all shippers have alternatives and it is a matter of their willingness to use them.

Shippers would say that some of those alternatives are impractical and/or too expensive.

CSX’s top management recently made the case at a meeting of investors that it has made great strides toward providing not just better, but excellent service for its shippers.

The late E. Hunter Harrison used every opportunity he could to say that precision scheduled railroading would result in better service for shippers.

I recently ran across an op ed column on the website of Railway Age written by Ann Warner, a spokesperson for the Freight Rail Customer Alliance, which represents more than 3,500 manufacturing, chemical and agriculture companies, electric utilities and alternative fuel companies.

As Warner sees it, CSX is more interested in pleasing shareholders than its shippers.

As evidence she cited the company’s $5 billion stock buyback program, noting that this is more than double what CSX spends on capital investments every year.

While agreeing that CSX needs to make a decent return on the investment made by its shareholders, Warner said that shippers and rail labor interests find themselves having something in common.

“CSX’s problems have become so big that what is bad for CSX’s customers and the country generally has also become bad for CSX’s employees. And CSX is just a more extreme version of what is happening at other railroads as they, too, pursue the holy grail of operating ratio reductions,” Warner wrote.

In reading Warner’s column I was reminded of how Harrison used to dismiss complaints from shipper organizations as little more than a front for long-standing arguments to re-regulate the railroad industry. There appears to be some truth in that.

Warner made it clear that many shippers believe the current regulatory scheme isn’t working for them.

In particular, she noted that federal law requires that rates for rail-dependent shippers must be reasonable.

When a shipper believes its rates are not reasonable it can complain to the Surface Transportation Board. Yet Warner finds the STB’s stand-alone cost test to be impractical.

“SAC cases are long and expensive, and their record of success is spotty at best. Large chemical companies like DuPont have devoted years and millions of dollars to bring SAC cases, only to have little or nothing to show for their efforts. Electric utilities have achieved a more mixed record. However, most shippers cannot even think of bringing a SAC case because of the expense.”

Other rate abuse remedies exist, but Warner said they are not viable.

Warner also was critical of the STB’s response to the CSX service problems of last year.

“In response to shipper complaints about CSX, the Board required some reporting, convened a public listening session, scheduled weekly status calls (which are not made public), and relied on its Office of Public Assistance, which under the circumstances has done a good job where it can,” she wrote.

“More telling is what the Board has not done: There have been no penalties or other sanctions, no order to show cause, and no directive to avoid personnel cuts or other operational changes.”

It is worth reading Warner’s column if for no other reason than because it provides a shipper’s perspective on the railroad industry. You can find it at: https://www.railwayage.com/news/csx-actions-add-shipper-woes/

Warner didn’t say much about what her employer wants done. She said rail-dependent shippers welcome the opportunity to work with rail labor “to help get the nation’s railroads, particularly CSX, back on the right track.”

What that would entail she didn’t say. It is one thing to identify a problem, but quite another to implement the solution.

Comments from shippers must be read with the same degree of skepticism that comments made by railroad executives also must be read. Both are trying to get the world to accept how they project themselves and neither is necessarily what they say that they are.

Shippers and railroads are alike in those both seek to maximize their own financial gain, sometimes at the expense of someone with whom they do business.

The interests of shippers and railroads will inevitably conflict and each will do whatever it can to influence those who have the authority to address those conflicts.

Truth be told, some members of Warner’s organization probably have their own customers who complain about the service they receive.

Caught in the middle are regulators and policy makers who would rather not get caught in the back and forth that exists in commerce.

And yet that is what they are appointed to do. Perhaps if no one is satisfied with the regulatory framework and how it operates then maybe they are doing something right by not favoring one party too much.

INRD Honored by Railway Age

March 12, 2018

Railway Age magazine has awarded the Indiana Rail Road its 2018 Regional Railroad of the Year award.

Editor-in-Chief William C. Vantuono said the railroad was chosen due to its success at expanding its non-coal traffic base through an aggressive growth and diversification strategy.

INRD was created in 1986 go take over a former Illinois Central branch line whose primary commodity was coal used by the Harding Street generating plant of Indianapolis Power & Light.

The power plant has since been transformed into using natural gas, thus causing a major loss of traffic for INRD.

Another setback came when a Duke Energy power plant in Terre Haute, Indiana, and a plant that produced synthetic gas from coal both closed.

INRD has compensated for the loss of coal traffic by expanding other sources of business, including creating an alliance with Canadian National to move intermodal traffic.

The railroad also opened a warehouse and cross-dock with Indianapolis-based Venture Logistics and rail-to-truck transload facilities in Indianapolis, southwest Indiana and Illinois.

It is second time that INRD has received a regional railroad of year award from Railway Age, the first having come in 2012.

Locomotive Business Future Not Bright

November 15, 2017

Although General Electric has yet to discuss in detail why it is seeking to sell or spin off its transportation division, one factor is likely a weak market for new locomotives.

GE had cited that earlier this year in talking about its plans to end locomotive production at its Erie, Pennsylvania, assembly plant.

Now comes a report in Railway Age that states that the number of investors in locomotives is falling and the value of used locomotives is declining as well.

Historically, leasing companies and banks were major buyers of new locomotives.

But, Railway Age reported, “changes to the lease market, low interest rates, railroad profitability and bonus depreciation changed railroad investment in locomotives from lease to buy and have potentially changed the market forever.”

Declining freight traffic has also played a role in depressing locomotive demand.

There are few investment opportunities with long-term value in locomotives and the short-term lease market for locomotives has grown thin aside from short line and industrial railroads. In short, there is more supply than demand for locomotives.

Steven Beal, president of locomotive manufacturer, rebuilder and lessor NRE, told Railway Age that there might not be any significant orders for new locomotives until 2020.

Orders for new locomotives peaked in 2015 before EPA Tier IV emissions restrictions were implemented. Since then new locomotive orders have become almost non-existent.

Many carriers have found it cheaper to rebuild older units with modern affordable technology that meets emissions standards than to buy new Tier IV units.

However, time may be on the side of locomotive investors.

There are a lot of old locomotives still in service. One estimate is that 80 percent of locomotives built 50 years ago are still in service. Older locomotives someday will need to be replaced.

In the meantime, many class 1 railroads are paring down their diesel rosters. Railway Age quoted an unnamed source as saying that Class 1’s are returning every off-lease locomotive of less than 1,500 hp and ditching higher horsepower four-axle locomotives such as the GP38-2, a four-axle, 2,000 hp locomotive whose production ended in 1984.

Many of these surplus units have been sold at auction with short-line railroads being active buyers.

But not all of the locomotives being discarded by the Class 1 railroads are finding buyers due to height, weight and track restrictions on larger locomotives.

Beal said NRE has fielded an increase in inquiries from the industrial market for medium horsepower four- and six-axle power because their business has picked up, particularly in the steel and petrochemical sectors.

He said the number of locomotives in storage has declined by half to roughly 2,500.

Is CSX Trying to Eat its Seed Corn?

November 6, 2017

Under normal circumstances, I don’t cover news beyond the states that surround Ohio, but there is a story out of Baltimore that is worth following because it may say much about what is going on with CSX these days.

Last week CSX said it would not contribute $145 million to a public-private partnership to enlarge the Howard Street Tunnel in Baltimore to accommodate double-stacked container trains.

When the Baltimore & Ohio Railroad built the tunnel 122 years ago, no one could have envisioned stack trains, let alone intermodal trains carrying containers and truck trailers.

Howard Street is just one example of the aging infrastructure in the Northeast transportation corridor between New York and Washington that needs to upgraded, rebuilt or replaced. It won’t be inexpensive.

You might think that CSX would be keen on modernizing the Howard Street Tunnel because it is an impediment to developing the I-95 corridor between New Jersey and Florida. And for a time it was.

Enlarging the Howard Street Tunnel would have benefited the Helen Delich Bentley Port of Baltimore, which has seen an increase in container traffic since the expansion of the Panama Canal.

Figures provided by the Maryland Port Administration show that the port handled a record 10.3 million tons of general freight and nearly 908,000 TEUs (20-foot-equivalent units) of containers in fiscal year 2017, which ended on June 30.

Then along came E. Hunter Harrison of precision scheduled railroading fame.

In announcing the decision to cancel its share of funding for enlarging Howard Street Tunnel, CSX put out a statement that referenced precision scheduled railroading – it has become a buzz phrase used as boilerplate in virtually every CSX statement and news release these days – and made a vague statement that the tunnel project “no longer justifies the level of investment required from CSX and our public partners at this time.”

But as Railway Age magazine pointed out, the statement did not fully explain why CSX decided to bail out on funding the Howard Street project.

When the magazine asked CSX to elaborate, its PR department replied with the same statement it had issued earlier. CSX is not going to explain itself any further.

Railway Age suggested two possible reasons for why CSX backed away from the Howard Street tunnel project.

One is that a fresh set of eyes in CSX management decided that the return on investment wasn’t worth $145 million because the volume of double-stack container traffic likely to use the tunnel would not be as high as the previous CSX management projected.

The other theory is that CSX management is dancing to the tune being played by hedge fund Mantle Ridge, which played a major role in getting Harrison installed as CEO last spring.

This theory is that CSX is diverting cash from infrastructure projects to a $1.5 billion stock buy-back program that will benefit Mantle Ridge, which acquired a sizable block of CSX stock in order to have enough clout to force the company to hire Harrison.

Media outlets have also been reporting that CSX has decided against building a new $270 million intermodal terminal near Rocky Mount, North Carolina.

Designed to develop intermodal business in the middle Atlantic region, the Carolina Connector was to be modeled after the Northwest Ohio Intermodal Terminal in North Baltimore, Ohio, which opened in 2010.

CSX has begun scaling back operations in North Baltimore and there are reports that it plans to end intermodal operations there on Nov. 11. Last year, North Baltimore handled nearly 30 percent of CSX’s intermodal traffic.

It is not clear yet what strategy CSX has in mind for its intermodal business other than it is abandoning the hub and spoke system of building traffic density at terminals such as North Baltimore and the proposed North Carolina facility.

Railway Age quoted railroad economist Jim Blaze as saying that without enlarging the Howard Street Tunnel, most of the talk about developing the I-95 corridor and diverting traffic from trucks is just talk.

“Stack trains are about 35 percent more efficient than single-level intermodal trains,” Blaze told Railway Age. “Without Baltimore as a double-stack route, other intermodal I-95 projects on CSX’s two-decade-long wish list are likely also now at risk. My questions: Where’s the traffic growth to come from for intermodal east of the Appalachian Mountains? What’s the back-up plan to grow the top line of the CSX income statement? This is a strategic economic issue.”

Blaze predicted that the “winners” of the CSX decision will be truckers as well as Norfolk Southern, which has been working for two decades to develop a double-stack route between the New York City/Northern New Jersey region and Florida.

The NS route is longer and more circuitous than the CSX route, but has clearance to handle stack trains all the way.

If the Mantle Ridge influence theory is true, it suggests that CSX is playing a game that has been played out many times before in corporate America.

In the 19th century, it was common for financiers to “milk” railroads for all the money they could before walking away and leaving the railroad a shadow of its former self.

That might not happen to CSX, but I also wonder if this is replay of another era not that long ago that was described in Rush Loving’s book, The Men Who Loved Trains.

That book described another CSX administration that was focused on expense control of its income statement and balance sheet assets to the detriment of infrastructure development.

It decided that short-term financial gain could be had by squeezing a little more life out of ancient signals and other infrastructure.

In this case, CSX has decided it can get by a little longer with a narrow tunnel in a key intermodal lane.

Rather than spending money to make money, CSX has decided to hoard and eat its seed corn.

CSX Union Hits Back at Harrison Obstruction Allegations

August 8, 2017

A CSX labor union has taken issue with assertions by the railroad’s CEO E. Hunter Harrison that some CSX workers are the reason for service issues.

In a letter to CSX shippers, Harrison contended that some CSX employees were resisting the changes that management has made in operations and that this was resulting in service disruptions.

Railway Age magazine reported Monday that it obtained a copy of a letter sent to Harrison last week by the Sheet Metal, Air, Rail and Transportation Workers, which represents some CSX operating employees.

The letter was signed by SMART’s five co-chairmen and said that the union “ . . . refuses to accept responsibility for disruptions that negatively affect the customers when we have no input on operational changes. We receive minimal, and in most cases, no communication from any department about the significant changes being implemented almost daily.”

The letter said that Harrison has ignored the union’s repeated requests to be involved in planning changes and that it viewed the CEO’s charges as “a personal attack,” “a kick to the gut,” and “a severe blow to [employees’] morale.”

SMART criticized CSX for what the union termed “harsh treatment, furloughs and repeated violations of their collective bargaining agreement.”

In denying Harrison’s allegations that union members had intentionally disrupted operations, the SMART letter said, “This organization will not allow our members to serve as an excuse for management’s inability to communicate and execute your ‘precision scheduled railroading.”

The magazine reported in late July that CSX had changed work hours from four 10-hour days to five eight-hour days in an effort to reduce train delays.

However, that has made it more difficult for employees working far from home to get to work and back in a reasonable length of time.

Most CSX Shippers Reporting Service Issues

August 3, 2017

A survey of CSX shippers has found more than 80 percent of those responding saying they have experienced service issues since the company initiated the precision scheduled railroading operating philosophy of its CEO, E. Hunter Harrison.

The results were reported in Railway Age, which quoted Cowen & Company Managing Director Jason Seidl as saying that “nearly 40 percent [of respondents] have switched some freight to Norfolk Southern, and 67 percent have transferred freight to a trucker.”

Sidel said this could lead to NS gaining additional market share gains in the third quarter of 2017, prompting a 5 percent increase in NS earnings per share if it grabs as much as 5 percent of CSX traffic.

“Shippers are moving or have already moved freight off CSX where they can,” Seidl said.

Although 37 percent of survey respondents said they are switching at least some freight to NS, nearly 50 percent of those not captive to CSX are moving a piece of their business to NS and two-thirds of [responding] shippers are moving some freight from CSX to trucking company.

The survey found that 20 percent of shippers are shifting less than 25 percent of eligible freight to NS, while 14 percent are transferring between 25 percent and 50 percent of freight.

Just 5 percent of survey respondents said they were moving more than half of their traffic to NS and about 40 percent are moving less than 25 percent of their freight to trucks.

“Our view is that NS could meaningfully benefit from the service-related issues at CSX over the next couple of quarters,” Seidl said. “We continue to like the stock and see NS achieving its sub-65 OR (operating ratio) goal before 2020. NS should also have an easier time raising prices over the near-term as we think shippers would be willing to accept them for reliable service.”

Despite the problems that CSX had had, Seidl said he sees them as transitory. “While it is painful for many shippers today, we expect that over the next 12-18 months CSX customers will be more pleased with the railroad’s service quality. We do not think volumes that are lost to NS or a trucker during this transition period will be permanently lost.”

Pa. Short Line to be Named Railroad of the Year

April 4, 2017

A Pennsylvania short line railroad will received the short line railroad of the year award at the American Short Line and Regional Railroad Association’s annual meeting later this month in Grapevine, Texas.

The North Shore Railroad will also receive the ASLRRA 2017 Marketing Award.

In a news release, North Shore officials attributed the awards to recent work in securing and moving a record number of high-and-wide loads.

“When we began consideration of and preparation for these high-and-wide shipments two years ago, there was never a guarantee that we would see them,” said Todd Hunter, North Shore’s chief marketing officer. “However, having ‘local boots on the ground’ gave us a leg up in meeting all the criteria to handle these oversized loads.”

The short line railroad of the year award is presented by Railway Age magazine. There are more than 500 short line railroads in the United States.

North Shore affiliate, Nittany & Bald Eagle Railroad, received the honor in 2016.

Since the award was first awarded 21 years ago, only three railroad companies have earned this award two years in a row.